9911796707
TMI Blog2018 (11) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of Amalgamation shall result in transfer and vesting of the Petitioner/AmaIgamating Company I,and Petitioner/ Amalgamating Company 2 (Petitioner/Amalgamating Companies)into and with the Petitioner/Amalgamated Company on a going concern basis. 7.2 The proposed amalgamation of the Petitioner/AmaIgamating Company I and the Petitioner/AmaIgamating Company 2 with the Petitioner/Amalgamated Company pursuant to this Scheme shall be in the interest of both the Petitioner/Amalgamating Companies and the Petitioner/Amalgamated Company and all their concerned stakeholders including shareholders, creditors, employees, and general public in the following ways: (i) The amalgamation would lead to simplification of the shareholding structure and reduction of shareholding tiers and also provides transparency to the Promoters' direct engagement with theAmalgamated company, (ii) the amalgamation is being undertaken pursuant to a succession planning of the Promoters intended to streamline the Promotersj shareholding in the Applicant/Amalgamated Company, inter-alia held through Petitioner/Amalgamating Company 1 and Petitioner/ Amalgamating Company 2. (iii) the amalgamation would not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all employees of the Amalgamating Company land Amalgamating Company 2 as on the Effective Date shall become the employees of the Amalgamated Company on such terms and conditions as are no less favourable than those on which they are currently engaged by the Amalgamating Company without any interruption of service. E. The Scheme further provides that in terms of Clause 5.1 of Part IV of the Scheme, upon the Scheme becoming effective and in consideration of the amalgamation of the Amalgamating Company I with the Amalgamated Company, the Amalgamated Company shall issue Equity Shares of Rs. 2 each in the proportion of the number of equity shares held by the shareholders of the Amalgamating Company 1, F. The Scheme further provides that in terms of Clause 5.2 Of Part IV of the Scheme, upon the Scheme becoming effective and in consideration of the amalgamation of the Amalgamating Company 2 with the Amalgamated Company, the Amalgamated Company shall issue Equity Shares of Rs. 2 each in the proportion of the number of equity shares held by the shareholders of the Amalgamating Company 2. G. The Scheme further provides that in terms of Clause 7.1 of Part IV of the Scheme and upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich an affidavit of compliance had also been filed dated 24.11.2017. 6. Consequent to all compliances, this joint petition filed by the petitioner companies came up for consideration before this Tribunal on 05.04.2018 for final hearing during the course of which the submissions of the learned counsels for the petitioner companies as well as Learned Company Prosecutor for Regional Director/ROC, Learned Advocate for Official Liquidator and Learned Standing Counsel for Income Tax were heard in detail and orders were reserved subject to clarifications, if any. The matter was listed again on 28.08.2018 in view of the clarifications sought for from the petitioners in relation to the respective Trusts having control over the Amalgamating Companies and upon the same being filed and produced before this Tribunal orders were reserved again on 26.09.2018. 7. Perusal of the report of the Independent Chairman appointed for the meetings of the equity shareholders and unsecured creditors of the Amalgamated Company discloses in relation to voting in relation to the Scheme as follows:- i) In relation to Unsecured Creditors : 20 unsecured creditors in numbers, present and voting constituting 46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted in a manner prejudicial to the interest of its members or public interest as per the provisions of Companies Act 1956/2013. 11. However, the Income Tax Department in its detailed reply filed dated 20.03.2018 in relation to the Petitioner - Amalgamating Company No.2, which during the course of oral submissions was also represented by the Ld.Sr.Senior Standing Counsel for Income Tax to be considered applicable to the Petitioner - Amalgamating Company No.l as well as the transfer contemplated of assets of the amalgamating companies and allotment of equity shares being similar, has brought out certain background facts which prima facie is not discernable from a perusal of the petition and which is extracted from the reply in order to better understand the factual context under which objections have been raised by Income Tax to the sanction of the Scheme, namely: - That the Amalgamating Company 1 and 2got incorporated as a Private Limited Company on 0103.2016, having authorized share capital Of Rs. 1.8 crore each and paid up capital of each. While Amalgamating Company 1 has only 2 shareholders being Pawar Family Trust and Neeti Pawar being nominee of Pawar