TMI Blog2013 (2) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... In the first stage proceedings, this Court vide order dated 16th May, 2012 in Co. P. No. 14/2012 had dispensed with the meeting of the equity shareholders and unsecured creditors of the transferor Company for the reasons stated therein and it was also noted that there was no preferential share-holder and secured creditor of the transferor Company. 3. In the present petition, this Court vide order dated 4-7-2012 had issued notice to Registrar of Companies M.P., Regional Director, Western Region and Official Liquidator and directed publication of petition in terms of Company Court Rules. 4. The Regional Director (RD), North Western Region had filed the affidavit, dated 10-9-2012 stating that the consent of M/s. Devaki Commercials Private Limited (DCPL) may be obtained by way of an affidavit forming part of these proceedings before the Scheme of Amalgamation is finally sanctioned. In pursuance to' the said report, Devaki Commercial Private Limited has filed the affidavit, dated 20th September, 2012 confirming and consenting to the approval of the DCPL to the Scheme of Amalgamation. Letters of consent and approval to the Scheme are enclosed as Annexures A-1 and A-2 and the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Scheme is in the public interest and it has not been framed with the intention and object to evade tax and that in terms of the Scheme it would be open to the Income Tax Department to proceed against the concerned company in respect of its liability. 10. Learned Counsel for petitioner referring to the judgment of Bombay High Court in the matter of Jindal Iron and Steel Company Ltd. (JISCO) v. A CIT, Company Application No. 123/2004 connected with Company Petition No. 76/2004, and in the matter of AVM Capital Services P. Ltd. v. In Company Scheme, Petition No. 670/11, dated 12th July, 2012 has submitted that in the proceedings under Sections 391 to 394 of the Companies Act, the Income Tax Department has no locus standi to intervene. Considering the nature of objection, which the Income Tax Department has raised, I do not find it to be a fit case to summarily reject the objection of the Income Tax Department only on the issue of locus. 11. The Supreme Court in the matter of Miheer H. Mafatlal v. Mafatlal Industries Ltd., reported in (1997) 1 SCC 579 has laid down the broad contours of the jurisdiction of the Company Courts in granting the sanction to the Scheme as follows:-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass, of persons, whom with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors from whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. It is the commercial wisdom of the parties to the scheme, who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company, who have ratified the scheme 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble High Courts of Mumbai and Karnataka in respect of other seven companies, the transferee Company is entitled to settle all losses or profit of the transferor Company against its accumulated or current year loss/profits subject to the approval of the scheme. It has further been stated that the transferee Company-M/s. Shinano Retail P. Ltd. will remain in existence even after the present Scheme is approved by the Court, therefore, any enquiry can be conducted by the concerned Jurisdictional Authority as they deem fit and that no provision of the Companies Act, 1956 has been violated either in issuing zero coupon compulsory convertible debentures or acquiring shares in other Private Limited Companies. The RD has further stated that in respect of income of ₹ 190 crores, the Tax Authorities can conduct the further investigation as they may consider fit in respect of survey action against the transferee Company in terms of Clause Nos. 6 and 7.1(c) of the Scheme and a direction can be issued to the transferee Company with reference to undertaking given in proceedings before the RD to co-operate in all respect with Income Tax Authorities. It has further been stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a manner so that the tax burden is minimised is permissible, if the same do not contravene the provisions of the taxing statute. [See: Commissioner of Income Tax, Gujarat v. A. Raman and Company, (1968) 1 SCR 10 and Commissioner of Income Tax, West Bengal v. Calcutta Discount Co. Ltd., reported in (1974) 3 SCC 260]. The Supreme Court in the matter of Union of India and another v. Azadi Bachao Andolan and another, (2004) 10 SCC 1 has reiterated it by observing that:-- 147. We may in this connection usefully refer to the judgment of the Madras High Court in M.V. Valliappan v. ITO, which has rightly concluded that the decision in McDowell cannot be read as laying down, that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment, of the Privy Council in IRC v. Challenge Corpn. Ltd. and did not have the benefit of the House of Lord's pronouncement in Craven, the view taken by the Madras High Court appears to be corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been framed with the sole object to evade the tax liability and it should not be-a-colourable device to evade the tax. 21. The Division Bench of the Gujarat High Court in the matter of Vodafone Essar Gujarat Ltd. v. Department of Income Tax in OJ Appeal No. 81/2010 in Company Petition No. 183/2009 by judgment dated 31-8-2012 has held that if the Scheme has been framed and is approved by the share-holders in their wisdom, it cannot be said that the Scheme itself is plotted with the sole criteria of tax avoidance simply because it may have effect and result