TMI Blog2021 (1) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Regional Director (SER), MCA, Hyderabad : FY. Suryanarayana with Ms. K. Srilatha and Saurabh Kalia for the petitioners. B. Jithender, CGSC For the Income-Tax Department : D. Suresh, the Assistant Official Liquidator. Ms. M. Kiranmayee, Senior Standing Counsel ORDER BHASKARA PANTULA MOHAN (JUDICIAL MEMBER). - 1. The present company petition under section 232 read with section 230 of the Companies Act, 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 is filed seeking sanction of the proposed scheme of amalgamation ( the scheme ) between the People Combine Educational Initiatives Ltd. (transferor company No. 1) ; People Combine Solutions P. Ltd. (transferor company No. 2) ; People Combine Knowledge Solutions P. Ltd. (transferor company No. 3) ; and People Combine Business Initiatives P. Ltd. (transferee company) and their respective share-holders and creditors. 2. The registered offices of the applicant-companies are situated in the State of Andhra Pradesh and therefore, they are within the jurisdiction of this Tribunal. 3. The petitioner-companies had filed C. A. (CAA) No. 22/230/AMR/2019 before this Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, a foreign company. It is further stated that the scheme has been adopted by the petitioners as the capital gains taxation on amalgamation and merger of companies is exempt under the provisions of the Income-tax Act and therefore the scheme formulated by the petitioners lacks commercial substance and is not for the benefit of the shareholders as portrayed by the petitioners and hence liable to be rejected. It is further submitted that in terms of provisions of Chapter X A of the Income-tax Act (sections 95 to 102) (General Anti Avoidance Rule) and section 144AB of the Income-tax Act, if a part of scheme is found to be a device to obtain tax benefit even though the main purpose of the scheme may not be to obtain tax benefit such an arrangement entered into can be declared as an impermissible avoidance arrangement and the consequences in relation to tax arising there from would be determined. If the present scheme is approved by the Tribunal, and if it is subsequently found by the Income-tax Department that the scheme adopted by the petitioners is to obtain tax benefits, the Department will not be in a position to lift the corporate veil and examine whether any tax benefit would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets in the hands of amalgamated company would be the same cost as was in the hands of amalgamating company. (ii) The main objective of the amalgamation is to enable them to streamline the current organisation structure and achieve an optimized legal entity structure more aligned with the business and achieving greater efficiency in resource management cost savings resulting from rationalisation, standardisation and simplification of business processes and group structure. Since, the entities are engaged in a similar line of business and part of the same group and hence the amalgamation would enable them to achieve synergies of resources and overall business objective. The provisions of GAAR cannot be made applicable to the instant scheme of amalgamation as there is no tax benefit and the amalgamation is being affected due to a cogent commercial rationale streamlining of business. (iii) By virtue of acquisition of shares of the transferee company, M/s. Nord Anglia Ed. Ltd., became the indirect holding company if its subsidiaries, i. e., indirectly held the shares of the transferor companies. The payments made by M/s. Nord Anglia Ed. Ltd., to the sellers of the shares of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce would be that the promoter will hold the shares directly in the transferee entity. It is also submitted that transferee company has furnished an affidavit/undertaking to the effect that rights and attached interests of the Income-tax Department would be protected and that the sanctioning of the scheme of amalgamation would not solely be used to challenge any tax consequence arising under the provisions of the Act. In view of the above, it is prayed to sanction the scheme. 9. The official liquidator vide his report dated March 17, 2020 while reiterating the averments made in the petition submitted that the affairs of the company appears to have not been conducted in a manner prejudicial to the interest of the members or to the public. The official liquidator made specific representation in paragraph 6 of his report with regard to the following and counsel for the petitioners vide affidavit dated June 4, 2020 answered the same as follows : Sl. No. Representative of the official liquidator Reply by the petitioner-company 1. The clause 1.11 of scheme provides for determining record date fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Owing to typographical error in paragraph 13.1 of the scheme, full details of the Accounting Treatment of assets and liabilities did not appear exactly as approved. The petitioner-companies have modified paragraph 13.1 of the scheme to replace it with paragraph 13.1 to 13.8 and a copy of the amended scheme of amalgamation is attached with this affidavit. 