Decided on February 01,1957



- (1.) THIS appeal raises a point upon the construction of Finance Department, Central board of Revenue, Notification No. 1 dated the 16th January 1937, which is in the following terms:- "to remit the stamp duty chargeable under Articles 23 and 62 of Schedule I to the said Act on instruments evidencing transfer of property between companies limited by shares as defined in the Indian companies Act, 1913, in cases - (i) Where at least 90 per cent, of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or (ii) Where the transfer takes place between a parent company and a subsidiary company one of which is the beneficial owner of not less than 90 per cent, of the issued share capital of the other, or (iii) Where the transfer takes place between two subsidiary companies in each of which not less than 90 per cent. of the share capital is in the beneficial ownership of a com-mon parent company; provided that in each case a certificate is obtained by the parties from the officers appointed in this behalf by the Local Government concerned that the conditions above prescribed are fulfilled. "
(2.) IN the year 1952 Phelps and Co. , Limited, a company incorporated in the year 1937 found that large sums of money belonging to it had been embezzled by the carelessness of its auditors. The Directors accordingly decided that this company should be wound up and its affairs settled, that the name of the company should be altered from Phelps and Co. , Limited into Associated Clothiers Limited, that the goodwill of Phelps and Co. which was of considerable value should be retained, that a new company bearing the name of Phalps and Co. Limited should be incorporated and that all the assets of Associated Clothiers should be taken over by Phelps and Co. in lieu of shares which were to be offered by the said company. In pursuance of this scheme or reconstruction the Directors took certain important steps on the 21st March, 1952, among others being :- (a) that they changed the name of the company from Phelps and Co. , limited to Associated Clothiers Limited under Section 11 (4) of the indian Companies Act, (b) that a new company was incorporated under the name of Phelps and co. , Limited, and (c) that the Associated Clothiers Limited (hereinafter referred to as the petitioners) entered into an agreement with Phelps and Co. Limited, according to which the petitioners agreed to sell and Phelps and Co. , to buy the several assets of the petitioners (including a building situate in the Connaught Place, Delhi, valued at Rs. 2,24,637) for a sum of Rs. 18. 58,892-10-9. A part of the consideration was to be paid in cash, a part in the discharge of the debts and liabilitie of the petitioners and the balance of the consideration by the allotment of shares of the aggregate value of Rs. 12,30,000. The transfer of the premises in Connaught Place was to take effect from the 1st July, 1952.
(3.) IN pursuance of this scheme the petitioners were allotted shares of the face value of Rs. 12,30,000 (out of the total issued share capital of Rs. 12,30,000)partly on the 31st May 1952 -and partly on the 14th October, 1952. After obtaining the consent of the Controller of Capital Issues the shares certificates thereof were duly issued to the petitioners and the latter were duly entered as share-holders in the statutory register of members maintained by Phelps and Co, after the shares had been allotted to the petitioners, Phelps and Co. , called upon the petitioners to execute the sale-deed in regard to the premises situate in connaught Place, Delhi, after obtaining a certificate of exemption from the payment of stamp duty under the Notification of 1937. The petitioners prepared a draft deed of sale and requested the Collector of stamps, Delhi, to certify that as both the companies were limited by shares and as more than 90 per cent of the share capital of Phelps and Co. , was in the beneficial ownership of the petitioners, the petitioners were exempt from the payment of stamp duty on the said deed of sale. The Collector of Stamps expressed his inability to gram the necessary certificate find the petitioners accordingly presented an application under Articles 226 and 227 of the Constitution. The learned Single Judge, before whom the petition came up for consideration, expressed the view that the state of affairs which gives rise to and justifies this exemption must be in existence before the transaction for transfer of property from one company to the other is entered and not an artificial state of affairs created afterwards for the purpose of taking advantage of. this clause. The petitioners' claim for exemption was rejected and the order of the Collector of stamps upheld. The petitioners have come to this Court in appeal and the question for this Court is whether the learned Single Judge came, to a correct determination in point cf law.;

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