into avoidance of tax. The Delhi High Court in the matter of M/s. Vodafone Essar Ltd. in Company Petition No. 334/2009, by the judgment dated 29-3-2011 has held that simply because the tax payable under the business structure adopted by the assessee, which he is otherwise entitled to adopt in law, is reduced, does not, ipso facto, make such adoption illegal or impermissible on the ground that it is opposed to the public interest. The Rajasthan High Court in the matter of In Re: Indo Continental Hotel, reported in (1990) 185 ITR 38 Raj. has held that expression (public interest) must take its colour and content from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngement propounded by the company has to be tested on touch stone of the provisions of the Companies Act, which do not completely prohibit the deviation of accounting standards subject to the disclosures in terms of Section 211 of the Act and the authorities under the taxation law are not precluded from lifting the veil or to prosecute the companies for violation of the accounting standards and those matters will have to be proceeded on their own merits in accordance with law uninfluenced by the approval of the Scheme. 24. Learned Counsel for Income Tax Department has placed reliance upon the judgment of the Bombay High Court in the matter of A.V.M. Capital Services P. Ltd. in Company Scheme Petition No. 670/2011, dated 12th July, 2012, but, in that case also, the objection that the Scheme is a tax evading device, was rejected finding that the Scheme was not illegal, unlawful, dubious or colourful or a tax avoidance device. He has further placed reliance upon the judgment of the Supreme Court in the matter of Sesa Industries Ltd. v. Krishna H. Bajaj and others, (2011) 3 SCC 218, but, in that case also, it has been held that the Court called upon to sanction a Scheme of Amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been placed on the judgment of this Court in the matter of Nilnita Chemicals Ltd., In Re: 1997 (CC2) GJX 004 MP, wherein this Court while sanctioning the Scheme had imposed the condition that if, as a result of transfer, any liability of capital gains arise against any company, or its share-holders or payment of tax which may be leviable under the existing laws, then the concerned authority shall be free to proceed in the matter of tax, in accordance with law, irrespective of the order of amalgamation. Learned Counsel for petitioner has expressed no objection in imposing such a condition in the present matter. 27. Thus, the Scheme of Amalgamation is required to be examined on the touch stone of provisions of Sections 291 to 294 of the Companies Act. The commercial wisdom of the share-holder of the transferor and transferee Companies in respect of the Scheme of merger normally need no interference. Scheme may not be sanctioned if it has been framed with the sole object or is a colourable device to evade the tax but, if as a result of the merger the tax liability is reduced, which is the consequence of the Scheme of merger, then on such a ground the sanction of the Scheme canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no objection on approval of the Scheme. Similarly, the OL has also re-examined the Scheme in the light of the objection submitted by the Income Tax Department and has submitted the report before this Court pointing out the provision of Section 559(1) of the Companies Act, 1956 and submitted that in the event transferee Company fails to pay the tax liability, if any, of the transferor Company after amalgamation, the remedy is available to the Income Tax Department under the said provision. According to the OL also the Scheme is not prejudicial to the interest of the public. 30. In the present matter on the perusal of the Scheme, it is found that the Scheme has not been framed with the sole object to evade the tax but, the present Scheme of merger is a part of the larger Scheme of merger by which eight companies are merging in the transferee Company. It has been pointed out that in respect of seven other companies the different High Courts have already sanctioned the Scheme of merger. 31. It has further been noticed that since transferee Company Shinano Retail Private Limited is based at Bombay, the Company Scheme Petition No. 473/2012 connected with Company Summons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability or breach of any law or control order, which might have been committed before the order of amalgamation. (f) Since the transferee Company has furnished an undertaking before this Court, therefore, the transferee Company owes the liability of the tax of the transferor Company irrespective of the appointed date. 33. Accordingly, the scheme of arrangement filed as Annexure H to the petition is hereby approved. The said scheme may be read as part of this order. The petitioner-Company to lodge a copy of this order and the scheme duly authenticated by the Company Registrar, High Court, Indore Bench with the concerned office of the Registrar of Companies within 30 days from the date of order. 34. The transferor Company to pay the cost of ₹ 25,000/- to the Official Liquidator for deposit in Common Pool Fund maintained by the Official Liquidator within four weeks from today and also to pay ₹ 10,000/- to the Regional Director within same period. 35. The petitioner (transferor Company) shall stand dissolved without winding up. 36. Filing and issuance of the drawn up order is dispensed with. All concerned authorities to act on a copy of this order along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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