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2013 (5) TMI 575 - HC - Companies LawAppeal u/s 483 – Modification of scheme of arrangement – Non - Compliance of Section 2(19AA) of IT, Act - Company Petition was preferred by IRTL/respondent for sanctioning of a Scheme and which was sanctioned. Simultaneously, the respondent had also approached the Madhya Pradesh High Court and which also sanctioned the Scheme qua the respondent. Under the said Schemes, the spinning business of the respondent was demerged as a going concern and transferred to IRTL, with the respondent retaining the polymer business. IRTL subsequently was amalgamated with the appellant. Company Application was filed by the appellant u/s 392(1)(b) for modification of the Scheme qua IRTL sanctioned by the Court and for a direction to the respondent to transfer certain assets including a part of the housing colony occupied for use by the workers/employees of the erstwhile IRTL to the appellant or in the alternative to pay to the appellant the value of the said assets. As per appellant under the Scheme sanctioned by the Court the Undertaking of the spinning business, as a going concern within the meaning of Section 2(19AA) of the Income Tax Act, 1961, was to be transferred to IRTL and for this reason only the respondent had not paid any capital gains tax on the said transfer; that under the said transfer, the properties of the Undertaking being transferred as a going concern, would also stand transferred; that the assets including the housing colony occupied by the workers of IRTL, qua which the application was filed were the assets of the Undertaking of the spinning business; however the Scheme did not mention or refer to the said assets and thus the Scheme was liable to be modified to make it Section 2(19AA) compliant. Held that:- The filing of the application u/s 392(1)(b) by the appellant after nearly three years of acquiring the said spinning business by purchase of shareholding of IRTL is nothing but an act of greed and arm twisting the respondent to continue allowing the appellant to use the said assets. A change of shareholding of a Company which has in law been conferred the status of a juristic person, does not entitle the company to wriggle out of past commitments/representations. Thus, modification sought by the appellant is against the fabric of the Scheme and in the domain of modifications of the Scheme and not of modification for working of the Scheme. For the Court to sanction a Scheme of demerger, compliance of Section 2(19AA) is not essential. The reference to Section 2(19AA) in the Scheme is only for the purpose of making the transaction tax neutral. The same cannot be said to be a pivot around which the Scheme revolved or essential to its workability. Thus, non-compliance of Section 2(19AA), would not render the Scheme unworkable. Appeal is dismissed accordingly.
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