Partnership firm’s statutory conversion into a company does not attract fresh stamp duty, Madhya Pradesh High Court rules

Gopal Print Pack, a partnership firm, executed a lease deed on 20 October 2020 for industrial land at Smart Industrial Park, Indore, after paying the applicable stamp duty.

On 23 January 2025, the firm executed a supplementary agreement to convert itself into a limited company under Section 366 of the Companies Act, 2013; the Registrar of Companies issued the certificate of incorporation on 10 February 2025.

The petitioners thereafter obtained permission from MPIDC to amend the lease records to reflect the conversion and executed an amended lease deed on 25 July 2025, which was presented for registration on 30 July 2025.

The registering authority issued notice under Section 33 of the Indian Stamp Act, 1899, alleging deficit stamp duty, and subsequently passed an order dated 5 March 2026.

The petitioners challenged that order and sought registration of the amended lease deed without insisting upon further stamp duty.

The State opposed the writ petition on the ground that an appeal under Section 40(1)(d) of the Stamp Act was available and contended that the amended deed effected a transfer of property from the partnership firm to the company.

Section 3 of the Indian Stamp Act, 1899 charges duty only on instruments specified in the Act and its Schedule, while Section 33 permits impounding of an instrument that is chargeable but insufficiently stamped.

Sections 366 and 368 of the Companies Act, 2013 permit registration of a partnership firm as a company and provide that all property vested in the firm passes to and vests in the company upon registration, without requiring a separate conveyance.

The court applied the rule that statutory vesting is distinct from a consensual transfer or conveyance and therefore does not, by itself, attract stamp duty on a transfer instrument, as recognised in Vali Pattabhirama Rao v. Sri Ramanuja Ginning & Rice Factory, Commissioner of Income Tax v. Texspin Engineering & Manufacturing Works, and Commissioner of Income Tax, Udaipur v. Chetak Enterprises Pvt. Ltd.

It further relied on State of Gujarat v. JP INN Pvt. Ltd. and Anup Industries v. State of Gujarat for the principles that conversion without change in composition or consideration is not a conveyance and that, even if an instrument is treated as a conveyance, the absence of consideration may prevent application of the computation provisions.

On alternative remedy, the court applied Whirlpool Corporation v. Registrar of Trade Marks, Alok Kumar Choubey v. State of Madhya Pradesh, Godrej Sara Lee Ltd. v. Excise and Taxation Officer, and Assistant Commissioner of State Tax v. Commercial Steel Ltd., which recognise exceptions where the issue is purely legal, the authority acts without jurisdiction, or the case involves a clear violation of law.

The court also noted that the substance of an instrument, rather than its nomenclature, determines stamp liability, following M/s Godwin Construction Pvt. Ltd. v. Commissioner, Meerut Division.

The court held that the availability of an appellate remedy did not bar exercise of writ jurisdiction because the dispute principally involved the legal effect of Sections 366 and 368 of the Companies Act and did not require determination of disputed facts.

The partnership firm and the petitioner-company had the same directors/shareholders and profit-sharing ratio, and there was no material indicating any sale, assignment, consideration, or consensual transfer of the property.

Under Section 368, the property vested in the company by operation of law upon registration; the firm was succeeded by the company, and no separate conveyance was necessary.

The amended lease deed merely reflected the statutory conversion and updated the lease records; it did not create a fresh transfer of the leasehold rights.

Consequently, the instrument could not be treated as a conveyance chargeable with fresh stamp duty.

The court further reasoned that, even assuming the document fell within the concept of conveyance, the absence of consideration would make the applicable computation provisions inoperative, consistent with Anup Industries.

The authority therefore erred in impounding the document and demanding additional stamp duty under Section 33.

It set aside the order dated 5 March 2026 passed under Section 33 of the Indian Stamp Act, 1899, and directed respondent No. 3 to register the amended lease deed without insisting upon payment of further stamp duty, preferably within 15 days of receiving the order.

The court held that statutory vesting of the partnership firm’s property in the company under Sections 366 and 368 of the Companies Act did not amount to a fresh conveyance or taxable transfer for stamp-duty purposes.

No order as to costs was made.