TMI Blog2022 (12) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... e for tax purposes. It is not the case of the AO and as confirmed by the learned Additional Solicitor General, that there is any attempt by revenue to rewriting the scheme of merger and demerger, but it merely doing an exercise of determining the true and correct taxliability of the assessee under the income tax act. The order of the National Company Law Tribunal has not examined the tax liability of the assessee pursuant to the above scheme but has merely approved the scheme. The determination of the tax liability on the basis of the scheme of composite merger and demerger approved by the learned national company law tribunal, looking at all the terms and conditions laid down therein, is the statutory duty of the assessing officer. The order of the National Company Law Tribunal does not says that if any tax liability arises in the hands of the assessee that cannot be examined by the assessing officer. The dispute between assessee and revenue is the claim of the assessee that the learned assessing officer is rewriting the scheme which is already approved by national company law tribunal. We do not agree with the contention of the assessee. No attempt by the learned AO to tink ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable only if the demerger fulfils the conditions provided u/s 2 (19 AA) of the act, 1961. Mere sanction of scheme is by High Court of demerger under the companies act 1956 is by itself not sufficient. Thus, in present case the ld. AO has not exceeded his jurisdiction and has also not ceded his jurisdiction. Accordingly, ground no 3 of the appeal of assessee is dismissed. Accordingly, appeal of assessee is partly allowed. Computation of deemed dividend - As in view of our finding in appeal of assessee, that there is no deemed dividend chargeable to tax in the impugned case, these grounds also do not survive, hence, are dismissed. - ITA No. 1935/MUM/2020 And SA NO 135/M/2021 And ITA No. 41/MUM/2021 - - - Dated:- 30-11-2022 - Shri Prashant Maharishi, AM And Shri Pavan Kumar Gadale, JM For the Assessee : Shri. J.D Mistry, Sr. Adv., Shri Madhur Agrawal, Adv., Shri Fenil Bhatt, Shri. Hemant Kadel, Shri. Sushil Chopra, Shri. Jayesh Ganatra, Shri. Chaitanya Joshi For the Revenue : Shri Anil Singh, Additional Solicitor general Shri. Akhileshwar Sharma, (Special Counsel) ORDER PER PRASHANT MAHARISHI, AM: 1. These are the cross appeals for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law, the Id. CIT(A) further erred in confirming the order of the id AD holding that the Appellant was never engaged in the FSB and the demerged FSB did not constitute an undertaking as defined in Explanation 1 to section 2(19AA) of the Act. 2.3 On the facts and in the circumstances of the case and in law, the id. CIT(A) when concluding that FSB did not constitute an undertaking, did not properly consider and failed to appreciate the factual material and detailed submissions filed by the Appellant. The Appellant submits that considering the same, the Ld. CIT(A) ought to have held that the Appellant was engaged in the FSB and that the demerger falls within and complies falls within and complies with the provisions of section 2(19AA) of the Act. 2.4 The finding by the Id. AO/ld. CIT(A) that FSB does not constitute an undertaking is bad in law and liable to be quashed as no person reasonable instructed could come to such conclusion on the facts of the present case. 2.5. The Appellant prays that it be held that the demerger of FSB was a tax compliant demerger under section 2(19AA) of the Act. GROUND NO. 3: GOING BEHIND AND ALLEGING DOUBT ON THE GE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the order of the Id. AO attempting to apply the provisions of the Act to the scheme approved by the Hon ble NCLT in the manner done, is bad in law and the therefore the same be quashed. WITHOUT PREJUDICE TO GROUND NO 1 TO 3: GROUND NO. 4: PROVISIONS OF SECTION 2(22) (a) OF THE ACT ARE NOTAPPLICABLE: 4.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the order of the Id. AO holding that provisions of section 2(22)(a) of the Act were applicable to the transaction of transfer of FSB by the Appellant to the resulting company and the issue of shares of the resulting company by the resulting company to the shareholders of the Appellant under the scheme of arrangement approved by the NCLT. 4.2 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in concluding that the provision of section 2(22)(a) of the Act is applicable to the present case and failed to consider the irrefutable and apparent interpretation of the provisions of section 2(22)(a) which were pointed out to him. 4.3 The Appellant prays that the provision of section 2(22)(a) of the Act are not applicable to the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) failed to consider the market value of shares on the most proximate date which should be considered for the purpose of correct valuation of shares ignoring the judgment of Hon ble Apex Court in the case of CIT Vs. Central India Industries Ltd. 82 ITR 555 (SC). 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that deemed dividend cannot exceed the general reserves of company considering the fact that the profit/surplus was distributed by Grasim Industries Limited directly to its shareholders and same was not routed though books. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that deemed dividend cannot exceed the general reserves of company considering the fact that reserve and surplus of Grasim Industries Limited would have increased had Grasim Industries Limited Hold these assets first and then distributed the profit to shareholders. Brief background of the case 4. Brief facts of the case shows that Assessee is a company, its shares are listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries Limited [Assessee] [GIL] issued 19,04,62,665 equity shares of the assessee to the shareholders of the Aditya Birla Nuvo limited i.e. ABNL.Subsequently as the second step,with effect from 4 July 2017, Assessee demerged its financial services businesses of the assessee to Aditya Birla capital limited i.e. ABCL. Therefore, Aditya Birla capital limited i.e. ABCL issued 92,02,66,951 equity shares to the shareholders of the assessee company. Thus, financial services business of assessee was transferred by the assessee. This business was stated to be carried on by the Aditya Birla Nuvo limited earlier for number of years. 9. As per the scheme of arrangement, the demerged undertaking has been defined to mean the financial services business engaged in the activity of fund-based lending, making, holding and nurturing investment in financial services sector together with all its undertakings, assets, properties, investments and liabilities of whatsoever nature and kind, and wheresoever situated, of the demerged company, in relation to an pertaining to the financial services business. 10. The assessee accordingly demerged the financial services business to Aditya Birla capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking. vii. Therefore now post demerger, 96.07% equity of Aditya Birla financial services limited was held by assessee (Grasim industries limited+ Aditya Birla Nuvo limited) and 3.93% of equity of that company was held by PI opportunity fund. Proceedings u/s 115O before LD Assessing officer 12. As the above scheme was in public domain, the learned AO issued notice on 30 January 2019 u/s 133 (6) of the act asking the assessee to submit the details with respect to the composite scheme of merger and demerger. The learned AO in the notice stated that the financial service business does not fulfill the requirement of an undertaking as per explanation 1 to Section 2 (19 AA) of the act for the reason that assessee has merely transferred combination of some assets and liabilities to Aditya Birla capital limited and in consideration for such transfer, Aditya Birla capital limited issued its equity shares to the shareholders of the assessee company. 13. The AO was of the view that total assets transferred to Aditya Birla capital limited of ₹ 1876.38 crores, substantial part of it was represented by 9.77% of equity stake held by the assessee in Aditya Birla Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2 (19 AA) of the act. viii. In any event provisions of the deemed dividend cannot be applied as there is no release of any assets by the assessee to its shareholders as assessee has transferred its undertaking to Aditya Birla capital limited and Aditya Birla capital limited has issued equity shares of Aditya Birla capital limited to the shareholders of the assessee company. ix. Therefore the provisions of deemed dividend as envisaged u/s 2 (22) (a) of the act does not trigger at all. x. there is no distribution by the assessee of its accumulated profit and xi. Even otherwise as per circular 5 P dated 9 October 1967 clearly provides that issue of shares on business reorganization does not come within the ambit of deemed dividend u/s 2 (22) (a) of the act. xii. It also cited many judicial precedents on all the above issues. 