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2015 (9) TMI 1125 - HC - Income TaxValidity of Scheme of arrangement between the Petitioner and its Shareholders - Proceedings under Income Tax were pending - Petitioner seeks to make a gift of the shares held by the Petitioner in a Company to its Shareholders - the Petitioner proposes to reduce the balance lying in its Securities Premium Account (“SPA”) by the book value of the Petitioner’s investment in the shares of TAAL as appearing in the books of accounts of the Petitioner on the record date. It is clear from Section 281 of the Income Tax Act that the gift of any asset by an assessee to any person during the pendency of any proceedings under the Income Tax Act will be void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of such proceedings or otherwise. In the present case it is an undisputed position that the above mentioned proceedings under the Income Tax Act are pending against the Petitioner Company. Despite the pendency of these proceedings, by the Scheme the Petitioner proposes to gift its shares in TAAL to its Shareholders. Such a gift would therefore clearly be hit by the provisions of Section 281(1) and would be void as against the claims of the Income Tax Department resulting from the proceedings mentioned above. It is pertinent to note that it is not the case of the Petitioner that the gift of the shares of TAAL would not be void on account of the proviso to Section 281(1). In the circumstances there can be no doubt that the proposed gift of the shares of TAAL by the Petitioner to its Shareholders will defeat the provisions of Section 281(1) of the Income Tax Act. The Petitioner however contends that it has more than sufficient assets to discharge the tax liability in the event that the same crystallizes upon the Petitioner, inasmuch as according to the Petitioner, it has a net worth of ₹ 52 crores as per the book value method and a net worth of ₹ 57 crores as per the market value method post distribution of the shares of TAAL to its Shareholders. In my view, even if this be true, the same does not alter the position with regard to the applicability of Section 281(1). Section 281(1) does not carve out any exception on the basis of sufficiency or otherwise of the assets of the assessee. It will not be proper to permit the Petitioner Company to gift its shares in TAAL to its Shareholders as envisaged under the Scheme. The Court will not put its imprimatur on such a Scheme. - it is clear that the Scheme is illegal and contrary to law and hence cannot be sanctioned by this Court. - Decided against the company.
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