2013 (11) TMI 1818 - HC - Companies Law

Issues Involved:

1. Whether demerger constitutes reconstruction under Article 20(d) of the Gujarat Stamp Act.
2. Obligation of the applicant to pay stamp duty for change of ownership under Section 2(g) and Article 20(d).
3. Determination of stamp duty based on share value on the appointed date.
4. Consideration of market value versus face value of shares for stamp duty purposes.

Detailed Analysis:

Issue 1: Demerger as Reconstruction

The court examined whether the demerger of the applicant company from its parent company constitutes "reconstruction" under Article 20(d) of the Gujarat Stamp Act. The applicant argued that the demerger should not be classified as reconstruction, thus not attracting the provisions of Article 20(d). However, the court concluded that demerger falls within the scope of "reconstruction" as per the legislative intent, which was clarified through amendments to include both "amalgamation" and "reconstruction" under the purview of Article 20(d). The court emphasized that the legislative amendments aimed to cover transactions like demerger under the stamp duty provisions.

Issue 2: Obligation to Pay Stamp Duty

The applicant contended that they should not be liable to pay stamp duty for the demerger as it was not an amalgamation. The court, however, held that the applicant is required to pay stamp duty for the change of ownership, as the transaction qualifies as a conveyance under Section 2(g) and Article 20(d) of the Gujarat Stamp Act. The court emphasized that the legislative intent was to impose stamp duty on transactions involving reconstruction or amalgamation, as evidenced by the amendments to the Act.

Issue 3: Determination of Stamp Duty Based on Share Value

The dispute centered on whether the stamp duty should be calculated based on the face value of shares (Rs. 2/-) or the market value (Rs. 50.05/-) on the appointed date. The applicant argued for the face value, while the authorities used the market value. The court upheld the authorities' decision, stating that the market value as determined on the appointed date should be used. This interpretation aligns with Explanation III of Article 20(d), which guides the determination of share value for stamp duty purposes.

Issue 4: Market Value vs. Face Value of Shares

The applicant's contention that the face value of Rs. 2/- per share should be considered for stamp duty was rejected. The court emphasized that the market value of Rs. 50.05/- per share, as per SEBI's statement, is the appropriate basis for determining the stamp duty. The court reasoned that the legislative framework intended for the market value to reflect the true economic value of the transaction, thereby justifying the stamp duty calculation.

Conclusion:

The court affirmed the decisions of the lower authorities, holding that the demerger is indeed a form of reconstruction under Article 20(d), necessitating the payment of stamp duty. The market value of Rs. 50.05/- per share was deemed appropriate for stamp duty calculation, rejecting the applicant's argument for using the face value. The Reference was disposed of with these clarifications, upholding the authorities' determination of the stamp duty liability.

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