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In Re :Goman Agro-Farms (P.) Ltd.

Amalgamation - with a view to offset the losses being suffered by the transferee company, the profit making transferor companies are proposed to be amalgamated - Held that:- From the background of the case pleaded by the petitioners, it is clearly evident that after the collapse of the eminent company, Satyam, which appeared to be promoter of the transferee company, a new management in which as many as nine public sector undertakings are holding shares has taken over MAYTAS company. The main pur .....

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party to reduce tax liability cannot be said to be contrary to public interest or against public policy. On the contrary, such planning by a tax payer is permissible in law.

As regards the investigation stated to be pending against the transferee company, as the transferee company will continue to exist after amalgamation, the pendency of investigation would not affect public interest as it will continue to be liable for all legal actions that may be taken against it.

In t .....

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01.4.2014. The petitioners shall cause a certified copy of this order to be delivered to the Registrar of Companies for the State of Telangana and the State of Andhra Pradesh, Hyderabad, within 30 days of its receipt and take all other consequential steps in pursuance of the approval of the scheme of amalgamation. - COMPANY PETITION NOS. 179 TO 193 OF 2015 - Dated:- 29-9-2015 - C.V. NAGARJUNA REDDY, J. FOR THE PETITIONERS : Mr. R. Raghunandan, Senior Counsel, Mr. T. Vinod Kumar FOR THE MINISTRY .....

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ny Petition No.182 of 2015 is filed by M/s. Konar Greenlands Private Limited (transferor company No.4). Company Petition No.183 of 2015 is filed by M/s.Medravati Agro-Farms Private Limited (transferor company No.5). Company Petition No.184 of 2015 is filed by M/s. Nagavali Greenlands Private Limited (transferor company No.6). Company Petition No.185 of 2015 is filed by M/s.Sindhu Greedlands Private Limited (transferor company No.7). Company Petition No.186 of 2015 is filed by M/s. Swarnagiri Gre .....

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). Company Petition No.191 of 2015 is filed by M/s. Wardha Greenfields Private Limited (transferor company No.13). Company Petition No.192 of 2015 is filed by M/s. Yamuna Agro-Farms Private Limited (transferor company No.14). Company Petition No.193 of 2015 is filed by M/s. Hill County Properties Limited (transferee company). These company petitions have been filed under Sections 391 and 394 of the Companies Act, 1956 (for short, the Act) for sanction of the proposed scheme of amalgamation of tr .....

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ares of ₹ 100/- each; and that their respective issued, subscribed and paid-up share capital is ₹ 25,00,000/- each divided into 25,000 equity shares of ₹ 100/- each. 3. It is further averred that main objects of the petitioners in Company Petition Nos.179, 182, 183 and 192 are to raise, farm, cultivate, multiply, buy, sell, trade and deal in all kinds of agriculture, horticulture, sericulture, seeds, vegetables, fruits and other allied production and to carry on the business of .....

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cticidal and fungicidal sprays etc.; and that the main objects of the petitioners in Company Petition Nos.181, 184, 185, 187, 189, 190 and 191 of 2015 are to carry on in India or elsewhere the business to deal in acquisition and development of agriculture lands, other lands, properties and to plant grow, cultivate, produce, raise, process, store, grind, clean, mix, grade, polish, can, import, export, buy, sell warehouse, and to act as an agent, broker, stockiest, indenter, consignor, merchant, f .....

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as Maytas Properties Limited on 31.12.2007, and finally as Hill County Properties Limited, vide certificate of incorporation, dated 16.08.2013; that its authorized share capital is ₹ 75,00,00,000/- divided into 75,00,000 equity shares of ₹ 100/- each; that its issued, subscribed and paid-up share capital is ₹ 25,00,000/- divided into 25,000 equity shares of ₹ 100/-each; and that its main objects are to construct, erect, build, repair, remodel, demolish, develop, improve, .....

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ransferor companies and the transferee company pleaded that they are engaged inter alia in the business of development of lands; that majority equity shareholding of the transferor companies is held by the transferee company; that the transferor companies possess lands and they have given the same to the transferee company for development in consideration for a share in the development; that the proposed amalgamation will (i) enable appropriate consolidation of the activities of the transferor c .....