4. Clause 4.16 (read with clause 8) of the petition states to the effect that none of the petitioner-companies have any sectoral regulators in view of the object clauses and hence 110 notice is required to be given to sectoral regulators. Whereas, the main objects of the transferor companies found to be running educational institutions. Further, clause 1.20(a) of the scheme seeks all licenses/permissions, etc., of transferor companies to be transferred to transferee company, Hence, Tribunal may be pleased to order issue of notice to Education Departments in terms of section 230(5) of the Companies Act, 2013. Even though one of the objects of the petitioner-companies is to run and maintain educational institutes schools, colleges, etc., none of the petitioner-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act, 2013 such as the latest financial position of the company, the latest auditor s report on the accounts of the company and the pendency of any investigation or proceedings against the company. A copy of the SSPA is enclosed with this affidavit. 6. The Tribunal may be pleased to direct transferor company No. 1 to furnish full details to official liquidator in respect of related party transactions done during 2018-19 as in disclosed in note 37(b) of its balance-sheet as at March 31, 2019. Transferor company No. 1 had provided loan and advance to one of its wholly owned subsidiary company in the year 2015-16 in accordance with sections 185 and 186 of the Companies Act, 2013. On September 29, 2018 these advances, amounting to ₹ 4.08 crores and interest ₹ 58.89 lakhs were written off and details and details were provided in note 26 of the balance-sheet ending March 31, 2019. On September 29, 2018 M/s. College Street Education Technologies P. Ltd., ceased to be a subsidiary company of transferor company No. 1. Further, transferor company No. 1 had made investments in Oakwood Educational Initiatives LLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the averments made in the petition submitted that a notice has been issued to the Income-tax Department on January 7, 2020 and a letter dated February 14, 2020 has been submitted by Mrs. N. S. Srilatha, Income-tax Officer, Vijayawada addressed to the Principal Commissioner of Income-tax-1, Visakhapatnam for furnishing his report and endorsed copy to the Regional Director for information. However, no report from Income-tax has been furnished to the Regional Director. The Regional Director also made specific representation with regard to the following and counsel for the petitioner vide affidavit dated June 4, 2020 answered the same as below : Sl. No. Regional Director s observations Reply of the petitioner-companies by way of affidavit dated 4-6-2020 1. The Directorate has received letter dated 11-3-2020 from the Registrar of Companies, Vijayawada pointed out certain observations as under : The report by Regional Director is informative in nature and do not warrant any reply. (a) Requested that the hon ble Tribunal may be pleased to direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplied with the provisions of the FEMA/RBI. The transferee company confirm that all the relevant compliances applicable as per provisions of the FEMA/RBI have been duly complied with. (f) The company has failed to provide information regarding compliance of CSR provisions as per section 135 of the Companies Act, 2013 in case of transferor company No. 1. The Tribunal may be pleased to direct the transferee company to furnish the compliance of section 135 of the Companies Act, 2013. The provisions of section 135 of the Companies Act, 2013 are duly complied by transferor company No. 1, including constitution of CSR Committee and disclosure of CSR report in the Board s report. A copy of the Board s report for the financial year 2018-19 containing bearing the CSR report is attached to this affidavit. (g) The Tribunal may be pleased to direct the transferee company to furnish the compliance of section 188 of the Companies Act, 2013 with regard to compliance of related party transactions. Transferor company No. 2, transferor company No. 3 and transferee company hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he offence as stipulated under the provisions of the Companies Act, 2013. The petitioner-companies undertakes that transferor company No. 1 will transfer unspent CSR amount to the transferee company within the time specified by the Tribunal. 2. Though the petitioners have furnished the details of the transactions in respect of related party transactions as per section 188 of the Companies Act, 2013, they have failed to provide the relevant resolutions along with the relevant information to ascertain the exact position. The copy of the resolutions passed in relation to the related party transactions are annexed with this the affidavit. In view of the above reply the petitioner-companies prayed this Tribunal to sanction the scheme. 12. The petitioner-companies enclosed a certificate from auditors, namely, M/s. KJD Srinivas and Co., stating that the Accounting Treatment proposed in the proposed scheme is in conformity with Accounting Standard specified under section 133 of the Companies Act, 2013. 13. Considering the facts and circumstances of the case and on perusal of the scheme, the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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