TMI Blog2022 (5) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... the income tax authorities in any proceedings that exist/may arise post the sanction of the Scheme of Amalgamation by this Adjudicating Authority. As regards the provision of GAAR, the Income Tax Department is at liberty to invoke the provisions if the Assessing Officer during the course of assessment or reassessment proceedings, believes that GAAR should be invoked but the case will have to be referred to the Principal Commissioner or Commissioner of Income Tax, who in turn has to refer the matter to an Approving Panel in accordance with the provisions of Section 144BA of the Act. In view of the aforementioned discussions, we do not find enough merit in the objections raised by the Income Tax Department to justify any adverse inference with regard to the proposed Scheme of Amalgamation. The certificate of the Statutory Auditors with respect to the Scheme between Applicant Companies to the effect that the accounting treatment proposed in the Scheme is in compliance with applicable Indian Accounting Standards (Ind AS) as specified in Section 133 of the Act, read with Rules thereunder and other Generally Accepted Accounting Principles was filed as Annexure-14 of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso stated in the affidavit that copies of notices were served upon the (a) Central Government through Regional Director (Northern Region), Ministry of Corporate Affairs, New Delhi; (b) Competition Commission of India (CCI); (c) Registrar of Companies, NCT of Delhi and Haryana; (d) the Official Liquidator; (e) Income Tax Department through the Nodal Officer-Principal Chief Commissioner of Income Tax, Aaykar Bhawan, Sector-17E, Chandigarh by way of speed post. Copy of table of service, notices sent to authorities, speed post receipts, and tracking report of the notices are attached as Annexures-2, 3, 4, and 5 respectively of the aforesaid affidavit. This Bench has again issued notices to the Regional Director, Registrar of Companies, and the Official Liquidator by order dated 17.09.2021, and the petitioner companies have filed an affidavit of service by Diary No.00397/6 dated 29.10.2021 wherein original speed post receipts along with tracking report are attached. 6. It is also deposed by the authorised signatories of the petitioner companies that the Petitioner Companies have not received any objection from the public till date, after the publication of the aforementioned adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the applicant companies are both enterprises forming part of the same group and their amalgamation thereby qualifies for the exemption available under entry 8 of Schedule I of the CCI Regulations. The aforesaid affidavit has been attached as Annexure-4 of Diary No.00061 dated 14.01.2022. Thus, there is no adverse observation of the Competition Commission of India (CCI) in respect of the petitioner companies. 7.5 Income Tax Department The Income Tax Department filed its report by Diary No.00397/3 dated 17.09.2021, wherein it has been stated that the effective ownership of both the petitioner companies is held by M/s Panasonic Corporation, Japan as per the disclosures made in the audit reports of the petitioner companies. It has also referred to the accumulated losses of around Rs.14,37,59,45,286/- for the Assessment Year 2020-2021 i.e. Rs.14,375 Million in the hands of the Transferor Company, i.e. Panasonic India Private Limited. It is further stated that the Scheme of Amalgamation is not at arm s length and could not be termed as a prudent acquisition on any commercial or business terms and the entire benefit accrued to one company only i.e. M/s Panasonic C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any which would attract General Anti Avoidance Rules and the provisions of Section 96(1) of the Income Tax Act, 1961. Reliance has been placed on the decision of the NCLT, Mumbai Bench in the case of Gabs Investments Pvt. Ltd. and Ajanta Pharma Ltd. (CSP No.995 and 996 of 2017 and CSA No.791 and 792 of 2017) decided on 30.08.2018. 7.6 The applicants have filed their responses to the above said report of the Income Tax Department by Diary No.00397/5 dated 22.10.2021, stating in detail the commercial rationale driving the amalgamation, which includes a reduction in operating and marketing cost, economies in procurement, increase value to customers, offering holistic customer solutions, besides enhancing of the shareholders value. 7.6.1 It is further stated that the amalgamation between the companies should fulfill the conditions laid down in Section 2(1B) of the Income Tax Act, 1961 to qualify as a tax neutral merger, which reads as under: 2. Definitions. In this Act, unless the context otherwise requires, - .. (1B) amalgamation , in relation to companies, means the merger of one or more companies with another company or the mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the amalgamated company is an Indian company. 7.6.4 It is therefore submitted that the tax neutrality in the hands of the amalgamating company and the shares of the amalgamating company is conferred by the provisions of the Act and therefore no case can be made out of prejudice to revenue if compliances with the aforementioned provisions of the Income Tax Act, 1961 are made. 7.6.5 Regarding the valuation of shares of Transferor Company, it is submitted by the petitioner companies that the allegation that the shareholders of Transferor Company are getting shares worth Rs.25.91 Million in the Transferee Company as against the negative net worth of the Transferor Company is patently incorrect. The determination of the swap ratio was on the basis of the share entitlement ratio issued by a registered valuer and it had duly captured the basis of computation of such valuation. Furthermore, the imputed value of Rs.25.91 Million denotes the face value of the shares being issued by the Transferee Company and not its actual value. 