Subsequently, in March 1997, the law was amended to say that the duty could not exceed either the amount equal to 7 per cent of the true market value of the immovable property located within Maharashtra, or an amount equal to 0.7 per cent of the aggregate market value of the shares issued, or allotted in exchange or otherwise, and the amount of consideration paid for such amalgamation, whichever was higher.

The law states that the market value of the shares of the transferee company should be computed on the basis of market quotation in case of listed companies. However, in the case of valuation of shares of unlisted transferee companies, or listed but unquotedshares, one needs to consider the market value of transferee company shares with reference to the market value of shares of the transferor company, or as determined by the collector. There is no specific method of valuation provided. There are several well-recognized methods of valuing shares of a company, which are adopted even in the cases of listed companies for various purposes. The Mumbai high court in the Hindustan Lever-Tomco merger case observed that a renowned firm of chartered accountants had determined the value by combining three methods, namely, (i) the net worth method (ii) market value method and (iii) the earning method. The court declined to interfere in the matter on the ground that figures arrived at could not be shown to be vitiated by fraud or mala fide, and the mere fact that valuation by a slightly different method may have resulted in a different value would not justify interference by the court, unless it was found to be unfair. The Indian tax laws and the court rulings on tax mattersseem to recognise the above methods.

The Mumbai high court in the case of Madhusudan Dwarkadas Vora held that if rules are made under a statute for determining the market value of an asset, the same would apply to matters under other statutes too. Hence, these methods should be acceptable for stamp-duty purposes as well.

Merging companies have to resolve many issues on payment of duty. One issue is how the relaxation brought in by the government in March 1997 would apply and how the stamp duty should be worked out if the transferor company has no immovable property in Maharashtra, but only the registered office.

It is clear that where the transferor company holds immovable property in Maharashtra, duty at the rate of 7 per cent, or 0.7 per cent as stated above would be payable. However, the law is not clear where the transferor company does not hold any immovable property whatsoever. One view is that in such a case, there is o question of computing 7 per cent of value of immovable property in thestate. The rate of duty, therefore, stands reduced from the primary rate of 10 per cent of value of shares of the transferor company to 0.7 per cent. Of course, this 0.7 per cent has to be the aggregate of the market value of the shares issued or allotted in exchange, and the amount of consideration, if any, paid for such amalgamation. However, the other view is that the relaxation brought in by the government in March 1997 would not apply at all. This means that the in such a case, the duty would remain at 10 per cent of the value of shares issue by the transferor company. The author believes that the first view is correct because the reduction introduced in 1997 was meant for all the companies and not only for companies having immovable property in the state. Further, this relaxation is not based on the condition that the company must have some immovable property in India. If the second view was to be taken, then the transferee company can satisfy the requirement very easily, simply by acquiring a smallproperty of insignificant value in the state before going ahead with the merger.

Another related issue arises where a wholly owned subsidiary merges with its holding company or vice versa. In case of the holding company merging with its wholly owned subsidiary, the subsidiary would issue its shares to the shareholders of the holding company. Therefore, going by the law literally, the duty can be computed on the basis of the value of such shares issued by the subsidiary. But assuming for the sake of simplicity that the holding company holds no other assets except for the shares in the subsidiary company, can it be said that there is a transfer of property by the holding company to its wholly owned subsidiary?. In such cases, going by the basic requirement of transfer of property for the levy of duty, there should be no duty on such mergers. This issue becomes important where the shares held in the subsidiary are either the only assets, or form substantial part of the assets of the holding company. In eithercase, the value of shares issued by the subsidiary would be based on all the assets transferred to it, and hence, duty based on such entire value would not be justified.

Similarly, where the wholly owned subsidiary merges with its holding company, legally, there may be a transfer of property to the holding. But does the holding company become the owner of property it did not hold before?. The holding company always held the property through its subsidiary company. Hence, the transaction should not attract the duty. Further, in any case, on the merger of a wholly owned subsidiary with the holding company, there would be no issue of shares. The shares of the subsidiary held by the holding company would simply get canceled. Hence, where the subsidiary does not hold any immovable property in the state, there would be no stamp duty on such mergers. However, there is another view on the matter. According to this view, the duty of 10 per cent, or 0.7 per cent is to be calculated on the aggregate of value of sharesissued, and the consideration paid for amalgamation. The consideration for this purpose would be the value of assets transferred. Hence, even if there are no shares issued, there being consideration in the form of assets transferred, duty would have to be calculated on such consideration.

The aforesaid issues relating to holding-subsidiary merger are in a way relevant even if the subsidiary company is not wholly owned.