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shareholders, creditors and employees of the transferor companies and the transferee company. That the objects and business of the transferor companies and the transferee company are in synchronization with each other, and by the proposed amalgamation, the business of the transferor companies and the transferee company would be streamlined and the expenditure would be reduced. 6. That the Boards of Directors of all the transferor companies in their meetings held on 27.09.2014 resolved to approve .....

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ors. That it has two share holders out of whom the transferee company is holding 24,999 shares (99.99% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company is holding 1 share (0.01% shareholding). (ii) In Company Petition No.180 of 2015, the petitioner averred that it has no secured and unsecured creditors. That it has three shareholders out of whom the transferee company is holding 24,449 shares (97.99% shareholding), that one Mr. B. Suryanarayana Raju is holdi .....

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ee of the transferee company) is holding 1 share (0.004% shareholding). (iv) In Company Petition No.182 of 2015, the petitioner averred that it has no secured creditors, but it has four unsecured creditors for a total amount of ₹ 20,80,804/- i.e., (i) Audit Fee Payable (Potnuru & Associates) (Rs.11,236/-); (ii) Chandrabhaga Agro Farms Private Limited (Rs.41,945/-); (iii) Nallamala Agro Farms (Rs.8,953/-) and (iv) Vindhya Bio-tech Private Limited (Rs.20,18,670/-). That it has three shar .....

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sociates) (Rs.11,236)]; (ii) Chandrabhaga Agro Farms Private Limited (Rs.65,957/-); (iii) Nallamala Agro Farms (Rs.8,751/-) and (iv) Vindhya Bio-tech Private Limited (Rs.16,75,569/-). That it has three shareholders out of whom the transferee company is holding 24,049 shares (96.196% shareholding), that one Mr. B. Nandini Raju is holding 950 shares (3.80% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company) is holding 1 share (0.004% shareholding). (vi) In Compa .....

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ed creditors. That it has three shareholders out of whom the transferee company is holding 24,449 shares (97.99% shareholding), that one Ms. B. Jhansi Rani is holding 500 shares (2.00% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company) is holding 1 share (0.004% shareholding). (viii) In Company Petition No.186 of 2015, the petitioner averred that it has no secured creditors, but it has four unsecured creditors for a total amount of ₹ 17,34,235/-, i.e., .....

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erred that it has no secured and unsecured creditors. That it has two shareholders out of whom the transferee company is holding 24,999 shares (99.99% shareholding) and that one Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.01% shareholding). (x) In Company Petition No.188 of 2015, the petitioner averred that it has no secured creditors, but it has seven unsecured creditors for a total amount of ₹ 2,13,46,454/-, i.e., (i) Chandrabhaga Agro Farms Private Limite .....

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shareholding) and that one Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.01% shareholding). (xi) In Company Petition No.189 of 2015, the petitioner averred that it has no secured creditors, but it has three unsecured creditors for a total amount of ₹ 21,83,672/-, i.e., (i) Nallamala Agro Farms Private Limited (Rs.9,592/-); (ii) Vindhya Bio-tech Private Limited (Rs.21,62,844/-) and (iii) Audit Fee Payable (Potnuru & Associates) (Rs.11,236/-). That it has t .....

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mited (Rs.13,982/-); (ii) Nallamala Agro Farms (Rs.9,592/-); (iii) Vindhya Bio-tech. Private Limited (Rs.4,72,890/-); and (iv) Audit Fee Payable (Potnuru & Associates) ₹ 11,236/-. That it has three shareholders out of whom the transferee company is holding 24,449 shares (97.99% shareholding), that one B. Teja Raju is holding 500 shares (2.00% shareholding) and that one Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.01% shareholding). (xiii) In Company Petit .....

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.e., (i) Transferee company (Rs.22,39,144/-); (ii) Maytas Hill County Developers (Rs.50,00,000/-); (iii) Nallamala Agro Farms Private Limited (Rs.8,953/-); and (iv) Audit Fee Payable (Potnuru & Associates) (Rs.11,236/-). That it has four shareholders out of whom the transferee company is holding 24,049 shares (96.196% shareholding), that one Mr. B. Rama Raju is holding 900 shares (3.80% shareholding), that Ms. Nandini Raju is holding 50 shares (0.20% shareholding) and that Mr. Neerav Kapasi .....

