TMI Blog2018 (11) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the proceedings. The equity shares of the listed public company i.e. Transferee Company are not proposed to be transferred and shall be held by the existing promoters held by them previously through the Transferor Companies 1 and 2, by virtue of the Scheme through the Irrevocable Family Trust - It is seen that based on the queries raised by SEBI as well as subsequent amendments, respective Trust Deeds clearly shows that the shares are sought to be retained within the family as it was done previously as well prior to such transfers and not otherwise as sought to be portrayed by the Income Tax. If the Tribunal is inclined to sanction the Scheme, then protection be afforded at the very least to the Income Tax in relation to the transactions preceding and subsequent to the sanction and their being no serious objections to it on the part of petitioner companies which is also reflected in the rejoinder filed by them to the reply filed of the Income Tax Department and also taking into consideration the clauses contained in the Scheme in relation to liability to tax and also as insisted upon by the Income Tax - the petition stands allowed and the scheme of amalgamation is sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held on 24 March 2017, 7.4 Accordingly, the present Company Petition is being filed by the Petitioner/Amalgamating Companies and the Petitioner/Amalgamated Company through the authorized person nominated by the Board of Directors of the Petitioner/AmaIgamating Companies and the petitioner/AmaIgamated Company. 2. The salient features of the Scheme as have been brought out in Paragraph 8 of the petition averred to have been considered by the Board of Directors in their meeting held on 24.3,2017 Which prompted them to approve the Scheme based on the above noted rationale is to the following effect:- A. The Appointed Date under the Scheme means closing hours of 31st March, 2017. B. The Scheme proposes that upon the Scheme becoming effective and with effect from the Appointed Date, the Amalgamating Companies shall stand transferred to and be vested in the Amalgamated Company as a going concern. C. The Scheme further provides that upon the Scheme becoming effective and with effect from the Appointed Date:- (i) All assets and properties of the Amalgamating Company 1 and the Amalgamating Company 2 shall stand transferred to and be vested in the Amalgamated Company. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from the Appointed Date the entire Authorized Share Capital of the Amalgamating Companies shall stand transferred to the Amalgamated Company. I. It is provided in the Scheme, that upon the Scheme becoming effective, the Amalgamating Company and the Amalgamating Company 2 shall stand dissolved without being wound up. 3. Record of this Tribunal in relation to the 1 st motion joint application filed by all the three petitioner companies involved in the Scheme of Amalgamation in Company Application No.CA (CAA) - 85 (ND)/2017 discloses that based on the representations made in the joint application and also taking into consideration the provisions of Section 230-232 of the Companies Act, 2013, while requirements of meetings of equity shareholders in relation to Petitioner -Amalgamating Companies I and 2 got dispensed with vide order dated 28th July 2017 in addition to the meeting of Secured Creditor of the Petitioner - Amalgamated Company, the meetings of the Equity Shareholders and Unsecured Creditors of the petitioner Amalgamated Company was directed to be called, convened and held as per the directions contained in the said order dated 28th July 2017. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty capital approved the Scheme, however, 40 equity shareholders representing 7.07% in numbers and 0.01% of the paid up equity share capital were of the opinion that the Scheme should not be approved. Even though from the report of the Chairman it is seen that 7.07% in number and 0.01% in percentage terms of the paid up equity share capital voting were of the opinion that the Scheme should not be approved and hence voted accordingly, and as noted above, however, none of the equity shareholders who had expressed dissent are before this Tribunal. In relation to unsecured creditors the report of the Chairman discloses that the consent to the Scheme had been unanimous. 8. in relation to the statutory authorities and sectoral regulators to whom notices were directed to be issued, the response of the authorities has been to the following effect, namely, Ministry of Electronics Information Technology has expressed its approval to the Scheme as contemplated amongst the companies vide its communication dated 09.112017 , 9. Further the Petitioner/Amalgamated Company being a listed entity in the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), NSE upon submission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having an authorized capital of ₹ 138.6 crores and fully paid up share capital of ₹ 33.15 crores and that its shares are listed in NSE and BSE. The appointed date is 31.03.2017 as per the present Scheme. The life of the amalgamating companies is of 13 months and the revenue from sales services of Amalgamating Company 2 is and the balance sheet as on 31.03.2017 shows a total of merely By way of preferential allotment 91,000 shares of Amalgamating Company 2 has been allotted to M/s.Vijay kumar Thadani Trust in