15. Subsequently, another show cause notice was issued on 1 March 2019 stating that i. Aditya Birla Nuvo limited in assessment year 2015 16 has stated while contesting disallowance u/s 14 A of the act that the investment in equity shares are purely long-term investment and not in the nature of business income, ii. annual repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atic and organized activity of holding investment can itself constitute e a business as held by the Honourable Supreme Court. vi. It also refuted that that activity carried on through or by the subsidiaries cannot be regarded as business activity of Aditya Birla Nuvo limited stating that Aditya Birla no limited is actively participating in the business of those companies through representatives on board of all such subsidiaries and vii. Further referred to the credit rating issued by ICRA and IRR which shows that assessee is involved in carrying on of the financial services business. viii. It also mentioned several other facts to support its view that other current assets transferred under the undertaking including the investment in mutual fund and liabilities including the deferred tax liability constitute an undertaking and it cannot be said that the assessee has picked and chosen the assets and liabilities without constituting an undertaking. ix. By this communication the assessee also strongly objected the approach of the AO stating that it tantamount to rewriting the scheme which is approved by NCLT and same is not permissible. Reasons in Order of the ld. AO pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn inferred from the annual accounts and income tax returns for the reason that:- a. Aditya Birla Nuvo limited source of income in the profit and loss account are Under various heads other than financial services b. Aditya Birla Nuvo limited shows interest income from lending Under the head income from other sources c. the primary source of income is shown as sale of products/sale of services d. the Aditya Birla Nuvo limited has shown all the activities in the subsidiary financial accounts and therefore the argument that standalone financial of Aditya Birla Nuvo limited has shown separate segment for financial service business is incorrect e. the interest income is shown as other income f. the loans and advances are non-current assets therefore they are not lent as a normal business activity g. assessee has not shown income from financial activities in profit and loss account for earlier financial years h. in return nature of business of financial services are not disclosed iii. out of the total assets transferred of ₹ 1876.37 crores, ₹ 1728.93 crores are only equity shares of Aditya Birla finance limited which is a subsidiary company of Adity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Writ petition before Honourable Bombay high court by Assessee in and consequent orderdated 14 August 2019 19. Peculiar facts of the case shows that the learned AO directed the assessee to deposit the tax demanded approximately of ₹ 5872.13 crores forthwith i.e. not allowing even 30 days time for payment of taxes, remedy of stay etc. Assessee approached the Honourable Bombay High Court by way of a writ petition number 945 of 2019 wherein assessee contended that there is no efficacious alternative remedy of statutory appeal available Under the act against the order passed by the learned AO hence assessee invoked extraordinary jurisdiction of the Honourable High Court challenging the impugned demand along with the order. The learned additional Solicitor general referred to the affidavit in reply wherein it was stated that appellate remedy u/s 246A of the act to the Commissioner (Appeals) against the impugned order would be available to the petitioner. Therefore Honourable High Court vide order dated 14 August 2019 as per paragraph number 4 directed the assessee to file an appeal to the Commissioner of income tax (Appeals) within a period of 3 weeks from the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax act v. no business activities in the nature of financial services was being carried out either in Aditya Birla Nuvo limited or Grasim industries limited vi. Mere examination of tax implication of a particular scheme does not amount to rewriting the scheme approved by the national company law tribunal and therefore the argument of the assessee was rejected that learned AO has rewritten the scheme approved by NCLT. vii. The distribution of accumulated profits not necessarily in the form of cash, could also be in kind chargeable to tax u/s 2 (22) (a) of the act viii. if and only if the arrangement could be termed as a demerger u/s 2 (19 AA) of the act then only the appellant would be entitled to exemption from application of provisions of Section 2 (22) (a) of the act. Assessee fails to prove so and therefore deemed dividend is chargeable to tax. ix. The deeming provisions of Section 2 (22) (a) of the act has not been applied by the learned assessing officer only based onassumption or presumption or suspicion but is on the basis of hard facts and the position of law. x. Transfer of shares of Aditya Birla finance limited to Aditya Birla capital limited and subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l services undertaking was upheld. Accordingly, the action of the learned assessing officer holding the deemed dividend u/s 2 (22) (a) of the act was upheld. To the extent of computation, the price adopted by the learned assessing officer of ₹ 261.20 per share was rejected and ₹ 145.40 per share was adopted. The appellate order was passed on 24/9/2020. Assessee as well as the learned AO both are aggrieved with appellate order and are in appeal before us. History of earlier hearing of the appeals of the parties before ITAT 22. It is necessary to mention here that these appeals have been heard by different benches on earlier two occasions, but orders could not be passed . Thereafter, from 16 March 2022 onwards, before this bench extensive hearings took place on almost 15 dates and finally concluded on 5/09/2022. 23. Due to the above circumstances, both the parties have put extensive written submissions and filed comprehensive paper books before the earlier benches. Before us, except some material which emerged because of the changes in the subsequent assessment proceedings of the assessee or arising out of the questions raised by the bench, where the parties fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st venture of the ABG in the year 1991 Birla Growth Fund Limited, a NBFC registered with RBI, entered financial services business in 1991, when liberalization started in India. In year 1994, it was renamed as Birla Global Finance Limited ( BGFL ). Entry of ABNL in FSB in the year 2000 In 2000, insurance sector was opened for private sector. ABNL along with BGFL, in collaboration with Sun Life of Canada, executed a joint venture agreement on 21.09.2000 to enter life insurance business. On 26.12.2000, IRDA granted registration under the Insurance Act to Birla Sun Life Insurance Company Limited, jointly promoted by ABNL, BGFL and Sun Life of Canada. Consolidation of Financial Services Business ( FSB ) in ABNL in 2005 Looking at the larger opportunities in financial services sector and limited capacity of BGFL to raise funds, BGFL merged with ABNL w.e.f. 1st September 2005. With this merger, ABNL became full-fledged financial services company engaged in retail asset finance, corporate finance, capital market, investment, life insurance, asset financing, asset management, insurance distribution, general insurance broking and other ancillary busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax by the Appellant under the head Profits and gains of business or profession and the same has always been taxed by the Department under the head Profits and gains of business or profession . (Extract of return and assessment order for AY 13-14 and AY 15-16 on Pg. 1312 to 1330 of FPB 2.) Disclosure in Tax Audit Reports In the tax audit report (Form 3CD), column 10(a) requires disclosure of nature of business or profession carried out by the assessee. The Tax Auditor, being independent expert, has specifically stated Financial Services Sector as one of the businesses every year. Please refer tax audit of ABNL for last five years i.e. AY 2013-14 to AY 2017-18 [Pg. No. 600-615, @ 601 (AY 13-14), @ 605 (AY 14-15), @ 609 (AY 15-16), @ 612 (AY 16-17) and @ 615 (AY 17-18 of FPB, Vol. II)]. Details of Merger of ABNL with the Appellant and subsequent demerger of FSB by the Appellant to ABCL: 5. As stated above, ABNL merged with the Appellant. Thereafter, the FSB business, which was earlier carried out by ABNL, upon merger came to the Appellant and through the same Scheme was demerged to ABCL. The relevant clauses of the Scheme of arrangement are as under: 5.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, filament yarn, chemicals, insulators, textiles, etc., financial services and telecom. The equity shares of the transferor company are listed on BSE Limited add the National Stock Exchange of India Limited. The financial service business is a division of the Transferor Company which is engaged in the activity of fund based lending, making, holding and nurturing investments in financial service sector [ financial service business ]. Aditya Birla Financial Services Limited is a public company, limited by shares, incorporated under the provisions of the Companies Act, 1956, under Corporate Identity No. U67120GJ2007 PLC058890 and having its registered office at Indian Rayon Compound, Veraval, Gujarat -362266 [ Resulting Company ]. The Resulting Company is a systematically important non-deposit taking core investment company registered with the Reserve Bank of India and has business interests including that of non-banking financial institution, housing finance, asset management, brokerage, wealth advisory and health insurance. The entire share capital of the resulting company is directly and indirectly held by the Transferor Company. (Emphasis supplied) 5.4 Clause C of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout any further act, instrument or deed, be and stand transferred to and vested in, and / or be deemed to have been and stand transferred to and vested in the Resulting Company on going concern, basis, so as to become on and from the Effective Date 2, the estate, assets, rights, title, Interest and authorities of the Resulting Company, pursuant to Section 394(2) of the Act and all other applicable provisions, if any, of the Act and in accordance with the provisions of Section 2(19AA) of the Income tax Act, 1961. 