Family Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the entire transaction relating to transfer of equity shares of the Amalgamated Company had been structured, it is contended by Income Tax in its reply that the petitioner companies is not in any way benefited by the restructuring exercise but on the other hand independent of amalgamation seems to be 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. It is contended that the transaction as contemplated has to be examined in light of Section 2(47) of Income Tax Act, 1961 defining "Transfer" and more particularly Explanation 2 given under Section 2(47) of the said Act and that the transfer of shares of NIIT Ltd from Amalgamating Company 2 to Thadatli Family Trust without paying capital gains will lead to tax evasion and that 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 curbed by this Tribunal by supporting the revenue in this regard. It is also pointed out by the revenue that equity shares of Petitioner Ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital assets in irrevocable Trusts are exempted anyways from capital gains tax and hence the hypothesis of the Income Tax that the transfer of shares would result in tax liability are mere assumptions and unsustainable. The petitioner companies in relation to the Scheme further seeks to draw support from a decision of Hon'ble Bombay High Court rendered in AVM Capital Services Private Limited and other Transferor Companies and Unichem Laboratories Limited (Transferee company) in Company Scheme Petition No.670 of 2011 wherein a Scheme of similar nature to that of the present one before this Tribunal was approved taking into consideration the long term stability and transparency in the listed company in order to enable the promoter to directly hold shares in the listed company instead of exercising through private limited companies, It is further stated that promoters have preferred the Trust structure as it enables smooth transition Of inter-generational wealth within the family having substantial assets or complex family affairs and also provides a legal framework for distribution of income to the family members and the Trust structure and holding of the shares of amalgamated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amating companies, the same is sought to be fended off on the basis that the shares were received as gift by the respective companies from their holding companies and being non-current assets in the hands Of the respective amalgamating companies taking into consideration the relevant Accounting Standards it was reflected at a nominal value of Rs. 100/- and the department in this regard has been vague as to how the shares get revalued in the hands of the amalgamating companies. The objections of the Department it is hence contended by the petitioner companies are merely hypothetical and made without any basis and without placing any evidence on record to back its hypothesis and that this Tribunal should sanction the Scheme as contemplated amongst the companies involved in the Scheme particularly in view of the approval of the shareholders and creditors of all the three companies. 15. While all the procedures and compliances as are required to be made under the provisions of Companies Act, 2013 as is evident from the paragraphs above in relation to sanctioning of the Scheme have been duly complied with and further the shareholders and creditors by requisite percentage as are require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compared to other authorities, say Central Government or the Regional Director who have not raised any adverse observations about the Scheme as already noted. In this connection reference is made to paragraph 70 of the decision cited by the parties of the Hon'ble High Court of Delhi in the matter of - M/s.Vodafone Essar Limited and others and M/s.Vodafone Essar Infrastructure Limited in C.P.No.334 of 2009 dated 29.03.2011 which is to the following effect:- 70. In my view, if the Court is indeed to sanction the Scheme, the powers of the Income Tax Department must remain intact. The authorities relied on by the petitioners also support this proposition, with the only exception being a situation where the Scheme itself has only one purpose, which is to create a vehicle to evade the payment of tax, rather than mere avoidance of tax, It is also true that the scope of objection that may be raised by the Central Government and the Regional Director is larger, and that of the tax authorities is confined to the question of revenue. It is not open to this Court, in the exercise of company jurisdiction, to sit over the views of the shareholders and Board of Directors of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate the concept of abusive tax avoidance, it would be appropriate to first delineate with precision the expressions "tax mitigation" and "tax evasion" as their boundaries and confines would enable us to draw lines amongst the