Report No. 67
43.11. Main point-reduction of stamp duty from ad valorem duty to fixed amount.-
The main point of the suggestion1 lies in the proposal for reduction of the present stamp duty which [except in the case covered by Article 47A(1)(i)] is calculated ad valorem on the sum insured. The suggestion is to reduce the duty to a fixed amount.
1. See para. 43.2, supra.
43.12. Alternative point in suggestion-to adopt pre-1959 statutory provision.-
The suggestion farther says that if the duty is not reduced to a fixed amount, then many statutory provisions which were in force in England before 1959 on the subject of stamp duties on marine insurance1 should be incorporated. If, on the other hand, the duty is to be reduced to a fixed amount, then those provisions need not be incorporated.
1. See Appendix 2 for pre-1959 English law.
43.13. It may be mentioned that the pre-1959 statutory provisions in England were principally intended to mitigate hardships felt in certain cases.
43.14. Position in England after 1959.-
The Finance Act, 1959 (English), made important changes in the English law as to stamp duties on policies of marine insurance.1 The alteration made in 1959 was mainly due to the reduction of the duty to a fixed amount of six pence. The principal question to be considered by us is, whether there should be a similar reduction in the duty on marine insurance policies under our law, as is the suggestion.
1. Appendices 3-4.
43.15. Reasons for the English Act.-The reasons for the passing of the Finance Act, 1959 (in England) have been thus stated1:
"Stamp duties were first levied in the reign of Charles II, but for a time were allowed to lapse, being re-established in the reign of William III to raise revenue required to carry on the war with France. As far as marine policies were concerned, the duties were levied ad valorem and payment thereof was denoted by a stamp on the policies. In the years which followed, the scale of duties was varied from time to time, but throughout successive generations continued on a basis regarded as oppressive by the mercantile community. Repeated pressure on governments one after another for long failed to secure a remission of these duties, although it was evident that they had deleterious effects upon the operations of British underwriters. At best, they represented a tax on exports and on prudence.2 Abroad, objection was raised by foreign nationals to the necessity of contributing substantially to British taxation.
At the same time, British underwriters were at a competitive disadvantage as compared with those markets where taxation requirements in respect of marine insurance were less onerous. The disabilities under which marine insurances suffered were accentuated by the statutory requirement that, to be valid in the Courts, contract of marine insurance needed to be expressed in policies in due form. In respect of re-insurance business, the stamp duty provisions in effect imposed double taxation, in that separate stamp duty had to be paid on policies of re-insurance notwithstanding that duties already would have been paid on the original business when the policies thereon were issued to the assured. A considerable volume of re-insurance business is arranged by treaty. It was impracticable to stamp re-insurance treaties, if only for the reason that it would have been impossible at the outset to calculate the sum insured.
Thus, the re-insured under such a contract of re-insurance was unable to sue the original underwriters unless in possession of a duly stamped policy covering the particular insurance in respect of which the dispute had arisen. Whereas solvent insurers would not have sought to escape their moral obligations in such circumstances, and would undoubtedly have insured that a policy in due form was issued to the re-insurer, a receiver or liquidator would have been impelled to refuse to issue any policies after the date of the bankruptcy or liquidation order. In very great degree, the disabilities were removed by the Finance Act, 1959. This replaced the ad valorem scale of marine stamp duties previously applicable with a stamp of six pence per policy, thus bringing marine policies into line with other indemnity policies. Further, the Act provided that the following shall be exempt from all stamp duties:
(a) cover notes, slips, and other instruments usually made in anticipation of the issue of a formal policy, not being instruments relating to life insurance;
(b) instruments embodying alterations of the terms or conditions of any policy of insurance other than life insurance;
(c) policies of insurance on baggage or personal and household effects only, if made or executed out of Great Britain; and an instrument exempted by virtue of the provisions of this sub-section shall not be taken for the purposes of the Stamp Act, 1891, to be a policy of insurance.
An instrument shall not be charged with duty exceeding six pence by reason only that it contains or relates to two or more distinct matters each falling within the head of charge. At the same time, certain amendments were made in the Marine Instance Act, 1906. Thus, no longer is there any statutory provision to the effect that a policy of marine insurance shall not be effective for a period of time exceeding twelve months. Although the Continuation Clause will still be retained in those current clauses in which it was previously incorporated, no longer will the inclusion of this clause call for the payment of an additional stamp duty of six pence as was requisite under the provisions of the Finance Act, 1901, which validated the use of this clause. Moreover, all that by statute a policy of marine insurance is now bound to specify is the name of the assured or of some person effecting the insurance on his behalf, this retained provision containing the long-standing prescription of issuing policies of marine insurance "in blank".
No longer is it necessary, although in practice this will continue to be done, to specify in the policy the subject-matter insured and the risk insured against, the voyage, or period of time, or both, as the case may be, covered by the insurance; the sums or sum insured; and the name or names of the insurers. The relevant provisions of the Finance Act, 1959, became operative as from 1st August, 1959. One consequence was that re-insurance treaties executed after that date have the same standing as policies of insurance and must be stamped accordingly. They now become legally binding. With regard to marine policies executed outside the United Kingdom but in any manner enforceable within the jurisdiction thereof, other than policies on personal household effects, it is to be assumed that these must be duly stamped within ten days of arrival here. In any case, an unstamped policy may be legally stamped after the execution thereof for the purpose of its production in evidence by the payment of a fine of £ 100 in addition to the stamp duty attracted."