15.2 Without prejudice to the generality of clause 15.1 above, on and from the Effective Date 2: 15.2.1 The Demerged Undertaking including all its assets, properties, Investments, shareholding interest in other companies, claims, title, interest, assets of whatsoever nature such as licenses and all other rights, title, interest, contracts or powers of every kind, nature and description of whatsoever nature and wheresoever situated shall, pursuant to the provisions of section 394 and other applicable provisions, if any, of the Act, and pursuant to the order of the High Court sanctioning this scheme and without further act or deed or instrument, but subject to the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved the Scheme (Pg. No. 7 24 Vol I FPB). The Scheme was sanctioned with following observation at Paragraph 36 (Pg. No. 23 of Vol I FPB): Considering the entire facts and circumstances of the case and on perusal of the Scheme and the proceedings, it appears that the requirements of the provisions of sections 230-232 of the Companies Act, 2013 are satisfied. The Scheme is genuine and bona fide and in the interest of the shareholders and creditors. I, therefore, accordingly allow the Company Petitions and approve the Scheme. The Scheme, which is at Annexure J to the respective Company Petitions, is hereby sanctioned and it is declared that the same shall be binding on Aditya Birla Nuvo Limited and Grasim Industries Limited and Aditya Birla Financial Services Limited and their respective shareholders, creditors and all persons concerned under the Scheme ... (Emphasis supplied) The Scheme has become final, as the same has not been challenged further and binding on all the parties, including the Revenue. 8. At the outset, the Appellant submits that the allegation of the Ld. AO as affirmed by CIT(A) as well as the contention of the Revenue during the course of hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other entities viz. Subsidiaries, Joint Ventures, Associates, etc. in FSB, will not make ABNL as being engaged in FSB as these companies are distinct and have distinct business activities independent of ABNL. (Para 10.1(ii), Pg. 34 - 35 of AO Order and Para 17.1, Pg. 63 of AO Order). 12. Investment in Subsidiaries are shown under the head non-current investments . This itself establishes that it is a long term investment and not Business Activity of the Assessee(Para 10.1(ii), 35 of AO Order). In the Balance Sheet of the Appellant acquisition of shares are shown as Investments, which shows that the intention was not in the nature of adventure or resale (Para 10.1(iii), Pg. 37 of AO Order). 13. Based on findings in Annual Reports, Returns of Income and Assessment Records, it has been established beyond any iota of doubt that there was no Undertaking carrying on the business of financial services leave alone as a Going Concern which are absolutely cardinal for the purpose of holding/terming the transfer as Demerger (Para 16.4, Pg. 60 of AO Order). 14. Since no undertaking carrying out the business of Financial Services existed in the demerger company (as no such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Factually incorrect please refer Para 5 above and 72 74 below] 18. This clandestine arrangement to denude the legitimate income that arises on such transfer and resultant tax thereon, is clearly prescribed by the Apex Court Judgment in the case of McDowell Co. Limited vs. CTO [(1985) 154 ITR 0148), that, . Conclusion, reached by the Ld. AO in Paragraph 19, Pg. 77 of AO Order. 19. From the impugned order, the Appellant submits that it is not entirely clear as to what is the stand of the AO, whether only shares of ABFL were transferred or that because the shares of ABFL were transferred along with the other assets / liabilities (which undoubtedly comprised on their own an undertaking), FSB became a non-undertaking. In either case, it is submitted that the stand of the AO is not sustainable in law. Allegations of the CIT(A) in its Order: Disclosure in Annual Reports and Return of Income 20. It is not apparent that Appellant was engaged in FSB on its own and it is also clear that interest income has been shown by it only under the head other income (Para 17.7, Pg. 155 of CIT(A) Order). 21. After analysis of Annual Reports, the CIT(A) concluded that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute an independently running business and it could not qualify to be an undertaking as defined u/s 2(19AA) of the I.T. Act. In fact, explanation to section 2(19AA) clearly lays down that a mere transfer of some assets will not constitute a demerger, which actually seems to be happening in the present case. Therefore, it only had few assets in the form of shares of ABFL, which have been transferred to ABCL, and the same could not qualify as an undertaking capable of running independent business. (Para 17.2, Pg. 151 of CIT(A) Order)[Factually incorrect please refer Para 41, 43-44, 48-50 below and also 68 77 below]. 27. Merely some assets in the nature of shares of ABFL, along with some minor other assets were transferred, as against a unit, along with a very few liabilities and the balance amount was taken to reserve (Para 17.4, Pg. 152 of CIT(A) Order)[Factually incorrect please refer Para 43 below]. The Scheme itself is a colourable device: 28. It is more like transfer of shares held by Appellant to ABCL, which would result in capital gains. The CIT(A) observed that real arrangement looks like transfer of minority stake in ABFL, held by ABNL, to unlock the potential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which allegedly carried out FSBusiness. There is a distinction between carrying out FS Business and being a holding company business of investments in Companies which allegedly carried out FS Business. Business of the Subsidiaries cannot be considered as business of the Appellant. Subsidiaries are separate juristic persons. 36. No income from FS Business has been shown in Annual Report of ABNL from 2012-13 to 2016-17. 37. To satisfy conditions of section 2(19AA) of the Act, an undertaking has to be transferred on a going concern basis which must be capable of running the business independently. If the Appellant is contending that it satisfies conditions of section 2(19AA) of the Act, it is for the Appellant to adduce evidence in support of such claim and no evidence whatsoever has been brought on record by the Appellant. 38. If the Appellant was carrying out any services business, then indirect tax returns or laws must be complied with. However, no such weekly, quarterly or yearly compliances are made by the Appellant and, therefore, the Appellant was not carrying out any services business. 39. In connection with the contention that Ld. AO cannot rewrite the Scheme ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may be described as a tangible piece of property like land, machinery or the equipment; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit. Property, movable or immovable, used in the course of or for the purpose of such business can more accurately be described as the tools of business or undertaking, i.e. things or articles which are necessarily to be used to keep the undertaking going or to assist the carrying on of the activities leading to the earning of profits. Shankar Construction Co. v. CIT (189 ITR 463 (Kar HC))(@Para 4 Pg. 17, Pg. 14-18 of Legal Paper Book, Vol. I) The Appellant submits that although the aforesaid decisions were rendered in the context of interpretation of provisions of other acts / section, but the Appellant is relying on the same for undertaking the meaning of the term undertaking as is generally understood. 43. The definition of undertaking in the Explanation to section 2(19AA) is an inclusive definition and does not mandate a minimum threshold of assets / liabilities which would be required to constitute an Undertaking under the said section. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pramod Bohra M B A 4. Siddesh Ajgaonkar C A 5. Pankaj Chaudhari B. Com. 6. Himanshu Redkar C A o AIDEK Tourism Services Pvt Ltd Ors. Vs. Aditya Birla Nuvo Limited (Bombay High Court - 5 cases by petitioner and 5 cases by respondent) o Aditya Birla Nuvo Limited Vs. State of Maharashtra Ors (Bombay High Court) o Eight cases in the 44th Court of Metropolitan Magistrate, Andheri (Para 4.2.8.1., Pg. 105 -106 of CIT(A) Order and 1332 of FPB 2) 44. The Appellant submits that the aforesaid assets and liabilities are more than sufficient for it to function independently as a separate business. Even other than shares of ABFL, assets worth more than Rs. 100 crores were transferred to the resulting company. The aforesaid assets and liabilities would certainly constitute an undertaking as defined in the Explanation to section 2(19AA) of the Act. The Appellant submits that the aforesaid undertaking is sufficient to constitute an independent Non Banking Finance Company ( NBFC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that apart from non-current assets, admittedly, the current assets worth Rs.117 Crores were also transferred by the Appellant as part of financial service undertaking . Therefore, the Appellant submits that merely because some assets are recognized as non-current assets in financial statements does not mean that the undertaking ceases to be an undertaking. 