TMI Blog2020 (9) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Department is free to proceed in accordance with law - The rest of the clarifications and undertakings provided by the Petitioner Companies are found satisfactory and are, therefore, accepted. From the material on record, the scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy - Since all the requisite statutory compliances have been fulfilled, the Company Petition filed by the Transferee Company is made absolute in terms of prayer clauses (a) to (h). Petition filed by the Transferor Company is also made absolute in terms of prayer clauses (a) to (h) thereof. The Scheme is sanctioned - The Appointed date of the Scheme is fixed as 1st April 2017. - CP (CAA) No. 255/MB.IV/2017, CA (CAA) No. 817/2017, CP (CAA) No. 256/MB.IV/2017 and CA (CAA) No. 818/2017 - - - Dated:- 26-5-2020 - Rajasekhar V.K., Member (J) And Ravikumar Duraisamy, Member (T) For the Appellant/Respondent : Nirman Sharma, Sachin Chowdhari i/b Dharam Co., Advocates and Rupa Sutar, Deputy Director ORDER RAJASEKHAR V.K., MEMBER (J) 1. This is a petition seeking sanction of this Tribunal under sections 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal vide its orders dated 8th June 2017 passed in CP (CAA) No. 255/2017 (in the case of the Transferor Company), and CP (CAA) No. 256/2017 (in the case of the Transferee Company) and have also filed necessary affidavits recording compliance of the aforesaid orders before the Tribunal. Moreover, the Petitioner Companies undertake to comply with all statutory requirements, if any, as required under the Companies Act, 2013 and rules made thereunder, as may be applicable. The said undertaking is accepted. 6. The Regional Director (Western Region), Ministry of Corporate Affairs, Mumbai (RD) has filed a report on 7th November 2017 (RD's Report), inter alia stating that save and except what is stated in paras IV (a) to (f) to the RD report, it appears that the scheme is not prejudicial to the interests of shareholders and public. Paras IV (a) to (f) of the RD report are reproduced hereunder: The observations of the Regional Director on the proposed Scheme to be considered by the Hon'ble NCLT are as under: a. In additional to the compliance of AS-14 (IND-AS-103) the Transferee Company shall pass accounting entries which are necessary in connection with the scheme to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner Companies submit that the Petitioner Companies have noted the facts stated therein. The Petitioner Companies confirm that the Income Tax Department has been duly served a copy of the Notice of final hearing on 21st June 2017 along with a copy of the CP (CAA) Nos. 255/2017 and 256/2017 and the Affidavit of Service dated 8th June 2017 has been filed. 10. As far as the observation in Para IV (d) of the RD's Report is concerned, the Petitioner Companies submit that they are bound to comply with all applicable provisions of the Income Tax Act and all tax issues arising out of the scheme will be met and answered in accordance with law. 11. As far as the observation in Para IV (e) of the RD's Report is concerned, the Petitioner companies submits that requisite certificate has been placed on record by Affidavit of Mr. Sailesh Sanghvi dated 26.07.2018 filed on 27.02.2018 ANNEXURE D thereto. 12. As far as the observation in Para IV (f) of the RD's Report is concerned, the Petitioner companies submits the same is based on point 32 of the Report of the Registrar of Companies filed on 14.10.2017 ( ROC Report ) which raises the following objections: (i) The Solvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies. (c) As far as the observation of the Registrar of Companies, as stated in the Para (iii) of the RD's Report is concerned, Learned Counsel for the Petitioner Companies submits that as stated in Additional Affidavit dated 13.09.2019 of Mr. Ashok Jhaveri, Director of the Transferor Company and Director Emeritus of the Transferee Company: (i) Under an Indenture of Lease dated 22nd July 1986 executed between Gujarat Industrial Development Corporation ('GIDC') as Owner and the Transferor Company as Tenant, Industrial Plot No. 912 in Vapi Notified Industrial Area/Estate, consisting of Revenue Survey No. 37/P, Village Chhiri, Taluk Pardi, District Valsad, Gujarat, admeasuring 1611 sq. mts. ('the said Land') was leased to the Transferor Company for a period of 99 years; (ii) The Transferor Company also constructed an Industrial Building on the said Land admeasuring 600 sq. mts. as per the construction permission granted by Executive Engineer, GIDC, Vapi; (iii) The entire shareholding of the Transferor Company was acquired by the Transferee Company in 2011. (iv) In the Balance Sheet of the Transferor Company for Financial year 2011-12, the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in cases of such schemes, the reserves of a Transferor Company cannot be recorded in the same form and values in the accounts of the Transferee Company as appearing in the financial statement of Transferor Company. The objection, as it appears, seems to be that the monies were wrongly added to the surplus of the Transferor Company pursuant to revaluation without adding to the Profit and Loss. Further, the objection seems to be that this cannot be done because the Transferee Company was involved in transaction. (iv) In view of the above, there was nothing illegal in reflecting the differences between the monies received from the transaction under the said Assignment Deed and the historical values as reflected prior to the revaluation in the Reserves and Surplus of the Transferor Company. Therefore, the first legal of the objection cannot be sustained. (v) With regard to the second leg of the objection, it is submitted that there is no restriction in law restraining or prohibiting a scheme whereby all assets and liabilities of a 100% Subsidiary company is transferred to its holding Company. Had the transaction vide the Assignment Deed not taken place, the said land would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to comply with the observation of the RoC. This undertaking is accepted. Therefore, this objection does not survive any longer. 18. The contentions at para 16(ii) above concern treatment of the amount of ' 1.16 crore (gross) arising out of the revaluation of assets of the Transferor Company in the year 2012-13, that has been credited by the Transferor Company directly to the Reserve in the Balance Sheet of the Transferor Company without first recognising the same as income for the year 2012-13. 19. The RoC contends that the company was first required to recognise the profit arising out of revaluation of the fixed asset, which is also subject to tax as per the Income Tax Act. The RoC further contends that the Accounting treatment made by the company is in violation of section 211(3A) and 129 of the Companies Act, 1956 read with AS-10, and that the auditors have not qualified their report, rendering themselves liable for action for violation of section 227(3)(d) and section 143(3)(e) of the Companies Act, 1956. The RoC has sought direction that the company should transfer the surplus after deducting tax from the profit to the Transferee Company if the Scheme is approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors etc. Answer: No, revaluation of assets of the company was not made at any time with a view to declare dividends or to misguide the shareholders, creditors etc. 14.7. Whether the directors of the company derived any undue benefits direct or indirect if any from transactions including inter-company loans and investments, sole selling agencies, managerial remuneration etc. which the company might have made? Answer: From the records available, it is observed that the directors of the company did not derive any undue benefits directly or indirectly from any transactions of the Company. * * * 14.10. The auditor is expected to actually scrutinise the books of account and other records and papers (and not merely examine only the audited accounts of the company) with a view to advise the Official Liquidator whether the affairs of the company have or have not been conducted in a manner prejudicial to the interest of its members or to public interest? Answer: On the basis of our examination and the discussion we have had with the management of the company and the explanations, submissions and contentions given, we have to state that in our opinion and to the best of our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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