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ransferee company, the investment in the shares of the transferor companies appearing in the books of account of the transferee company will stand cancelled. However, in Company petition Nos.180, 181, 182, 183, 184, 185, 188, 189, 190 and 192 of 2015 it is averred that upon this scheme being effective, the transferee company shall without any further application, act, instrument or deed, issue and allot to the shareholders of the transferor companies (except to the transferee company and its nom .....

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in the books of account of the transferee company will stand cancelled. 8. The petitioners transferor companies have filed company applications (C.A. Nos.574, 577, 580, 585 & 586, 591 & 592, 595, 598, 603 & 604, 607, 610 & 611, 618 & 619, 625 & 624, 628, and 633 & 634 respectively) before this Court for appointment of Chairpersons for convening the meeting of their unsecured creditors and/or shareholders. This Court by orders dt.15.4.2015 appointed separate Chairperso .....

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filled, that the proposed scheme of arrangement was read out and explained to the members attended the meeting and that they have voted in favour of the proposed scheme of arrangement. By orders dt.9.6.2015, this Court has taken the reports of the Chairpersons, on record. 9. (i) In Company Petition No.193 of 2015, the petitioner averred that it has six secured creditors for a total amount of ₹ 8,680.75 millions, i.e., (i) State Bank of India (Rs.302.34 millions); (ii) IDBI Bank (Rs.771.14 .....

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es Private Limited (Rs.7.93 millions); (iii) Unsecured compulsory convertible debenture holders (Rs.6,000 millions) and (iv) Trade Creditors (Rs.3,072.94 millions). That it has sixteen shareholders in that (i) Infrastructure Leasing and Financial Services Limited is holding 2,250 shares (9% shareholding); (ii) IL&FS Townships and Urban Assets Limited - 10,000 shares (40%); (iii) IL&FS Engineering and Construction Company Limited - 7,744 shares (30.97%); (iv) Maytas Estates Private Limite .....

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.004%); (xiii) Mr. Neerav Yashwant Kapasi (Nominee of IL&FS Engineering and Construction Company Limited) 1 share (0.004%); (xiv) Mr. Gogireddy Venkateswar Reddy - (Nominee of IL&FS Engineering and Construction Company Limited) 1 share (0.004%); (xv) Mr. Mohan Krishna Vemuri (Nominee of IL&FS Engineering and Construction Company Limited) 1 share (0.004%); and (xvi) Ms. Suguna Mudundi (Nominee of IL&FS Engineering and Construction Company Limited) is holding 1 share (0.004% shareh .....

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m earlier than the redemption period by providing two months notice to the concerned shareholders. That the details of the shareholders of the transferor companies who will be issued redeemable preference shares equivalent to the number of equity shares held by them are as under: Sl.No. Name of the company Shareholder Ms./Mr. No. of Equity shares 1. Himagiri Bio-Tech Pvt. Ltd. B. Suryanarayana Raju 500 2. Himagiri Greenfileds Pvt. Ltd. B. Suryanarayana Raju 500 3. Konar Greenlands Pvt. Ltd. B. N .....

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before this Court for convening the meetings of its secured creditors, unsecured creditors and shareholders respectively. That this Court by order dt.15.4.2015 appointed a Chairperson to conduct the meetings of the secured creditors, unsecured creditors and shareholders of the transferee company and that the Chairperson filed his reports dt.21.5.2015. (iii) In the report relating to the meeting of the secured creditors of the transferee company, the Chairperson has stated that pursuant to the o .....

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the report relating to the meeting of the unsecured creditors of the transferee company, the Chairperson has stated that pursuant to the order of this Court, after issuing individual notices to the unsecured creditors of the transferee company and causing publication of the advertisement in two daily newspapers, he has conducted the meeting of the unsecured creditors on 21.5.2015 at 11.30 a.m., that as the said meeting was attended by 33 unsecured creditors, the quorum of 15 members was fulfille .....

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n 21.5.2015 at 10.00 a.m., that as the said meeting was attended by 13 shareholders, the quorum of 5 members was fulfilled, that the scheme of arrangement was read out and explained to them, and that they have voted in favour of the proposed scheme of arrangement. By Order dt.9.6.2015 this Court has taken the reports of the Chairperson on record. 10. In response to the notices issued by this Court on 7.7.2015, the Official Liquidator and the Regional Director have submitted their respective repo .....