47. The Appellant submits that the finding by the Ld. AO, affirmed by Ld. CIT (A), that there is no ongoing financial service business undertaking in the case of ABNL or the Appellant, is clearly contrary to the facts on record. The Appellant submits that the AO and CIT(A) have disregarded the submissions and materials filed before them during the course of the proceedings to show that ABNL was carrying on financial service business. 48. In all previous assessments, it has been accepted by the AO that ABNL has an FSB Undertaking. In the Assessment Orders for assessment years 2006-07 to 2009-10, the Assessing Officer has in fact specifically mentioned financial service business as one of the businesses of ABNL. [Pg. 248 272 Vol I FPB, @ page 250 mentioned in list of main items (AY 06-07), @ page 254 (07-08), @ page 257 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 15-16), @ 612 (AY 16-17) and @ 615 (AY 17-18 of FPB, Vol. II)]. 52. The Appellant has filed detailed submission before the CIT(A) explaining as to how the all the conditions of section 2(19AA) of the Act are fulfilled (Please refer para 4.2.8 on Page No. 102-128 of the CIT(A) order), which submissions have been brushed aside by the CIT(A)while passing the impugned order. 53. Disclosure in Annual Reports and Return of Income: The AO and CIT (A) erred in holding that interest income earned by ABNL is shown under the head income from other sources in the Annual Account. Therefore, such income is not earned by business activity. The Appellant submits that the AO and the CIT(A) have thoroughly confused themselves between what has been disclosed in the profit and loss account and how the interest income has been assessed to tax under the Act. The Appellant submits that interest income earned by ABNL has always been disclosed under the head business income in the computation of income and has been so accepted by the Assessing Officer in all the assessment years. Details of interest income were also called for during the course of assessment proceedings and after enquiry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The Appellant submits that considering the definition of undertaking, it is clear that the financial service business transferred by the Appellant is clearly an undertaking for the purpose of Section 2(19AA) of the Act. 56. Shares of ABFL held by the Appellant form part of the FSB undertaking as all shares of companies held by the Appellant which are engaged in financial services business also forms part of the undertaking of FSB. Therefore, the Appellant submits that the FSB undertaking will not only include all the other assets and liabilities listed above but also the share of ABFL as part of nurturing investment in Financial service Business. 57. Assuming without accepting that ABFL shares were not part of the undertaking, it would only mean that an additional asset has been transferred along with the Undertaking. The Appellant submits that once it is established that the Appellant transferred an Undertaking, an additional asset would not convert an Undertaking into a Non-Undertaking. Therefore, the benefit of it being an undertaking and consequently being demerger will be available for the whole of the transactions and it is not permissible to have a separate treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the financial services business. Sample minutes of Board Meeting and Risk Committee meetings of ABNL. (Pg. 207 241 of Vol I FPB, @ 207 deliberated on Risk management process of FSB.@ 208 FSB is consumer oriented, internal audit has to be strengthened.) Further BRC Minutes (Pg. 637 676 Vol II FPB, @ Pg. 637) Sample copies of Risk Committee Meetings ABNL (Pg. 700 734 Vol II FPB) 62. External agencies and valued by research houses and investors recognized ABNL s contribution in FS Business because of its active involvement and presence in the financial services sector. Press releases issued by ABNL, Research reports issued by independent entities on ABNL and credit rating agency reports. (Press release Acquisition of ASCIL (Broking business) Pg. 184 185 Vol FPB Independent Research analysts reports Pg. 186 206 Vol I FPB @ 186 ABNL s stock price do not adequately reflect ABNL s strength. @ 195 Reason for investment in ABNL would be its FSB and more specifically life insurance.) 63. The conduct of ABNL also shows the importance attributed to FSB. Disclosure and discussions in Directors Report and Management Discussion and Analysis (MDA) evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto equity, as the assessee company subscribed to the Camelot shares to enable Camelot to pay off its dues to the assessee company. On these facts, in our humble understanding, the assessee had invested in the Camelot, and extended financial help to Camelot, purely for commercial expediency. The head under which investments in subsidiaries is shown is governed by the disclosure requirements under Schedule VI to the Companies Act, and, therefore, the fact that an asset is shown as investment per se does not, and cannot, negate the fact that the such investments are made on the grounds of commercial expediency. Similarly, the head under which dividend income is assessed to tax does not also affect determination of question whether the shares are purchased on account of commercial expediency or not. It is only elementary that dividend income, whether the shares are held as investments or as any other asset, is always taxable under the head income from other sources . Therefore, nothing really turns on Assessing Officer s emphasis on the fact that the Camelot shares were shown as investments in the balance sheet and that dividend income from these shares is taxable as income from ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 7 to 9, Pg. 138, Pg. 136-139 of Legal Paper Book, Vol. I). Wherein the Court observed as under: 7. The Commissioner and the Tribunal concurrently found that the Camelot was fully owned subsidiary of the assessee and engaged in the manufacturing of toothbrushes exclusively for the sole client, namely, the assessee. Shares purchased of Camelot were also sold by the assessee to one Ramesh Sukharam Vaidya for a consideration of Rs. 45,00,000. The Assessing Officer held that the sum of Rs. 5,50,00,000 which was invested by the assessee in the equity of Camelot on March 17, 2003, and which have been used to repay the loan to the assessee-company, amounting to Rs. 5.50 crores, before March 1, 2003, would demonstrate that the purpose of investment was to give a long-term enduring benefit to the assessee. Merely because it was made in the normal course of business, it cannot be termed as anything but long-term investment. This conclusion of the Assessing Officer was challenged in the appeal before the first appellate authority and the Commissioner concluded that the main reason for setting up Camelot was to manufacture toothbrushes exclusively for the assessee. Since the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal business concept. In this regard reliance is placed on the following decisions: a. State of UP and Others VsRenusagar Power Co. and Others (1988-075-AIR-1737-SC) (Para no. 4.2.8.7, Pg. 119 to 121 of CIT(A) order) (Para 43(Pg. 228), Para 54 (Pg. 230), Para 64 (Pg. 236) and Para 68(Pg. 237), Pg. 214-246 of Legal Paper Book, Vol. I) b. Sanofi Pasteur Holding S.A. vs. DOR (354 ITR 316 AP HC) (Pg. 313 314, Pg. 247-365 of Legal Paper Book, Vol. I). In this case also the allegation of the Revenue was a colourable device formulated by the Assessee for avoiding capital gains tax and the Step-down subsidiary was only for the purpose of defrauding legitimate revenues. The High court, inter alia, held as under. Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well-established business/commercial organizational protocol; and investment is of itself a legitimate, established and globally well recognized business/commercial avocation. 66. The argument of the Revenue that carrying on business by itself and carrying through the Subsidiaries are two distinct aspects and the appellant is merely holding investment in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking, tangible assets i.e. office, current assets, investments, non-current assets, employees, liabilities, borrowings, continuing litigation, employees obligations etc. have been transferred to the demerged company. The Appellant submits that considering the assets and liabilities transferred by the Appellant to the demerged company, it is clear that the same is capable of being run as an independent entity. Further, the consolidated scheme at clause 15.1 and 15.2.1 (Pg. 51 52 of FPB) states that the undertaking is transferred as a going concern. Therefore, finding given by the AO and CIT(A) is clearly erroneous and contrary to law. Also refer to Para 4.2.8.11 on Page 125-126 of CIT(A) order. 