Stamp Duty on Parent-Subsidiary Arrangements: Implications in Delhi and Haryana

The stamp duty landscape for parent-subsidiary mergers in Delhi and Haryana presents companies with strategic choices that can result in cost differentials running into crores.

Schemes of arrangement under the Companies Act, 2013, have become the preferred vehicle for corporate restructuring in India. This article examines the stamp duty implications for parent-subsidiary mergers in Delhi and Haryana, analyses the contrasting regimes, and explores the crucial exemption under the 1937 Notification as validated by the recent Ambuja Cement Ltd. v. Collector of Stamps¹.

Introduction

Over the past few years, companies have increasingly turned to schemes of arrangement to achieve mergers, amalgamations, and demergers considering the tax neutrality provisions under the Income-tax Act, 1961.

Multinational corporations with complex holding arrangements are consolidating their Indian operations by merging wholly owned subsidiaries (WOS) with parent entities or amalgamating sister companies. This rationalisation reduces the administrative burden of maintaining multiple legal entities, streamlines governance, and enhances operational efficiency.

Irrespective of the procedure adopted by companies, whether the traditional National Company Law Tribunal (NCLT) route or the fast-track route, one critical cost consideration that continues to determine the feasibility and structure of these transactions is stamp duty.

The divergent regimes: Delhi and Haryana

Delhi: The 3 per cent uncapped levy

Delhi does not have a separate entry for schemes of arrangement under Schedule I-A, Stamp Act, 1899 (as applicable to Delhi). Consequently, the Delhi High Court in Delhi Towers Ltd. v. G.N.C.T. of Delhi², held that the order sanctioning a scheme is an instrument which constitutes “conveyance” under Article 23, attracting stamp duty at 3 per cent of the consideration amount. The consideration is determined as the market value of shares issued in exchange and any other consideration paid as set forth in the scheme. Importantly, there is no upper limit or cap on this liability. For high-value transactions, the 3 per cent levy can, at times, translate into significant costs running into hundreds of crores.

Haryana: A capped and differentiated structure

Haryana’s stamp duty framework under Article 23-A of Schedule I-A, Stamp Act, 1899 (as applicable to Haryana) distinguishes between two categories of conveyances: 1) conveyances amounting to a “sale of immovable property”, which attracts stamp duty at 1.5 per cent, subject to a maximum cap of Rs 7.5 crores; and 2) “other conveyances”, which attracts “nil” stamp duty.

Since the “sale of immovable property” has been specifically differentiated from all other conveyances, it can be safely concluded that “other conveyances” will include transfer of moveable property as well as issuance of shares pursuant to a scheme, thereby attracting nil stamp duty in Haryana. This is in stark contrast to Delhi, where share issuances forms part of the consideration where stamp duty is attracted at rate of 3 per cent.

The 1937 Notification: A framework for intra-group restructuring

The Notification No. 13 dated 25-12-1937 (1937 Notification) as applicable to Delhi, represents a long-standing fiscal concession designed to facilitate internal reorganisations within corporate groups and provides complete exemption from stamp duty for transfers of property between companies limited by shares in the following scenarios:

1. Transferor holding 90 per cent or more in transferee: Where at least 90 per cent of the issued share capital of the transferee company is beneficially owned by the transferor company.

2. Parent-subsidiary transfers: Where the transfer occurs between a parent company and its subsidiary, one of which beneficially owns at least 90 per cent of the issued share capital of the other.

3. Transfers between sister subsidiaries: Where the transfer occurs between two subsidiary companies, each of which has at least 90 per cent of its issued share capital beneficially owned by a common parent company.

To avail this exemption, parties must obtain a certificate from the Designated Officer appointed by the Chief Commissioner of Delhi confirming satisfaction of the thresholds and conditions prescribed in the 1937 Notification.

Judicial affirmation: Ambuja Cement

The recent decision by Delhi High Court in the Ambuja Cement case³, has affirmed the continued applicability of exemption provided under the 1937 Notification. Ambuja Cement case concerned the merger of Holcim (India) (P) Ltd. and Ambuja Cements India (P) Ltd., both wholly owned subsidiaries of Holderind Investments Ltd., a company incorporated in Mauritius. The Collector of Stamps demanded stamp duty of Rs 218.87 crores along with penalty of Rs 69 crores, calculated at 3 per cent under Article 23 of the Schedule I-A as applicable to Delhi.

The Single Judge Bench of the Delhi High Court set aside the said demand, holding that the scheme fell squarely within the ambit of the 1937 Notification as both companies were wholly owned subsidiaries of a common parent, and therefore exempt from stamp duty. The Court rejected the revenue’s argument that the 1937 Notification had been repealed, confirming its continued validity and applicability.

