Transfer of property between parent company and subsidiary company is no longer exempted from stamp duty in Tamil Nadu. The exemption dates back to a notification dated June 17, 1964. Item 38 in that notification spoke about exempting from duty instruments evidencing transfer of property between companies in certain situations, such as when at least 90 per cent of the issued share capital of the transferee company was in the beneficial ownership of the transferor company.
Similarly, transfers between two subsidiary companies of each of which not less than 90 per cent of share capital was in the beneficial ownership of a common parent company came within the ambit of the exemption.
The 1964 notification that provided the exemption was itself a sequel to the Central Government notification No 1 of 1936, points out Mr D.B. Saxena, a practising advocate, and a past president of the Institute of Company Secretaries of India.
"Apparently the Central Government notification was to facilitate transfer of Indian assets held by the British companies, and reflected in their accounts in the UK, to the Indian subsidiaries formed for that purpose. This no longer obtains," he explains.
According to Mr Saxena, the exemption provision used to be misapplied to transfer to a subsidiary and then transfer the shares held by the holding company to third parties. "Lot of revenue has been thus not been available to the State. Even otherwise this exemption has been done away with by many of the States," he comments.
"Part IX of the Companies Act has a provision for conversion of partnership firm to a company by an order passed by the Registrar of Companies. Under Section 574 of the Companies Act and under Section 575 all property, movable and immovable, vests in the newly incorporated company," elaborates Mr Saxena. "This provision is again increasingly exploited to transfer assets without stamp duty, which otherwise in the normal course would have become payable. Recent amendments to company law have not addressed this loophole," he rues.
Along with these problems that stamp law may not be stamping out right away, experts of the view that the compromise and arrangement route available under Section 391 of the Companies Act too has the potential to bypass stamp duty.