69. The Appellant draws Your Honor s attention to the decision of the Hon ble Delhi High Court in the case of Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Del HC) (Para 41 43, Pg. 56, Pg. 43-58 of Legal Paper Book, Vol. I), wherein the Court observed as under in context of Undertaking being run as an independent business: 41. Upon reading of the aforesaid Section, it is apparent that the definition of Demerger in Act, 1961, would be satisfied if the undertaking that is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (ITA 1362 and 1363/Bang/2011) (Para 8.1.3, Pg. 88 onwards, Pg. 59-103 of Legal Paper Book, Vol. I) 70. Demerged undertaking considered on standalone basis meets the conditions of being an NBFC and a CIC. All the assets and liabilities transferred including the employees etc., by the Appellant are sufficient for any person to run the business of financial service as a going concern. (Please refer Para 4.2.7 of CIT(A) order on Page No. 100-101) 71. The Appellant submits that the AO and the CIT (A), erred in holding that the demerger is not a tax compliant demerger as no resulting company has come into existence because of demerger. The Appellant submits that under the Act, there is no requirement of a new company coming into existence on account of a demerger. The Act contemplates transfer of an undertaking to an existing company. The Appellant submits that the definition of the resulting company under Section 2(41A) of the Act clearly shows that demerger can be made to an existing company. Therefore, the Appellant submits that the impugned order passed under section 115Q r.w.s. 115O of the Act is invalid and contrary to law. Re-writing of a Court approved Scheme, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be affected by the Schemes. .. 4.9 In the present case, Appellant Nos.1 and 2/Transferee Companies filed their original Returns of Income on 30.09.2016 and 30.11.2016 respectively. Thereafter, they entered into Schemes of Arrangement and Amalgamation with 9 Transferor Companies in 2017. The Schemes were finally sanctioned and approved by the NCLT, Chennai vide final orders dated 20.04.2018 and 01.05.2018. The Appointed Date as per the Schemes was 01.01.2015. Consequently, the Transferor/ Amalgamating Companies ceased to exist with effect from the Appointed Date, and the assets, profits and losses etc. were transferred to the books of the Appellants/ Transferee Companies/Amalgamated Companies. The Schemes incorporated provisions for filing the revised Returns beyond the prescribed time limit since the Schemes would come into force retrospectively from the Appointed Date i.e. 01.01.2015. Accordingly, the Appellants filed their Revised Returns on 27.11.2018. The re-computation would have a bearing on the total income of the Appellants with respect to the A.Y. 2016-2018, particularly on matters in relation to carrying forward losses, unabsorbed depreciation etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquidator nor the Regional Director nor Central Government raised any objection to the scheme of amalgamation. In such circumstances, we are of the view that the revenue has nothing to say at the time of approval of scheme by Hon ble High Court in the present case. (Emphasis supplied) From the aforesaid it is clear that once the scheme is approved it cannot be disregarded or its terms sought to be differed from or modified by the Revenue. 74. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit that the reference to the decision of Indo Rama Textile Ltd (2012)(23 taxmann.com 390) and particularly para 47 of the decision to argue that whether a demerger is a tax compliant demerger or not is to be determined by the tax authorities post demerger does not help the case of the Revenue. The Appellant submits that the Appellant is not disputing the finding in para 47 of the Decision. However, the contention of the Appellant is that the Revenue cannot re-write the scheme to hold that an arrangement is not a tax compliant demerger. The Appellant submits that if the scheme is not a tax complaint demerger on the basis of the facts admitted in scheme, then the Revenue can hold it to be a non-tax compliant demerger. E.g. Under the scheme, the consideration is receivable by the transferor company, it will not be regarded as a tax complaint demerger. However, it is not open to the revenue to re-write the scheme in the garb of determining whether the scheme is tax compliant or not. Only Opportunity to object a Scheme is before the Scheme is Sanctioned: 78. Income-tax Department was also issued a notice on 03.03.2017 as required under section 230(5) of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation as provided under section 2(1B) causing prejudice to the Revenue. But the Revenue despite having the opportunity in its hand did not raise any objection within the time allowed by the MCA or subsequently by raising the objection in the impugned scheme of amalgamation. Thus, from the conduct of the Revenue, it is revealed that there was no grievance in the impugned scheme of amalgamation. Had there been any grievance of the Revenue, the same could have been brought to the notice of the regional director of the MCA, then the suitable action should have been initiated against the impugned scheme of the amalgamation. In this regard, we note that recently the Mumbai bench of NCLT in one of the petitions for amalgamation in case of Gas Investment (P.) Ltd (Transferor) and Ajanta Pharma Ltd. (Transferee) in CPS No 995 and 996/2017 has not approved the scheme of amalgamation on the objection raised by the revenue. The relevant extract of the order reads as under: 36. The rationale given in the scheme among others things are the proposed amalgamation of the transferor company into Transferee Company by the scheme, as a result of which the shareholders of the transferor company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioning the scheme by the Tribunal rather than disputing the same at a later stage after the scheme is sanctioned by the Tribunal. It is mandatory as per section 230(5) of the Companies Act, 2013, a notice under sub-section (3) along with all the documents in such form shall also be sent to central government, Income-tax Authorities, RBI, SEBI, ROC, stock exchanges, OL, CCI and other Sectoral regulators or Authorities for their representations. In response to the notice received as per above section the Income-tax Department has raised valid observation/objections as detailed above, we find merit in the objections raised by Income-tax Department, and we are also inclined to agree with the objections raised. From the above, it is inferred that the Income-tax Department, being aggrieved with the scheme of amalgamation, raised the objection, which was duly accepted by the NCLT and accordingly, the scheme of amalgamation was disapproved in the above case. 30.15 Now, the question arises whether the scheme once approved by the Hon'ble Gujarat High Court after receiving no objection from the Income-tax Department, the AO/revenue has authority to challenge the same. Wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 84. Further, reliance placed by the Revenue on Paragraph 19 of the Hon ble NCLT Order to contend that they had objected to the Scheme and also that the Appellant has given an undertaking to the Hon ble NCLT that the Appellant would discharge liability arising out of the implementation of the Scheme is also misplaced. The Appellant submits that firstly, the Objection raised in Paragraph 19 was in relation to merger of ABNL with the Appellant; secondly, the undertaking was only in relation to discharge of liability arising out of the merger, as ABNL became non-existent after the merger and Appellant was required to discharge liability arising from existing and continued litigation and thirdly, it was not an objection raised by the Income-tax Department. It may further be noted that such undertaking is not there with respect to Demerger of FSB with ABCL as both the demerged company and resulting company continue to the in existence. Liquidator s Report for Your honor s perusal is attached herewith as Annexure C. 85. Even otherwise the allegation of the Ld. AO and Ld. CIT(A) that purpose of the scheme of merger and demerger was to enrich the shareholders of the Appellant by fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted to the demerger, is wholly incorrect and contrary to law and ultimately liable to be set aside. Ground No. 4 of Assessee s Appeal: Provisions of Section 2(22)(a) of the Act are not applicable: 88. Without prejudice to the aforesaid contentions that the Appellant has transferred an undertaking and, hence, the demerger is a tax compliant demerger, the Appellant submits that even otherwise, the provision of Section 2(22)(a) of the Act are not applicable in the present case as the conditions necessary for applicability of the said sections are not fulfilled. The Appellant submits that section 22(22)(a) reads as under dividend includes- (a) any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. Form the reading of the aforesaid section it is clear that the provision is attracted only when the following conditions are cumulatively fulfilled a. any distribution by a company. b. distribution must be of accumulated profits. c. distribution must entail release of all or any part of the assets of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assets to ABCL and ABCL under the approved scheme has issued shares to the shareholders of the Appellant. Under the Scheme consideration was to be paid to the Shareholders of the Appellant and not the Appellant. The Appellant submits that the allegation of the Ld. AO and Ld. CIT(A) that it must be presumed that the shares of ABCL has been received by the Appellant which in turn has been distributed by the Appellant to its shareholder clearly tantamount to rewriting the express provisions of the Scheme, which as submitted above is