7.6.6 It is further stated that there are strict conditions laid down under Section 72A of the Income Tax Act, 1961, and also in Rule 9(C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the transaction/structure, if there is abuse of organization/legal form without reasonable business purpose, which results in tax avoidance. The petitioner companies state that in essence, the Supreme Court held that if the arrangement, re-organization, restructuring, etc. are undertaken for sound commercial and legitimate tax planning reasons, then, the same could not be disregarded by the Revenue. Thus, so long as the sole motive of the transaction is not to avoid tax, which otherwise does not lack business/commercial substance, the same cannot be interfered with . A further reference has been made to the decision of the NCLT, Delhi Bench order dated 12.11.2018 in Company Petition No.CAA-385(ND)/2017 (PIPL Business Advisors Ors. with NIIT Technologies Limited). It has also relied upon the decision of the Hon ble NCLT, Mumbai Bench in the case of Gabs Investments Pvt. Limited and Ors. in CSP No.995 of 2017 and CSP No.996 of 2017 in CSA Nos.791, 792 of 2017 decided on 30.08.2018 and in the case of Hon ble NCLAT in Wiki Kids Ltd. and Ors. Vs. Regional Director, South East Region and Ors. in Company Appeal (AT) No.285 of 2017 decided on 21.12.2017. The facts here are totally dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s produced before this Bench carefully. 7.12 Though the Income Tax Department has placed reliance on the decision of the NCLT, Mumbai Bench in the case of Gabs Investments Pvt. Ltd. and Ajanta Pharma Ltd. (CSP No.995 and 996 of 2017 and CSA No.791 and 792 of 2017) decided on 30.08.2018, the facts of the case are clearly distinguishable from the present case. In the case of Gabs Investments Pvt. Ltd. (supra), the objective of the Scheme was for simplification of the shareholding structure and reduction of shareholding tiers to streamline the shareholding of the promoter group. In the present case, the petitioner companies have clearly made out a case of operational synergy between the amalgamating companies. The rationale of the Scheme had been discussed in detail in the first motion order dated 01.03.2021, which justifies the claim of the applicants that the Scheme is for business consolidation and the tax arrangements are merely a consequential fall out of the implementation of the Scheme. In this connection, we may also profitably refer to the judgment of the Hon ble Apex Court in the case of Hindustan Lever Employees Union V. Hindustan Lever Ltd. MANU/SC/0101/1995 : [1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of tax avoidance (GAAR) by the Income Tax Department. 7.14 It is also noted that though the Income Tax Department received the copy of the valuation report and the exchange ratio report subsequent to the specific directions by this Bench, it could not point out in concrete terms any adverse issue relating to the valuation of the shares made by the petitioner companies. 7.15 We emphasize that the treatment of carrying forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc. of companies are clearly spelt out under Section 72A of the Income Tax Act, 1961 read with Rule 9(C) of the Rules. Further conditions regarding carrying forward and set off losses in cases of certain companies are equally clearly spelt out in Section 79 of the Income Tax Act, 1961. These provisions, in our opinion, are sufficient to protect the interest of revenue in any case of amalgamation or demerger etc. Even if a proposal of a Scheme of Amalgamation has been approved by the Adjudicating Authority, it is clarified that no provision of such a Scheme can override the existing provisions of the Income Tax Act. In any case, the above issues will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficiency found or, violation committed qua any enactment, statutory rule or regulation, the sanction granted by this Tribunal will not come in the way of action being taken, albeit, in accordance with law, against the concerned persons, directors and officials of the petitioners. 12. While approving the scheme as above, it is clarified that this order should not be construed as an order in any way granting exemption from payment of stamp duty, taxes or any other charges, if any, payment is due or required in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law. THIS TRIBUNAL DO FURTHER ORDER: (i) That all the property, rights and powers of the Transferor Company be transferred, without further act or deed, to the Transferee Company and accordingly, the same shall pursuant to Sections 230 to 232 of the Companies Act, 2013, be transferred to and vested in the Transferee Company for all the estate and interest of the Transferor Company but subject nevertheless to all charges now affecting the same; (ii) That all the liabilities and duties of the Transferor Company be transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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