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3. However, the Regional Director in his report stated that in pursuance of General Circular No.1/2014, dt.15.1.2014 issued by the Ministry of Corporate Affairs, New Delhi, comments of the Income Tax Department were called for and that accordingly the Additional Commissioner of Income Tax (Central), Central Range-3, Hyderabad, has sent his letter in F.No.Addl.CIT/CR-3/Merger/Amalgamation/2015-16, dt.20.8.2015, wherein he has expressed the following views: M/s. Hill County Properties Limited (her .....

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Transferor companies. The only activity that was undertaken by these transferor companies was entering into development agreement with the transferor company. M/s. HCPL entered into a development agreement with all these transferor companies for commercial exploitation of the so called agricultural lands, acquired by all these transferor companies. The scheme for arrangement was that after the project is developed and sold to various customers, a proportion of the sale proceeds would be given t .....

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being incurred by these companies, these transferor companies would end up with huge profits as and when their share of constructed property is sold. It may not be out of place to mention here that the real estate sector has witnessed a down fall in the past few years and the developers i.e, M/s.HCPL ended up with losses owing to increase in cost of construction, increase in interest burden on the loans raised, coupled with fall in sale realizations. Such loss incurred by M/s. HCPL would be allo .....

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elatively high. It appears from the entire scheme that the single most reason behind the proposed amalgamation is that the profits of the transferor companies (which are otherwise taxable), would be set off with losses already accrued in the hands of HCPL. In other words, it would be a case of cumulative profits of the amalgamating entities being set off against the cumulative losses of the amalgamated company, resulting in almost zero taxation. This is certainly prejudicial to the public intere .....

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AYTAS Estates Private Limited, which was holding 4,400 equity shares of ₹ 100/- each and that the Company Law Board vide its order dt.13.1.2011 has allowed IL & FS Group (Infrastructure Leasing and Financial Services Limited and IL & FS Engineering & Construction Company Limited) to acquire 80% of its shareholding in the transferee company and that both IL & FS Financial Services Limited and IL & FS Engineering & Construction company were allotted 10,000 equity shar .....

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e Ministry of Corporate Affairs. The Regional Director, however, stated that the Registrar of Companies, Hyderabad, has reported that the transferor companies and the transferee company involved in the scheme of amalgamation are regular in filing the statutory returns and that no complaints, no investigations and no inspection are pending against the transferor companies and that inspection against the transferee company is pending. 14. In substance, the main objection raised by the Regional Dir .....

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ised in the report of the Regional Director, a detailed common reply affidavit has been filed by the Authorised Signatory of the petitioners companies, wherein it is inter alia stated that the transferee company was established for the purpose of development of real estate, that the promoters of the transferee and transferor companies are associates of Mr. Ramalinga Raju, the original promoter of M/s. Satyam Computer Services Limited, that post the Satyam episode in January 2009 the transferee c .....

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l for investment made by the IL & FS Group was evaluated by the SBI Capital Markets Limits (SBICAPS) and after due deliberations, the SBICAPS and Honble Justice AR. Lakshmanan (Retired) recommended the induction of the IL & FS Group as strategic investor and that accordingly the Company Law Board, vide its order dt.13.1.2011 included the IL & FS Group as the new promoter of the transferee company. The affidavit has given the details of the shareholders of IL & FS Company Limited .....

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mited; ix. IL&FS Employees Welfare Trust & Others. It is accordingly pleaded that the operations of the IL&FS Group are only in public interest as all the major shareholders of the company are Public Sector Undertakings and the funds which are invested by the Group are also public funds. It is further averred that after taking over the management of the transferee company, IL&FS Group has infused about ₹ 850 crores into the transferee company for the due completion of the H .....

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e, and that this payment towards pending income tax was also from public money. That in spite of the said investment of ₹ 850 crores, the transferee company continues to be in losses even as on the effective date, that due to Satyam episode and the political disturbances arising out of bifurcation of the erstwhile united State of Andhra Pradesh, the completion of the Hill County project was delayed by almost seven years and that the transferee company is in negative net-worth as of today. .....