F.Y.2016-17 and that the trustee of the said trust is none other than Mr Vijay kumar Thadani promoter of both NIIT Ltd as well as M/s.Global Solutions Pvt.Ltd the holding company of Amalgamating Company 2 prior to the preferential allotment. It is also pointed out that the 1000 fully paid shares held by M/s.Global Solutions Pvt.Ltd was also transferred to the Thadani Family Trust making thereby its 100% beneficial shareholders of the Amalgamating Company 2. That during F.Y.2016-17 the Amalgamating Company 2 has received equity shares of ₹ 2/- each of Amalgamated Company by way of gift from the above noted M/S. Global Solution Pvt. Ltd at a nominal va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which now carry a huge market value. Thus the intention it is contended in the reply of Income Tax Department of the applicant companies is not simplification of the shareholding structure as claimed by it but to avoid income tax liability as on date and in future as well, and the companies cannot be allowed to use dubious means for tax evasion and that a duty is cast upon the income tax department to lift the corporate veil to identify the true transaction behind the maze of transactions webbed by the assessee for the purpose of tax evasion. It is also pointed out by the revenue that the scheme has been formulated to come into effect on 3103.3017 only to avoid the tax liability that may arise under Section 56(2)(x) that has been recently introduced through the Finance Act, 2017 and will be applicable w.e.f. 01.04.2017,Further it is also stated in the reply about the pending tax dues of Petitioner-Amalgamated company not having been deposited on account of dispute before the appellate authorities in relation to assessment years 2006-07 to 2013-14 and that in relation to pending tax dues as well as in relation to incidence of tax arising out of the transfer contemplated under the Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions Of transfer of shares of the applicant -amalgamating companies to the respective Family Trusts of Pawar family and Thadani family were also duly disclosed to the stock exchanges and that the indirect acquisition of shares of the amalgamated company by both the family trusts was undertaken by submitting an application on 27,04.2016 wherein the purpose of transfer was fully disclosed and after getting prior approval of SEB! vide its order dated 07.03.2017 under the relevant Regulations applicable and that the said order dated 07.03.2017 is also annexed along with joint rejoinder as an Annexure. It is also pointed out in this connection that SEB! while granting its approval had also brought about the details in its order dated 07.03.2017 itself and hence the bona fide of the companies cannot be questioned by the tax authorities. In relation to tax liability Of the earlier assessment years of the amalgamated company as listed in the reply of income tax that the same are pending appeals and in any case since the amalgamated company is not getting dissolved and continues its existence the department can seek to recover the tax dues on the disputes being adjudicated agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding Regional Director (RD), Official Liquidator (01), the amalgamated company being a listed entity, SEBI as well the respective Stock Exchanges in which the shares are listed have also expressed their ' no adverse observations' to the Scheme, the only opposition to the Scheme Is put forth by the Income Tax Department as detailed in paragraph supra gathered from the reply filed by it and in a nut shell the opposition to the sanctioning of the Scheme is as given hereunder:- - The Scheme is nothing but a culmination of a pre-ordained series of transactions undertaken by the amalgamated company for by passing legal provisions and to evade its income tax liabilities - The Scheme is an exercise to benefit solely the Family Trusts of the revalued NIIT shares from Global Solutions Pvt. Ltd (GSPL) to the Thadani Family Trust through the medium of Petitioner-Amalgamating Company 2 and from Pace Industries Pvt. Ltd (PIPL) to Pawar Family Trust through the medium of Petitioner-Amalgamating Company 1, - The applicant companies are trying to misuse the provisions of Section 47 of the Income Tax Act by resorting to amalgamation and that such sort Of practice is required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. 17. Thus when a Scheme is up for consideration and its sanction before this Tribunal, the onus is on the Income Tax Department to establish that the Scheme itself has only one purpose, being the vehicle created solely to evade the payment of tax. In this connection going by the ratio of the above judgement of Hon'ble High Court of Delhi in Vodafone Essar's case,this Tribunal, in other words is required to ascertain while considering a Scheme which is opposed by Income Tax Authority as to whether the Scheme is used simply as a device for tax evasion. and nothing more.However, this throws up a significant question as to the parameters to consider as to when a person is said to engage in tax evasion using the Scheme as an instrument to evade tax and as to what is the demarcating line between tax evasion, on the one hand as sought to be projected in this case by the Income Tax Department and as only tax efficient and beneficial way of structuring the transaction on the other by the Petitioners, with a view to blow the whistle in relation to the former, The