clearly not permissible. The Appellant submits that the share of ABCL were never received by the Appellant and it cannot even be presumed that the shares of ABCL are first received by the Appellant and then transferred to its shareholder as it goes completely contrary to the scheme as approved by the NCLT. Further, the Appellant submits that if the argument advance by the revenue is to be accepted, it would mean no demerger is tax complaint as the condition of clause (iv) of section 2(19AA) would never be fulfilled. Even though the resulting company has issued shares to the shareholder of the demerged company, the Revenue will argue, that the shares have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, does not make it a situation of exchange of immovable property, or relinquishment of any right to immovable property so as to make the transaction amenable to section 269UA of the Income-tax Act. There is neither sale nor purchase in a case of amalgamation. Section 54 of the Transfer of Property Act defines sale as a transfer of ownership in exchange for a price, price being defined in section 2(10) of the Sale of Goods Act as any consideration paid for sale of the goods. In CIT v. Motors General Stores (P.)Ltd. [1967] 66 ITR 692 , it was pointed out by the Supreme Court that the presence of money consideration is an essential element of a transaction of sale. Tested by this yardstick, it would appear that in an amalgamation, no consideration in any form much less in the form of money-flows from the transferee company to the transferor company, which was the erstwhile owner of the assets. The shares are issued by the transferee company, not to the transferor company, but to the shareholders of the transferee company, who must necessarily be treated as distinct from the transferor company itself. The shareholders of the transferor company could not be deemed in law to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its shareholders (which can be the only basis on which the Revenue rests its case) as the term directly or indirectly has not been used in the section. The Appellant submits that wherever the legislature intended to include indirect transfer in the ambit, the same has been so specified at numerous places in the Act. Therefore, unless there is a direct transfer of the assets from and by the Appellant to its shareholders, the same cannot result in applicability of Section 2(22)(a) of the Act. Hence, the Appellant submits that the order dated March 14, 2019 under section 115Q r.w.s. 115O of the Act affirmed by order of CIT (A) is clearly erroneous and bad in law. The Appellant submits that in the context of section 40A(2)(b), the Hon ble Jurisdictional High Court in the case of HDFC Bank v ACIT 410 ITR 247 (Pg. 512-538 of Legal Paper Book, Vol. II)has held that an indirect shareholding cannot be considered for determining the relationship between the companies, when the section does not refer to indirect shareholding. Similarly, the Appellant submits that an indirect transfer cannot be fall within the ambit of section 2(22)(a) of the Act. Also refer Nandlal Kanoria (122 ITR 405) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant submits that the issue of applicability of Section 2(22)(a) of the Act on account of issue of shares under a scheme of arrangement has been clarified by the CBDT in Circular No.5-P dated 9th October 1967. The CBDT has clearly directed/ set out its position that the issue of shares pursuant to the scheme of arrangement does not come within the ambit of Section 2(22)(a) of the Act. The Appellant submits that the circular deals with the case of a scheme of amalgamation as the demerger provisions were not part of the Act at the time, but the same would be fully applicable to a case of demerger as well. 100. Prior to the year 2000, the Act did not have any provision to exempt the transaction of demerger from the purview of section 2(22)(a) of the Act. If the interpretation canvassed by the Revenue is accepted, then in all cases of demerger pre-2000, dividend was liable to tax, which is an absurdity that follows from the Revenue s interpretation of the provision. Further, the Appellant submits that as interpretation which leads to an absurd consequence must be avoided. The Appellant further in this regard relies upon the observation made in report of Dr. Raja Chelliah C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 11UA provides for computation method to arrive at fair market value of shares for the purpose of section 56. Thus, even if the shares issued by the resulting company is to be considered as dividend, its fair market value is to be computed following Rule 11UA, which works out to Rs. 39.51 per share. The affidavit filed by the Assessing Officer before the Hon ble Bombay High Court in WP No.1405/2019 (Pg. No. 1115 and 1141 FPB Vol III), Revenue has accepted that the amount of deemed dividend is to be computed by applying Rule 11UA. The said affidavit is also part of remand report filed by the AO to CIT(Appeal) (Page 1056-1146 FPB Vol III). 105. AO has wrongly applied Rule 11UA taking the valuation date at subsequent point of time, the CIT(A) rightly accepted that listing price of 1st Sep. cannot be the basis for valuing deemed dividend. On 04.07.17, ABCL share was unlisted share. Therefore, as per the provision of the Act r.w.r. 11UA, only option left is to do it on the basis of 11UA (1) (c) (b), which is NAV Basis. The Appellant submits that CIT(A) is wrong in taking PWC Valuation Report. Revenue cannot take a different stand than the stand taken in the affidavit filed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Rajasthan HC in ITA No. 85 of 2014 (Para 18-19, Pg. 658, Pg. 649-664 of Legal Paper Book, Vol. II) a. In this case, the AO chose listing price, CIT(A) chose PI Fund subscription price. The assessee submits adoption of rule 11UA price b. In such case, the Appellant be allowed to choose any one fair value 111. The Appellant submits that price at which shares were allotted to PI fund is not relevant as the same is not comparable to existing shareholder of holding company. 112. Without prejudice the Appellant submits that Rate of Dividend Distribution Tax cannot exceed rate as per DTAA in case of non-resident / foreign company shareholders. Reliance is placed on the decision of Giesecke Devrient (India) Pvt Ltd (Delhi ITAT) (Pg. 683-697 of Legal Paper Book, Vol. II) Submission for the proposition Dividend covered under section 2(22)(a) does not come within the ambit of section 115-O. 113. Section 115-O of the Act stipulates that any amount declared, distributed or paid by such Company by way of dividend (whether interim or otherwise) , shall be charged to additional income tax at the rate of fifteen percent. The Appellant submits that dividend referred to sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fifteen per cent , the words thirty per cent had been substituted]. Finance Act2018have inserted proviso, w.e.f. 01-04-2018 115Q. If any principal officer of a domestic company and 2018 the company does not pay tax on distributed profits in accordance with the provisions of section 115- O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply. Explanation. -[***] *** Omitted by Finance Act, 2018, w.e.f 1-04-2018, Prior to its omission, Explanation read as under: Explanation - For the purpose of this Chapter, the expression dividends shall have the same meaning as is given to dividend in clause (22) of section 2 but shall not include sub-clause (e) thereof 2. The submission of the Appellant is three-fold and is as under: - i) Section 115-O of the Act provides that a domestic company shall be charged with additional income tax over and above its total income when such company declares, distributes, or pays dividend (whether interim or otherwise). The Appellant submits that the Appellant has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can only extend it to dividend referred to in sub- clause (e) of section 2(22) of the Act and no other sub-clauses of section 2(22) of the Act. The Appellant submits that Revenue has not appreciated the difference between sub-clauses (a) to (d) of section 2(22) of the Act on the one hand and sub-clause (e) of section 2(22) of the Act on the other hand. Whereas sub-clauses (a) to (d) deal with distribution, inter alia, including of assets to shareholders, sub-clause (e) deals with payment of any sum, which can only be in monetary terms. Therefore, the Appellant submits that there is no question of sub-clauses (a) to (d) of section 2(22) of the Act being covered under the term dividend under section 115-O of the Act. iii) The Appellant further submits that Explanation to section 115Q of the Act which previously widened the scope of the term dividend has been omitted from April 1, 2018. The Appellant submits that it is settled position of law that once a provision is omitted from the statute, without any saving clause, it means that the said provision must be held as never being on the statute in view of section 6 and 6A of General Clauses Act, 1897. The Appellant in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volume II from 710 742 pages submitted on 30 June 2021 was also referred. Further legal paper book volume III containing pages 743 838 filed on 14/10/2021 was also referred to. He also extensively referred all 3 submissions made on 19/4/2021, 30/4/2021 and 9/7/2021 filed during the course of earlier hearing before the other Constitution. 