four concepts; tax mitigation, tax evasion, acceptable tax avoidance and abusive tax avoidance. Each of the said expressions involves an element of tax planning. It would be hard to conceive of a situation where the assessed does not indulge to some sort of tax planning, be it tax mitigation, acceptable tax avoidance, abusive tax avoidance or tax evasion. "Tax planning", being common to all situations, cannot be the distinguishing feature, but nature and character of the planning and its nexus with the transaction is decisive, 43. Tax mitigation in simple words would refer to a taxpayer taking advantage or benefit of a beneficent provision under the tax code and complying with the requisites to his lower the tax liability. In the words of Lord Nolan in CIR versus Willoughby [1997] 4 All ER 65, it is:- The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its to supply information even When there is duty to furnish the said details. It can also apply to situations when the assessee fails to clarify a matter, which has been misunderstood by the income tax authorities, and keeps quiet. In these cases, there is element of wilfulness, dishonesty or contemptuous conduct or even absence of honest belief. If the taxpayer cannot show that he had an honest belief that he was not liable to tax or liable to a lower tax, then prima facie such conduct would fall within the ambit/scope of tax evasion. 45. Tax avoidance by elimination would mean the residual and surplus, after we exclude cases of tax mitigation and tax evasion. Tax mitigation and tax evasion are two end points. It is easier and more beneficial to follow this discernment to define tax avoidance, for the confines and bounds of tax mitigation and tax evasion are easier to decipher and define legally and also identify with some exactness in practice. (Refer Tax Avoidance, Tax Evasion & Tax Mitigation by Philip Baker.) 46. It is equally important to distinguish and differentiate acceptable tax avoidance and abusive tax avoidance. The Supreme court in CIT versus Raman (A.) & co. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered in AVM Capital Services Private Limited and other Transferor Companies and Unichem Laboratories Limited (Transferee company) in Company Scheme Petition No.670 of 2011dated 12th July 2012 and on which decision heavy reliance is placed by the Learned Counsel for the petitioner to canvass his position for approval of the Scheme. Eschewing the narration of facts for the sake of brevity Which is similar in all respects, save that the allotment of shares upon implementation of the Scheme was to be made therein to the individual promoters of the listed company being the shareholders of the amalgamating company as well , in the instant case to a family trust of the individual promoters being trustees and they being the beneficiaries along with their lineal descendants, the Scheme therein envisaged the following purpose as extracted in paragraph 23 of the said judgement, namely:- 23. In the present case (AVM'S case), as submitted by the Transferee Company, the scheme involves - (i) The merger of Transferor Companies with Transferee Company; (ii) The consequent cancellation of the shares held by the Transferor Companies in the Transferee company; (iii) The consequent reduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chaoAndo/an and Anr. (2004) 10 SCC 1 (SC) is per in curium as it is contrary to the decision of the Constitutional Bench in McDowell's case (supra). 6. The learned Senior Advocate appearing for the Petitioners has submitted that the aforestated submissions/allegations/contentions of the Objector are untenable and baseless. It is submitted that the correct legal position with regard to tax avoidance/evasion is laid down in the decisions of the Hon'ble Supreme Court in the case of Azadi BachaoAndoIan (supra) and more recently in the case of Y2.daphæe-l-Qtecngflgngl Holdinqs V/s. Union of India and Ors. 341 'TR 1 (SC) He submitted that in the case of Azadi BachaoAndolan (Supra), the Hon'ble Supreme Court has in paragraphs 137 to 166 explained the rule in McDowell's case with particular reference to the Judgment of Chinnappa Reddy, J. It is submitted that the Objector has relied upon a sentence in the judgment of Justice Ranganath Mishra in McDowell's case to the effect that "on this aspect one of us. Chinnaopa Reddy, J.. has proposed a seoarate god detailed opinion with which we aqree i'. According to the Objector, by virtue of this sentence, the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement in Craven the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. 