Despite copious quantity of laws being in place, there often remains lack of clarity on some legal issues leading to scope of various plausible interpretations and thereby consequent confusion on part of those who are supposed to abide by such laws and the agencies regulating the compliance of laws. At times such ambiguity in law affords an opportunity for circumvention of law resulting in some ulterior gains either to the law enforcing agencies or to the subjects of law. One such attention-grabbing case has been highlighted by issue of over 20,000 notices by Revenue Department, Delhi calling for stamp duty payment on share certificates issued by companies registered in Delhi.

In order to save on stamp duty, several companies registered in Delhi have been conducting board meetings to issue share certificates in State of Haryana. The underlying reason for holding board meeting in a state different from the state of its registered office is to reap benefits of the lower rates of stamp dutylevied on share certificates in State of Haryana. The principle on which companies claim that they are entitled to take advantage of rates of stamp duty prevailing in Haryana is that the stamp duty is payable in state where the document is executed. This practice has not gone down too well with the Revenue Department, Delhi which has been issuing notices to companies registered in Delhi claiming non-payment of stamp duty on issuance of share certificates. Revenue Department’s claim is based on the premise that stamp duty on issuance of share certificates is payable in Delhi since the registered office of such companies is in Delhi.

As far as Immovable property is concerned, the law is settled and the state where the immovable property is situated has jurisdiction over the stamp duty payable on documents concerning immovable property. Whereas, law on stamp duty payable on documents forming movable property as subject matter is not very obvious. Companies Act, 1956 nowhere deals with levy of stamp duty on share certificates however it provides in section 84 that the share certificate is to be issued under the common seal of the company. FurtherCompanies (Issue of Share Certificates) Rules also provide for issuance of share certificate under common seal to be affixed in presence of at least two directors of the company.

Stamp Duty is a tax levied on transactions in form of stamp duty on the instrument/document comprising the transaction. The purpose of the legislation dealing with stamp duties is to generate revenue for the state government where the transaction takes place. The power to prescribe the rates of duties on the instruments of commercial character is vested in Union Legislature and the power to reduce or remit such duties rests with Central Government. While power to prescribe the rates of duties on instruments other than instruments of commercial character is vested in State Legislature with State Governments having the power to reduce or remit such duties.

Constitution of India vide Article 246 , empowers the Central Legislature and State Legislatures to legislate on subjects listed in List I, Seventh Schedule (Union List) and subjects listed in List III, Seventh Schedule (State List) respectively. Entry 91 of the Union List, exclusively empowers Parliament to prescribe rates of stamp duties on instruments of commercial nature specified therein. Whereas the State Legislature is entitled to prescribe rates of duties for all documents other than those specified in Entry 91 of the Union List. Though share transfer falls under Entry 91, Share Certificate does not find mention therein.

What majority of the states have done is to add a separate schedule to the IndianStamp Act, prescribing rates applicable only in the state concerned. Tamil Nadu, Assam and North Eastern States have made amendments in Schedule 1 to the Indian Stamp Act itself without adding a separate schedule. While Gujarat, Maharashtra, Karnataka, Kerala and Rajasthan have enacted their own separate stamp acts. Thus it is evident that every state has its own procedure and rates of stamp duties in place.

The effect of Sections 3 and 17 of the of the Act is that every instrument executed in India and mentioned in schedule is chargeable with stamp duty of the amount indicated in that schedule and that all Instruments chargeable with duty are to be stamped before or at the time of execution. It has also been held by apex court that primarily, the liability of an instrument to stamp duty arises on execution. Thus it may safely be concluded that the stamp duty is payable in a state where the document is executed unless such document relates to the immovable property.

The term Executed as defined under stamp Act means ‘signed’. A share certificate if signed by the directors and secretary under the common seal in presence of two directors shall be deemed to be executed in the board meeting in which the same is so signed and common seal is so affixed. In such a scenario it seems conceivable that if the board meeting for issuance of share certificate is held in state other than state of registered office and all the formalities are completed therein, it shall attract stamp duty at rates prevailing in the state where meeting is held.