An appeal against this decision is currently pending before a Division Bench of the Delhi High Court. Whilst notice has been issued, no stay on the Single Judge’s order has been granted, and the precedent therefore remains operative.

Jurisdiction selection: A scenario-based analysis

The interplay between Delhi’s uncapped regime, Haryana’s capped structure, and the exemption available under the 1937 Notification gives rise to distinct strategic considerations that must inform the selection of jurisdiction for undertaking a scheme of arrangement under the Companies Act, 2013.

Scenario 1: Parent-subsidiary transactions with 90 per cent or more beneficial ownership

Optimal jurisdiction: Delhi

Where a parent company holds at least 90 per cent beneficial ownership in its subsidiary (or vice versa), Delhi emerges as the optimal jurisdiction. The 1937 Notification provides complete exemption from stamp duty in respect of both immovable property transfers and moveable property/share issuances pursuant to the scheme.

The Ambuja Cement case⁴ precedent, which involved a foreign parent company incorporated in Mauritius, confirms that this exemption extends to cross-border corporate structures. Companies seeking to avail this exemption must obtain the requisite certificate from the Designated Officer evidencing compliance with the 90 per cent beneficial ownership threshold well in advance of filing the scheme with the NCLT or the Regional Director, as the case may be.

Scenario 2: Transactions with less than 90 per cent beneficial ownership with moveable and immoveable property transfer

Optimal jurisdiction: Haryana

Where the 90 per cent beneficial ownership threshold is not satisfied and the scheme involves both the transfer of immovable property and moveable property/issuance of shares as consideration, Haryana’s stamp duty regime offers substantial advantages.

Stamp duty on immovable property transfers is capped at Rs 7.5 crores (even where the 1.5 per cent calculation would otherwise exceed this amount), whilst moveable property/share issuance attract nil duty under the “other conveyances” category. By contrast, the same transaction in Delhi would attract stamp duty at 3 per cent on the aggregate consideration without any cap.

For instance, a scheme involving immovable property valued at Rs 500 crores and share issuance of Rs 500 crores would attract stamp duty of Rs 30 crores in Delhi, whereas the liability in Haryana would be capped at Rs 7.5 crores.

Scenario 3: Transactions with less than 90 per cent ownership involving only share issuance

Optimal jurisdiction: Haryana

Where the scheme involves only the issuance of shares without any transfer of immovable property, Haryana is the clearly preferable jurisdiction. Such transactions attract nil stamp duty in Haryana, whereas Delhi would levy stamp duty at 3 per cent on the entire value of the shares issued.

Comparative summary of stamp duty implications

Transaction structure	Stamp duty in Delhi	Stamp duty in Haryana	Optimal jurisdiction
Parent-subsidiary merger with 90 per cent or more beneficial ownership	Nil (exempt under 1937 Notification)	1.5 per cent on immovable property (capped at Rs 7.5 crores) + nil on share issuance	Delhi (also supported by Ambuja Cement case)
Transactions with less than 90 per cent beneficial ownership with immoveable property transfer, moveable property transfer/share issuance	3 per cent on aggregate consideration (uncapped)	1.5 per cent on immovable property (capped at Rs 7.5 crores) + nil on share issuance	Haryana
Transactions with less than 90 per cent ownership involving only share issuance/moveable property	3 per cent on share value (uncapped)	Nil (classified as ”other conveyances”)	Haryana

Conclusion

The stamp duty landscape for parent-subsidiary mergers in Delhi and Haryana presents companies with strategic choices that can result in cost differentials running into crores. The 1937 Notification remains a strong driver for intra-group restructuring, now fortified by the Ambuja Cement case⁵ precedent, though companies should remain cognizant of the pending appeal before the Division Bench. Whilst the recent amendments to the fast-track merger framework⁶ under Section 233, Companies Act, 2013, have expanded the categories of eligible transactions, stamp duty optimisation remains a crucial consideration irrespective of whether companies proceed via the NCLT route or the fast-track route.

For transactions meeting the 90 per cent threshold, Delhi offers complete exemption from stamp duty. For transactions falling below the said threshold, Haryana’s capped regime (particularly its “nil” treatment of share issuances) provides compelling advantages to the companies. The companies must carefully analyse their ownership structures, transaction consideration mix, and procedural compliance requirements to optimise stamp duty outcomes. As corporate India continues its restructuring momentum, understanding these nuances will prove critical to executing efficient, cost-effective transactions involving restructuring.