said issue came up for consideration before the Division Bench of Hon'ble High Court of Delhi in the matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament intended which as per some, causes confusion and is self-contradictory. However, the said criticism overlooks that if the intention of the Parliament is clear and unambiguous; taking advantage or benefit as envisaged by the provision is a case of tax mitigation. Even in case of debate, when the intention of the Parliament is favourable and adjudication decides the question in favour of the assessee, it would be a case of tax mitigation. Courts are trusted and given the power to determine as to what was the intent of the Parliament while enacting a particular provision. When the court decision interpreting the legislative intent is in favour of the assessee, there is no avoidance of tax because the conduct 'is consistent with the taxing provision. If there is no tax avoidance, the question of abusive tax avoidance does not arise, for the latter refers to a particular category of transactions that are unacceptable being pejorative, i.e. sham, colourable device or deceitful and is distinct from tax mitigation. Albeit, where the Parliament's intention is to the contrary and the finding negates the assessed's submission, it would be a case of tax avoidance, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the income before it accrues or arises to him, Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. 47. In clear and categorical terms the aforesaid ratio was resonated and approved by the Supreme Court in the Vodafone's case (supra). Thus, the test of 'devoid of business purpose' or 'lack of economic substance' is not accepted and applied in India as it is too broad and unsatisfactory. The said test, if ardently applied, would contradict and would be irreconcilable with taxpayers' right to arrange once affairs within the confines of law, which is not prohibited or barred. 18. The above judgement of the Division Bench of the Hon'ble High Court of Delhi in CIT Vs. Shivraj's case rendered in the context of proceedings arising out of assessment and in the course of appeals arising therefrom, is relevant and referred to for the limited purpose of construing as to what can be considered as tax evasion' and gives an indicator as to the yard stick which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide long term stability and transparency in the Transferee Company. 20. The opposition to the Scheme therein came from a shareholder of the transferee company who had raised, inter alia, similar objections as raised by the Income Tax Department presently and the objections raised therein and as extracted at paragraphs 3 of the AVM Capital Services Private Limited's case and the contentions of the petitioners therein given at paragraph 6 being similar to the one submitted herein by the petitioners are as hereunder: 3. The first, and the main objection of the Objector is that the Scheme is propounded to avoid capital gains tax that would have arisen if the Transferor Companies would have directly transferred their shares to the Promoters.lt is alleged that the object of the Scheme is not to help the Transferee Company, but to transfer these shares to the Promoter Dr.prakash Modi. According to the Objector, it is not shown how long term stability would be achieved if the shares are transferred in the name of Dr.Mody. According to the Objector, the Scheme is a colourable device to evade tax, since such a transfer could well have been effected through the stock market. The Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oldings (Supra). The Supreme Court also considered the interpretation of McDowell's case in Azadi Bachao Andolan (supra) and categorically came to the conclusion that Azadi Bachao Andolan (Supra) was correctly decided and that the majority in McDowell's case had not approved the observations of Justice Chinnappa Reddy, J. It is submitted that the decision of the Gujarat High Court in Wood Polymer Limited (Supra) is no longer good law, in view of the decisions of the Hon'ble Supreme Court in Aazadi Bachao Andolan and Vodaphone International Holdings (Supra), It is submitted that as far as the decision of the AAR is concerned, the AAR has no jurisdiction to disagree with the decision of the Hon'ble Supreme Court or to hold that any decision of the Hon'ble Supreme Court is not correct law. It is also submitted that the decision of the AAR is not binding on this Court. 21. Taking into consideration the rival submissions, inter alia made before it as above, the Hon'ble High Court of Bombay proceeded to deal With the same as well as the cases cited in paragraph 10 of its judgement extracted as above as follows:- 10. have considered the main charge of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the aforesaid paragraphs that according to the Honi ble Supreme Court, the decision in McDowell's case cannot be read as laying down that every attempt at tax planning is illegitimate, or that every transaction or arrangement which is perfectly permissible under the law, but has the effect of reducing the tax burden of the assessee must be looked upon with disfavour. 