28. Further on several queries raised by the bench on 28/3/2022 he referred to the interim order of The National Company Law Tribunal dated 6/2/2017, communication dated 13/9/2017 to the shareholders regarding apportionment of cost of acquisition cost demerger, relevant extract of notice is sent to the shareholder on effect of scheme of arrangement, relied upon rule 8 of The Companies (Compromises, Arrangements And Amalgamations), Rules, 2016 and report dated 31/3/2017 of the official liquidator of Madhya Pradesh. He submitted that during hearing before the national company law tribunal the official liquidator respondent. Further the income tax department did not raise any objection to the scheme before the NCLT. 29. On 5/4/2022 he referred to the relevant extract of the balance sheet, profit and loss account and note on deferred tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound the fact that the i. demerger entered by the assessee is tax compliant u/s 2 (19AA) of the act as assessee has demerged an undertaking with all its assets and all liabilities as a going concern ii. It complies with all the conditions laid down therein. iii. even otherwise, there is no distribution of assets by the assessee to the shareholders, iv. there are no accumulated profits, v. Dividend distribution tax is not chargeable on the deemed dividend and the order passed by the lower authorities are not sustainable. vi. He also extensively submitted that the only point of time available with the revenue to challenge the scheme is before the national company law tribunal, despite notice to the AO, no objections were raised, therefore, now the income tax Department is attempting to rewrite the scheme already approved by the national company law tribunal which is not in accordance with the law and not permissible. Submissions on behalf of the Assessee post directions of LD DRP dated 30/6/2022 for AY 2018-19 whenThe Ld. DRP in assessment proceedings have held that Demerger of the assessee complies with all the conditions of section 2 (19AA) of The Act, 35. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial services business being carried out by the Aditya Birla nuvo Ltd prior to the implementation of composite scheme of business reorganization ii. before the demerger, the merged entity held total financial assets of ₹ 5853 crores and considering the details of assets liabilities transferred by the assessee to the demerged entity of the financial services business, it was capable of being run as a going concern, holding that Aditya Birla nuvo limited did carry out the financial services business prior to the implementation of the scheme iii. The dispute resolution panel notwithstanding the finding of the learned national company law tribunal that the scheme is compliant of Section 2 (19 AA) of the act examine the scheme in various clauses of the provisions of the law held that subsection (i) of Section 2 (19 AA) are satisfied. iv. The DRP further held that as per paragraph number 15.2.9 of the scheme which provides that all assets , liabilities, loans, obligation, duties etc. of the demerged undertaking are transferred to the resulting company and on verification of the details of liabilities and assets the subsection (ii) of Section 2 (19 AA) is satisfied. v. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on panel as per its directions held that the demerger is tax compliant as per the provisions of Section 2 (19 AA) of the act, now the learned assessing officer cannot say in this proceedings before the coordinate bench that the demerger is not tax compliant. He submitted that the learned assessing officer cannot now take a stand which it has taken while passing the order u/s 115O read with Section 115Q which is in challenge before the coordinate bench now. He therefore submitted that the direction of the learned dispute resolution panel has closed this case in favour of the assessee. 37. He concluded his argument by saying that in view of his earlier submission as well as the direction of the learned dispute resolution panel, the appeal of the assessee on all the grounds deserves to be allowed and appeal of the learned assessing officer becomes infructuous and hence should be dismissed. SUBMISSION OF REVENUE PRIOR TO SUBMISSION OF Direction of The Ld. DRP 38. The learned ASG Shri Anil Singh along with Shri Akhileshwar Sharma, Special Counsel led argument on behalf of the learned assessing officer. The revenue has filed 2 volume of paper books containing 634 pages, made wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng which could be transferred and it was argued that that the question of Aditya Birla Nuvo limited carrying on business of investment in financial services merely because it held shares of companies that allegedly did financial services business or because the companies were given funds by Aditya Birla nuvo Ltd cannot and would not amount to Aditya Birla Nuvo limited conducting the business of financial services. Reference was made to a press release of 2008 which shows that the services were allegedly rendered only by other companies or entities and not by ABNL itself therefore admittedly Aditya Birla Nuvo limited did not have the requisite permission/approvals for carrying on these businesses including financial services business. In the end, it was contended that Aditya Birla Nuvo limited was never carrying on financial service business but was merely holding shares of other companies, providing funds to the companies that were allegedly engaged in financial services business. As Aditya Birla Nuvo limited was not carrying on a business activity, the question of the same being transferred as a whole cannot and does not arise and what has been transferred are merely individual as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of the provisions of Section 2 (22) (a) of the act, it was stated that the assessee pursuant to the scheme of merger and demerger has entered into a preordained series of transactions whereby shares of Aditya Birla finance limited were first of transferred to the assessee. These shares are assets are then transferred to Aditya Birla capital limited in return for which the shareholders of the assessee have received shares of Aditya Birla capital limited. Thus a transfer/release of assets of the assessee has resulted in distribution in favour of the shareholders of the assessee company and accordingly the present transaction squarely falls within the ambit of provisions of Section 2 (22) (a) and has been rightly brought to tax. It was further contended that reliance on the CBDT circular of 1967 is misplaced since the same deals with the amalgamation and not the demerger. The presently the issue is of demerger and therefore that circular does not apply. 41. On the appeal of the ld. AO It was further stated that the valuation adopted by the CIT A is not proper and the valuation adopted by the learned assessing officer is correct because the learned assessing officer has take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat arise for consideration in these proceedings 1. Whether the Demerged Financia Services Business constitutes an Undertaking as per Section 2(19AA) of the Act and the Demerger fulfils the conditions laid down in Section 2(19AA) of the Act? 2. Is Revere seeking to go behind the Scheme or challenge the Scheme as alleged by the Assessee? 3. Is there a case of Deemed Dividend in the present transaction? Applicability of Section 115-0 4. What should be the valuation of the dividend in such a case? Transaction/Scheme of Merger 1. Originally there were all together three companies' which had inter connection of holding with each other (pre-composite scheme ABNL.ABFSI. (Later became ABCL) and ABFL 2. ABNL owned 9.77% of ABFL and 100% of AFSL (Later became ABCL) 3. ABFL owned 90.29% of ABFL. 4. There was merger of ABNL into GIL. i.e., the assessee. Therefore, ABNL did not exist after merger. 5. Since ABNL, merged into GIL, all its shareholders merged with GIL. 6. ABFSL, continued to have 90.23% in ABFL (which was earlier 100% reduced as certain percentage went to private companies ) 7. 4.7.2017: Transfer takes place whereby the alleged financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee was that it carries on the business through a separate Division and through its subsidiaries and joint venture companies. d) Revenue Submissions 1. A perusal of Section 2(19AA) would evince that the sine qua non for the applicability of the said provision is that there must be a transfer by a demerged company of its one or more undertakings to a resulting company by fulfilling the conditions mentioned therein. 2. An Undertaking is defined as section 2(19AA). 2a. Therefore an undertaking as defined above clearly postulates the following elements viz. 1. Undertaking shall include 2. any part of an undertaking, or 3. a unit or 4. division of an undertaking or 5. a business activity taken as a whole, 6. but does not include individual assets or liabilities or any thereof not constituting a business activity. 3. Hence, the Assessee would have to show that what has been transferred pursuant to a scheme of demerger is a business activity taken as a whole and not individual or liabilities or any combination thereof not constituting a business activity. 4. This aspect can be further broken down into two issues which may need to be addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible in law. It may be noted that, 1. ABNL showed these as investments not as stock in trade. 2. The Annual Reports quoted (Pg 546 to 548) in the Order of the CIT(A) also show that no income from financial activities as business was ever shown. 