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id companies have no assets whatsoever, that the 14 transferor companies have already given development rights for Hill County project with irrevocable power of attorney to the transferee company, and that the only way to close these companies would be by approaching this Court in a fair and transparent manner with application for the approval of the Scheme of Amalgamation. 16. It is further stated that since the amount of ₹ 850 crores invested by the IL&FS Group is out of public funds .....

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huge dividends from these companies, that since all the Directors/shareholders of both the transferor companies and the transferee company are either directly or indirectly related to Mr. B. Ramalinga Raju, there was no need to have 14 separate transferor companies and that these companies are not undertaking any business except holding of land parcels which were given to the transferee company for development. 17. At the hearing, Mr. R. Raghunandhan, learned Senior Counsel appearing for the pe .....

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n that process even if there is resultant avoidance of tax it amounts to tax planning, but not tax evasion, and therefore the same cannot constitute a ground for declining to approve the scheme. In support of his submissions, the learned Senior Counsel has referred to the following judgments. (i) In Re: Indo Continental Hotels & Resorts Ltd. (ii) In Re: Indo Continental Hotel and Resorts Ltd. (iii) In Re: AVM Capital Services Private Limited (iv) Anu Trading Private Limited v. Shinano Retail .....

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e proposed between a company and its creditors or any class of them or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/merger of one company with another. When such a scheme is put forward by a company for the sanction of the Court in the first instance the Court has to direct holding of meetings of creditors or class of creditors or members or class of members who are concerned with such a scheme and once the majo .....

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editors or class of creditors or dissenting members or class of members such sanctioned scheme would remain binding. Before sanctioning such a scheme even though approved by a majority of the concerned creditors or members the Court has to be satisfied that the company or any other person moving such an application for sanction under sub-section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to sub-section (2) of that Section. So far as the meetings of the cre .....

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and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any publ .....

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d that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the company concerned has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefo .....

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, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a scheme of compromise and arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved b .....

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e by the requisite majority. Consequently the Company Court s jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. 19. From the above authoritative pronouncement of the Apex Court, it is evident that unless the Company .....

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the transferor companies in future. In other words, there is an implicit plea that the scheme is affecting public interest or violating public policy. 21. There was indeed a big debate as to whether a transaction by which the parties achieve avoidance of tax, is illegal or not? In Commissioners of Inland Revenue v. Duke of Westminster , Lord Tomlin, it was held as under: Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it oth .....

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ng with the majority judgment of Justice Ranganath Mishra (as he then was) and disagreeing with the observations of J.C. Shah, J, in Raman & Co (9 supra), observed as under: We think that time has come for us to depart from the Westminster principle as emphatically as the British Courts have done and to disassociate ourselves from the observations of Shah, J and similar observations made elsewhere. In Azadi Bachao Andolan (5 supra), a question arose whether the observations of Chinnappa Redd .....

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y is concerned, the observations of Shah, J., in CIT v. Raman and Co. (9 supra) are very much relevant even today. In Vodaphone International Holdings B.V. (6 supra), it was argued that the opinion expressed in Azadi Bachao Andolan (5 supra) was incorrect as in doing so, the Supreme Court has overlooked paragraph 146 of the report of the majority judgment concurring with the view of Chinnappa Reddy, J. After dealing with this aspect in great detail, both Kapadia, J, (as he then was) and Radhakri .....

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ance but by its legal form; and (3) An arrangement is effective for tax purposes even if it has no business purpose and has been entered into to avoid tax. The Supreme Court has also referred to and relied upon the judgments of His Lordships in W.T. Ramsay v. I.R.C. wherein the following principles were culled out. (1) A taxpayer was only to be taxed if the Legislation clearly indicated that this was the case; (2) A taxpayer was entitled to manage his or her affairs so as to reduce tax; (3) Even .....

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is to be effective, it is essential that the transaction has some economic or commercial substance. The Supreme Court further held in paragraph 334 as under: Revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. The Revenue s stand that the ratio laid down in McDowell (10 .....

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ect of a transaction was to avoid tax, such transaction cannot be invalidated unless an anti-avoidance provision to that effect exists. 23. In the instant case, neither the Income Tax Department nor the Regional Director has pleaded that the proposed arrangement is sham or is intended to violate any law. On the contrary, the only plea raised is that with a view to offset the losses being suffered by the transferee company, the profit making transferor companies are proposed to be amalgamated. Th .....

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