148. WE may also refer to the judgment of the Gujarat mHigh Court in Banyan and Berry v. CIT where referring to McDowell, the Court observed : (ITR p.850 E-H) "The Court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the Act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell case, The ratio of any decision has to be understood in the context it has been made. The facts and circumstances which lead to McDowell decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his Wishes in the manner of doing any trade, activity or planning his affairs With circumspection, within the framework of law, unless the same fall in the category of colourable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ymer Limited (supra) was decided on the basis of the peculiar facts of the case. The Gujarat High Court reiterated the principle that a tax payer can always arrange his affairs to avoid tax. 23. Thus the decisions cited by the Income Tax during the course of submissions in the instant case including that of Wood Polymer Private Limited case in order to fortify its contentions is no longer good law and hence cannot be taken note of by this Tribunal. Again, in relation to objection to valuation as well as the mode of transfer of shares which are transferrable and tradable being listed securities of the Transferee Company through pre-ordained route adopted by the Petitioner companies culminating in the Scheme objected to in the instant case by the Income Tax, a similar objection as raised thereto by the objector had been dealt with in AVM Capital Services Private Limited case referred supra, as under in paragraphs 22 and 29 of the said judgement as under: 22. The Objector has also raised a grievance that the shares of the Transferee Company held by the Transferor Companies which are purely tradable and transferable without any restrictions cannot be transferred through the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortress Capital Management Services Pvt. Ltd being a Merchant Banker has also been obtained and produced in terms of the relevant clause in the Listing Agreement before this Tribunal and prior to it before SEBI as well, which had approved in principle subject to compliance as already seen of the Scheme coming up for sanction and which was also asserted by the Counsel for SEBI present before the Tribunal during the proceedings. 25, Further even though the Income Tax Department was repeatedly pointing out during the course of oral submissions that the intent of the petitioner companies is manifest from the manner in which the Appointed Date has been fixed in the Scheme as 31.03.2017 in order to beat the dead line as on and from 01.04.2017 there has been a significant change in law by way of amendment to Section 56 dealing with 'Income from other sources' and that the transaction of gift by which the transfer of transferee companies shares have been effected to the transferor companies during Financial Year 2016-17 could be hit by the provisions as the transaction and the attendant transfer of shares have been grossly undervalued at Rs.IOO/-, however the Income Tax Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulation, 2011 and SEBI upon a detailed examination of the clauses of the Trust Deeds, sought for the following clarifications by email dated December 6, 2016. "Based on the recommendation received from SEBI Takeover Panel, you are requested to confirm whether the acquirers are willing to remove the clause related to professional trustees from the Master Trust and Child Trust (Deeds). to which it is seen that a reply has also been sent dated 12.12.2016 and 16.12.2016 wherein the clauses as pointed out for which SEBl's clarifications were sought, stood revised to the effect that in relation to the payments of the professional trustees, the same stood deleted. Further in relation to the beneficiaries, it is pointed out by Ld. Counsel for the petitioner companies that the original Trust Deed which contained clause 7.4. I was amended to the effect that the additional beneficiaries that may be added under the Trust, provided that such additional beneficiaries shall always be the lineal descendants of the Founder Trustees and that the trustees shall be only the lineal descendants of the Founder Trustee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions 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 and in terms of the decision in RE: Vodafone Essar Gujarat Limited v. Department of Income Tax (2013)353 ITR 222 (Guj) and the same being also affirmed by the Hon'ble Supreme Court and as reported in (2016) 66 taxmann.com.374(SC) from which it is seen that at the time of declining the SLPs filed by the revenue, however stating to the following effect vide its order dated April 15/2015 that the Department is entitled to take out appropriate proceedings for recovery of any statutorily dues from the transferor or transferee or any other person who is liable for payment of such tax dues the said protection be afforded is granted. With the above observations, the petition stands allowed and the scheme of amalgamation is sanctioned. 29. However, while approving the Scheme as above, we further clarify that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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