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TMI Blog2022 (5) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... ies have prayed for sanctioning of the Scheme of Amalgamation between the respective companies. The said Scheme is attached as Annexure-12 of the application. 3. The Petitioner Companies have filed the first motion application bearing CA (CAA) No.44/Chd/Hry/2020 before this Tribunal for seeking directions for dispensing with the meetings of Equity Shareholders, Secured and Unsecured Creditors of the Applicant Companies. The First motion application was disposed of vide order dated 01.03.2021, with directions to dispense with the meetings of Equity Shareholders, Secured and Unsecured Creditors of both the Applicant Companies for the reasons mentioned in the aforesaid orders. 4. The main objects, date of incorporation, authorized and paid-up share capital, and the rationale of the Scheme had been discussed in detail in the first motion order dated 01.03.2021. 5. In the second motion proceedings, certain directions were issued by this Tribunal vide order dated 23.07.2021 and in compliance of such directions, an affidavit of compliance was filed vide diary No.00397/1 dated 16.09.2021. The notice of hearing was published in "Business Standard" (English) Haryana Edition and "Busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not have any pending litigations which would impact its financial position. (ii) The Company did not have any long-term contracts including derivative contracts. Hence, the question of any material foreseeable losses does not arise; and (iii) There were no amounts required to be transferred to the Investor Educations and Protection Fund by the company. On a perusal of the report, it is seen that the Official Liquidator has made no adverse observation against the petitioner companies. 7.4 Competition Commission of India (CCI) The Competition Commission of India (CCI) has filed his report vide Diary No.519 dated 08.09.2021. It is stated that the aforesaid matter has not been filed with the Commission under the provisions of the Act and the Tribunal may seek an undertaking from the companies involved that approval of the Commission is not required for the said matter. The petitioner companies have deposed by way of affidavits that the Regulation 4 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 ('CCI Regulations') provides that the categories of combinations mentioned in Schedule I of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation is effected, subject to the certain conditions as laid down in sub-section (2) of Section 72A." As per the report of the Income Tax Department, there would be a loss of revenue approximately to the tune of Rs.3,594 Million (Plus surcharge and cess as applicable) [25% of Rs.14,375 Million]. It is further stated that there will be a loss of revenue on account of possible non-payment of the capital gains realizable by the shareholders of the Transferor Company while selling shares of the Transferee Company in the future as these shareholders are residents of Singapore and the Netherlands and they enjoy such benefits under the provisions in the respective DTAAs. It is also stated that the copy of the Share Valuation and Exchange Ratio Report issued by the Chartered Accountant for the petitioner companies have not been shared with the Income Tax Department but it appears that by issuing 25,91,034 shares of the Transferee Company, the shareholders of the Transferor Company will be benefited in spite of having negative net worth. It is further stated that the merger is nothing but a vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company." 7.6.2 Further a reference has been made to the provision of Section 47(vi) of the Income Tax Act, 1961, which reads as under: "47. Transactions not regarded as transfer. Nothing contained in Section 45 shall apply to the following transfers:-- .... .... .... (vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company." 7.6.3 Section 47(vii) provides exemption subject to the conditions laid down therein qua the shareholders of the amalgamating company receiving shares of the amalgamated company in lieu of the shares held in amalgamating company. The said Section reads as under: "47(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if- (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the transfer of shares of the Transferor Company if the transaction had not taken place. The exemption available with respect to taxability of potential capital gains is on account of shareholders being residents of the foreign country and being entitled to the benefit of the respective DTAA. It is further stated that the valuation report obtained in this regard ensures that the value with the shareholders of the Transferor Company remains the same both pre and post-merger transaction. 7.6.8 Regarding the submissions in relation to the applicability of GAAR, it is stated that the provisions of Section 96 of the Income Tax Act are not applicable as the amalgamation "is not an impermissible avoidance arrangement" and its main purpose is not to obtain a tax benefit. 