1. Dover Analysis of Marine and other Insurance clauses, (1961), p. 557.
2. Emphasis added.
43.16. and 43.17. Similar reasons applicable in India.-So much as regards the English Act of 1959. It appear to us that, of the reasons which led to the passing of the Act of 1959 in England, many apply to India. In particular, a tax upon insurance policies is a tax upon prudence, and a proposal for reduction of the stamp duty thereof deserves careful consideration. Moreover, Indian insurers are at a disadvantage, in that they pay more stamp duty than the insurers of other countries where the duty has been reduced. These considerations would seem to justify a reduction of the duty to a fixed one.
43.18. No doubt, any proposal for alteration in the rate of stamp duties usually raises questions of policy, but here, in our view, there are strong reasons why we should recommend a change.
43.19. To the reasons already stated, we may add that heavy penalty (as in England) for policies unstamped and brought into the country is not needed for India, since the magnitude is not comparable.
43.20. Recommendation to substitute fixed duty - Recommendation regarding Article 47, Division A.-After very careful consideration, we have come to the conclusion that the stamp duty on marine insurance policies should be reduced to a small fixed amount, say, one rupee, irrespective of the question whether it is a voyage policy or time policy. We, therefore, recommend that in Article 47, Division A, the rate of stamp duty should be reduced to one rupee as indicated above.
43.21. Changes needed to bring stamp duties on marine insurance in India in line with the position in England as resulting from the Finance Act, 1959.-If this recommendation1 (substitution of fixed duty) is accepted, the following amendments are required in the Stamp Act and in the Marine Insurance Act:
(1) Sections 25(2) to 25(5), Marine Insurance Act, 1963 [corresponding to repealed sections 23(2) to (5), (English Marine Insurance Act, 1906)] should be repealed [See section 30(5), Finance Act, 1959 (English).
(2) Section 27(2), Marine Insurance Act, 1963 (11 of 1963) [corresponding to repealed section 25(2), (English) Marine Insurance Act] should be repealed. [See section 30(5), Finance Act, 1959 (English)].
It may be noted that the corresponding provisions in the (English) Marine Insurance Act (before 1959) were intended to safeguard revenue. This is evident from the fact that, since the introduction of stamp duties in 1795 (35 Geo. 3, Ch. 63), the requirements as to writing have been in existence.2
(3) Section 7(4), Indian Stamp Act, 1899 [corresponding to repealed section 94 (English), Stamp Act, 1891] should be repealed. [See section 30(4)(a), Finance Act, 1859]. The reason is that section 7(4) becomes useless if the distinction between "voyage" and "time policies" is abolished, in relation to stamp duties.
(4) Article 47, Division A, should be amended in order to exclude from liability, slips, cover notes etc.3-5 for marine insurance unconditionally. This would not affect the provisions in the Marine Insurance Act.6 The present exemption is conditional, but should be made absolute, in view of proposed less stringent approach as to duty. (See section 30(2), Finance Act, 1959).
(5) In consequence of (4) above, the general exemption, at the end of Article 47, should be amended so as to exclude marine policies from that exemption, as these would be governed by a specific exemption, under our recommendation.
(6) In view of item (4) above, section 66, of the Stamp Act, should be amended so as to exclude cases where the policy of insurance is totally exempt. The object of section 66 is to prevent the loss of revenue that would occur if insurance business were done on slips unstamped. As the stringent provisions as to policies in section 7 are repealed or proposed to be repealed, and as the duty is to be reduced, the provision in section 66 is not required for marine insurance policies.
[Cf. section 30(4), second paragraph, Finance Act, 1959, amending section 100 (English), Stamp Act, 1891, which corresponds to section 66, Indian. Stamp Act.].
(7) Article 47, Division A, Stamp Act should be amended by substituting a fixed duty of one rupee for every marine insurance policy whatever be the amount.
(8) In consequence of (7) above, section 67, Stamp Act (sets of policies) should be suitably amended, as the duty will now be a small and fixed amount. There was no exactly corresponding provision in the English Act, even before 1959. But there was a somewhat similar provision in section 97(3), Stamp Act, 1891, now repealed.
[See section 30(4), Finance Act, 1959].
1. See supra.
2. See Dover Hand Book to Marine Insurance (1957), pp. 31, 129, 333.
3. See para. 43.20, supra.
4. As to existing law, see AIR 1964 SC 1396, on appeal from National Security Assurance Co. v. R. Ratilal & Co., AIR 1961 Cal 48 (50, 51, 53), paras. 11, 13, 16 and 26.
5. Also see Mulla Stamp Act, (1963), pp. 41, 74 and 317.
6. Sections 24, 25(1) and 88, Marine Insurance Act, 1963 (11 of 1963), corresponding to sections 21, 22(1) and 89 of the (English) Marine Insurance Act, 1906.