22. Again at paragraph 19 of the judgement of AVM Capital Services Private Limited case the Bombay High Court after taking into consideration the observations of the Hon'ble Supreme Court in Vodaphone International Holdings V/s. Union of India and Ors (2012) 341 ITR 1 (SC) as well as other decisions cited before it which decisions incidentally were also cited by Learned Sr.Standing Counsel for Income Tax Department at the time of his oral submissions in the present case in order to advance and fortify the opposition to the Scheme by the Income Tax had concluded as follows: 19. In view of the above observations of the Hon'ble Supreme Court in the Vodaphone decision, the submission of the Objector herein that he is fortified by the decision in McDowell's case, and that the decision in Azadi Bachao ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he available methods for reorganizing their shareholding. In the case of scheme of arrangement between Tata Services Limited and Tatanet Services Limited wherein a commercial division of Tata Services Limited was proposed to be transferred, the Regional Director had objected that the transfer could be achieved through compliance of the provisions of Section 293(1)(a) of the Companies Act, 1956. This Court dealing with the said objection has held that if the Petitioners have adopted an elaborate route to achieve the objective, they cannot be faulted for the same. A similar view was taken by this Court in the Scheme of Arrangement between Balkrishna Industries Limited (supra). 29. The Objector has next contended that the valuation Of the shares of the Transferor Companies which are unlisted was not done as per the rules prescribed under the Wealth Tax Act, but was wrongly done on the basis of value of the shares of the Transferee Company. As pointed out on behalf of the Transferee Company, the provisions of the Wealth Tax Act, does not apply in the instant case. Again, the only assets (apart from cash and bank balance) of the Transferor Companies were the shares held by them in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then existing law, apart from merely stating that the said transaction of gift may be amenable to either gift tax or under Section 2(47) as Capital Gains. Despite having granted sufficient opportunity to Income Tax to come forth with clarity about its representation, the Income Tax Department has not been able to come out with clarity apart from repeatedly stressing that the transactions preceding the Scheme and the Scheme per se are calculated only to evade tax. In the absence of Income Tax Department convincingly demonstrating in relation to tax evasion as alleged and in view of the detailed discussions in paragraphs as above we are unable to be persuaded about the aspect of tax evasion in relation to the Scheme. 26. Further in relation to the Appointed Date fixed as 31.03.2017 in the Scheme is concerned, by virtue of Section 232(6) of the Companies Act, 2013 the Scheme is required to specify the Appointed Date and it cannot be left open by the petitioner companies as the Scheme is to be made effective from the said date specified. Further it is also required to be noted that the Hon'ble National Company Law Appellate Tribunal has held in the matter of MBS IT Institute Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch also contains the following undertaking namely :- Not withstanding anything to the contrary contained in this Trust Deed, subsequent to acquisition of shares of NIIT Limited/NllT Technologies Limited (whether directly or indirectly) by the Trust. 13.1 Any change in change Trustee(s)/Beneficiary(ies)and any change in ownership or control of shares or voting rights held by the Trust shall be disclosed to the concerned stock exchanges. 13.2 The provisions of the Securities Exchange Board of India Act, 1992( SEBl Act ) and the regulations framed there under will apply to the Trust on the basis that the ownership or control of shares or voting rights vests not only directly with the Trustee(s) but also directly with the Beneficiary(ies). 13.3 The provisions of this Trust Deed shall not limit the liability of the Trustee(s)/Beneficiary(ies)in relation to the provisions of the SEBI Act and all regulations framed there under. 13.4 The liabilities and obligations of the individuals Promoters under the SEBI Act and the regulations framed there under will not change or get diluted due to the above transfers to the Trusts. All of the above clearly brings forth the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with law or in respect to any permission or compliance with any other requirement which may be specifically required under any law. THIS TRIBUNAL DO FURTHER ORDER: (1) That all the property, rights and powers of the Transferor Companies be transferred without further act or deed to the Transferee company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and vest in the Transferee company for all the estate and interest of the Transferor Companies therein but subject nevertheless to all charges now affecting the same; (2) That all the liabilities and duties of the Transferor Companies be transferred without further act or deed to the Transferee company and accordingly the same shall pursuant to section 232 of the Act, be transferred to and become the liabilities and duties of the Transferee company; (3) That all proceedings now pending by or against the Transferor Companies be continued by or against the Transferee company; (4) That all the employees of the Transferor Companies in service on date immediately preceding the date on which the scheme finally take effect shall become the employees of the Transferee company with ..... 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