7.6.9 Reliance has been placed by the petitioner companies on the decision of the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. Vs. Union of India & Anr. : 41 ITR 1, which held that on application of judicial anti-avoidance rule, the Revenue may, in the facts of a given case, invoke the "substance over form" principle or "piercing the corporate veil" test an disregard the transaction/structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare valuation and exchange ratio reports with the Income Tax Department as the same were not forwarded to the Department earlier. The petitioner companies have filed the aforementioned clarifications sought in Diary No.00397/11 and 00397/12 both dated 22.03.2022 submitting the shareholding patterns of the petitioner companies prior to and after the amalgamation along with the other details requisitioned by this Bench. It is further clarified that the share valuation and exchange ratio report have been shared with the Income Tax Department. 7.10 Subsequently, The Income Tax Department was further directed by this Bench on 25.03.2022, to submit a note indicating the extent of loss to revenue arising out of the proposed amalgamation and the basis of such projection of loss along with the Department's response to the shared valuation and exchange ratio report forwarded subsequently by the petitioner companies to the Department. During the hearing on 07.04.2022, the Income Tax Department clarified that they do not feel the necessity to file any further report in the matter. 7.11 We have gone through the submissions made and the documents produced before this Bench carefully. 7.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the promoters of the group. Admittedly, these facts are totally at variance with the facts of the present case. In the result, it is clear that the judicial decisions relied upon by the Income Tax Department do not support their plea for rejection of the present petition at hand. 7.13 We are also conscious of the decision of the Hon'ble Delhi High Court in the case of CIT v. EKL Appliances Ltd. 345 ITR 241, wherein, the Court, in the context of transfer pricing provisions, frowned upon re-characterization of the transaction, inter alia, observing that the tax administrator(s) should not disregard and/or restructure legitimate business transactions or substitute other transactions for them. The aforesaid test was reiterated by the same Court in the case of Pr. CIT Vs. Kusum Healthcare Pvt. Ltd. : [2017] 398 IT 66 (Del). We have also noted that the NCLT, Delhi Bench vide order dated 12.11.2018 in Company Petition No.CAA-385(ND)/2017 sanctioned the scheme of merger of PIPL Business Advisors and Investment Private Limited and GSPL Advisory Services and Investments Private Limited with NIIT Technologies Limited and rejected the plea of tax avoidance (GAAR) by the Income Tax Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditors 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. 9. We have heard the learned Senior Counsel and others for petitioner companies and learned Senior Standing Counsel for the Income Tax Department and perused the records carefully. 10. In the context of the above discussion, the Scheme contemplated between the petitioner companies, appears to be prima facie in compliance with all the requirements stipulated under the relevant Sections of the Companies Act, 2013. In the absence of any objections before us and since all the requisite statutory compliance have been fulfilled, this Tribunal sanctions the scheme of amalgamation appended as Annexure "12" with the company petition. 11. Notwithstanding the submission that no investigation is pending against the petitioner companies, if there is any deficiency found or, violation committed qua any enactment, statutory rule or regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause a certified copy of this order to be delivered to the Registrar of Companies for registration and on such certified copy being so delivered, the Transferor Company shall be dissolved without undergoing the process of winding up. The concerned Registrar of Companies shall place all documents relating to the Transferor Company registered with him on the file relating to the said Transferee Company, and the files relating to the Transferor Company and Transferee Company shall be consolidated accordingly, as the case may be; (ix) That the Transferee Company shall deposit an amount of Rs.1,00,000/- (Rupees One Lakh Only) to be paid in favour of "Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi " and Rs.1,00,000/- (Rupees One Lakh Only) in favour of "The Company Law Tribunal Bar Association" Chandigarh within a period of four weeks from the date of receipt of the certified copy of this order; 13. As per the aforesaid directions, Form No. CAA-7 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, formal orders be issued on the petitioners to the filing of the Schedule of Properties within three weeks from the date of receiving a certified co ..... 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