RAWALPINDI: The Lahore High Court Rawalpindi bench on Tuesday summoned the attorney general and the advocate general Punjab to resolve a jurisdictional issue related to the imposition of tax on transfer of assets of a corporate merger.

LHC Justice Jawad Hassan issued notices to the federation of Pakistan and relevant authorities in response to a writ petition filed by Fauji Cement Company (FCCL).

The company has challenged the imposition of stamp duty and associated taxes on the transfer of assets following a corporate merger under the Companies Act 2017.

The case revolves around the legality of levying stamp duty under the Stamp Act 1899 in light of provisions within the modernised Companies Act.

Firm challenges imposition of stamp duty, associated taxes on transfer of assets following corporate merger

The company contended that the law explicitly exempted such duties for mergers sanctioned by the Securities and Exchange Commission of Pakistan (SECP).

Its counsel Isaac Ali Qazi argued that the imposition of stamp duty violated constitutional principles and contradicted Section 282(5) of the Companies Act, which overrides prior laws, including the Stamp Act.

The petitioner also said that this exemption had already been upheld in several recent judicial precedents.

The counsel cited multiple cases, including Fatima Sugar Mills and Faqeer Mohammad vs. Natover Lease and Refinance to emphasise that such taxes created undue obstacles for corporate mergers and contradicted the spirit of modern corporate governance.

Justice Hassan noted that the provision of law speaks about applicability of the stamp duty in Islamabad territory and the provinces.

“Now, if a glance is taken on Section 4 of the Companies Act, it would be clear that the provisions of this Act shall have effect notwithstanding anything contained in any other law or the memorandum or articles of a company or in any contract or agreement executed by it or in any resolution passed by the company in general meeting or by its directors, whether the same be registered, executed or passed, as the case may be, before or after the coming into force of the said provisions.”

The Companies Act was enacted on May 30, 2017 with the objective to protect the interests of shareholders, creditors, stakeholders and general public by inculcating the principles of good governance and safeguarding minority interests in corporate entities and providing an alternate mechanism for “expeditious resolution of corporate disputes as well as the matters connected thereto as is evident from its preamble, if read with the provisions of Sections 4 and 5 of the Act, therefore, such kind of hinderance by way of imposing the stamp duty and other taxes will take away the companies law jurisdiction from this Court to other Provinces.”

The court acknowledged that the case raises significant legal questions, particularly the conflict between federal and provincial laws on tax exemptions in corporate amalgamations. The judge noted the urgency of resolving the matter due to its implications for corporate activity across Pakistan.

The court summoned the attorney general and the advocate general Punjab to address constitutional and legal concerns and directed the senior officers from the Board of Revenue and other relevant departments to appear and clarify their position on February 3.

Published in Dawn, January 29th, 2025