3. Press Releases relied upon by the Assessee also show that the financial services business was done by other companies or entities and not by ABNL itself (Pg 116 to 183 of the Assessee Paper Book). 4. The Division shown in the Press Releases also do not show a financial services division in ABNL as is now being claimed (Pg 116 to 183 of the Assessee Paper Book). 12.Hence, it is submitted that firstly, these alleged investments, cannot and do not constitute a business and secondly, that this allegation of the Assessee is contrary to its own past conduct and hence, it would now be estopped from contending to the contrary Case of Separate Division carrying out investment through subsidiaries and JVs 13. It is submitted that the other submission of the Assessee is that ABNL was the head and heart of the financial services business run by it through its subsidiaries and JVs. It is submitted that assuming whilst denying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be transferred as a going concern: 3. It should not include individual assets which do not constitute business activity. 22. The subsidiaries or JV's being separate entities under the law cannot be equated ABNL and would stand on an independent separate footing, 23. ABNL did not show its holding of share as stock in trade but as long-term investment. 24. As already mentioned, there is a distinction between the assessee business and business of subsidiaries. The Assessee has failed to show what are his own business activities of financial services business. The Assessee has not shown 1. Who are its clients/ Service Recipients. 2. How may transactions take place allegedly as financial transactions. 3. What are the taxes charged on the processing fee. 4. Payment of GST, Service Tax, STT or any other indirect taxes collected on the processing fee charged from its clients/service recipient. 5. Filing of periodic return with the Regulatory Authority. 6. Licenses issued in their own name to conduct Financial Services business. 25. The record of 1994, 2004 or 2005 will be of no help to Assessee. The Assessee must show its financial services business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as do so, cannot seek to now resile therefrom and even otherwise, would be liable to pay the tax statutorily payable upon the said transaction scheme. Is a case of Deemed Dividend made out? 33. The Assessee has merely by entering a scheme of arrangement passed on the consideration receivable by it on transfer of assets to shareholders. 34. Thus, where Assessee directs third party to pay consideration in respect of any transaction transfer, the same tantamount to two separate transactions: firstly, receipt of consideration by the company and secondly, the distribution of the consideration to the shareholder. This is because the contract is between the company and the purchaser only, the benefits are transferred to the shareholders. Therefore, merely because physical payment has not been received by Assessee it cannot be concluded that there is no distribution made by the company to the shareholders. 35. Section 2(22) would have to be analyzed in detail. 36. A perusal of the same would show that the Assessee does not fall under what is not dividend in light of the fact that there has been no demerger as contemplated under Section 2(19AA). 37. The definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on took place. 4. Hence, it is submitted that the monies which would have been received against the of shares would be the profits of the company i.e. the Assessee and thus, its accumulated profits as per the Explanation to the said Section. 2. Part 2-Dividend Distribution 1. Instead of receiving the consideration for the sale of the shares in its coffers, the Assessee, directed these very profits of the Assessee to be distributed amongst its shareholders. 2. Hence, it is submitted that the Assessee has distributed its profits amongst its shareholders which would be nothing but dividend distribution. 40. In this connection, attention is invited to the Division Bench judgment of the Delhi High Court of Commissioner of Income tax v. Salora International Ltd. reported in [2016] 70 taxmann.com 92 (Delhi), wherein, it has been observed, inter alia, as under: - 18, ...However, we are unable to appreciate any material difference, in so far as the incidence of tax is concerned, between a scheme of arrangement which has been approved by a Company Court under the provisions of the Companies Act, 1956 (or the Companies Act 2013) or any other binding arrangement agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to which the Assessee was entitled to, had with its consent been diverted to its shareholders. The Assessee cannot escape accounting for such part of the consideration merely on the ground that it did not receive it but was discharged by MTAIC by issuing fully paid shares to the shareholders of the Assessee in terms of the Scheme. 41. Considering the above, it is submitted that the four tests, as even identified by the Assessee, are covered and/or met in the present case: - a. Any distribution by a company - Assessee has distributed the sale proceeds receivable against the sale of its assets (i.e. the shares of ABFL) to the shareholders of the Assessee. b. Distribution must be of accumulated profits - the sale proceeds had they been received by the Assessee from ABCL, would have been a part of its accumulated profits. c. distribution must entail release of all or any part of the assets of the company-Assessee has released its assets i.e. shares of ABEL d. Distribution must be to its shareholders - sale proceeds which are due and payable to the Assessee only and not its shareholders have been distributed to its Shareholders. 42. Hence, it would be evident that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation report of ABFL is ₹ 84.10 (CIT Order Para 35.17 page 633) ₹145.40 The Value adopted by CIT (a is the value of shares adopted for issuing shares of ABCL to PL fund ₹261.20 Share market value BSE as on 1st Sep 2017 47. There is an element of subjectivity and possible bias in each valuation EXCEPT the transaction value of shares in the Bombay Stock Exchange. In the circumstances, the value arrived at by the Assessing Officer is the most transparent without any element of subjectivity which is the quoted price of shares in BSE. Further, the date of listing has been taken as it is most proximate date on which market value of shares of ABCL is available. The market value of the share is the most appropriate even for the reason that the listing of shares is done for the purpose of unlocking the true value of the shares. 48. Even otherwise and without prejudice to the above and assuming whilst denying that Rule 11UA is applicable even then the fair market value of quoted shares shall be the transaction value as recorded in such stock exchange 49. The findings of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution tax on the same, hence, interest is also correctly levied. On the value of deemed dividend, he supported the order of the LD AO. Submission of revenue after the issue of direction by the learned dispute resolution panel in case of the assessment proceedings of the assessee for assessment year 2018 19 (direction dated 30/6/2022) 45. When the learned senior advocate placed on record the direction issued by the learned dispute resolution panel in assessment proceedings of the assessee for assessment year 2018 19 dated 30 June 2022, where the learned Dispute Resolution Panel has accepted that the demerger is tax compliant i.e. as per the provisions of Section 2 (19 AA) of the act, now the learned assessing officer has also accepted the same by passing assessment order u/s 143 (3) rws 144C(13) of The Act , there is nothing left to be argued by revenue. Thebench also raised a question that in the impugned appeal the argument of the revenue is directly opposite to the direction of the learned Dispute Resolution Panel in the assessment proceedings of the assessee with respect to the taxability on account of the demerger. The bench also read out the relevant paragraphs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Panel shall be binding on the Assessing Officer. Sec 144C(13): Upon receipt of the directions issued under Sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. As per the provisions mentioned above, the term 'shall' is used in the clause (10) (13) of the Section 144C, so, it was compulsory to pass the order giving effect in the stipulated time frame in conformity of the directions of Hon'ble DRP. Further, it is submitted that earlier there was a provision to file further appeal u/s 253(2A) of the Act before the Appellate Tribunal against the directions/order of the Hon'ble DRP with the approval of the Principle Commissioner or Commissioner. However, this provision was omitted by the Finance Act, 2016 w.e.f. 01.06.2016. So, at present, there is no provision to file further appeal against the order/directions of DRP Accordingly, the Order Giving Effect passed on 26. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the fact that only subsidiary companies of the assessee were engaged in some financial services activities. Therefore as far as the assessee's own affairs are concerned, it did not have a standalone financial business unit (para 17.1 on page no. 150 of CIT(A) order). Therefore, once it is held that there was no financial services business carried out by assessee, it would be only subsidiary companies of the assessee, which were doing the financial services business. The business carried out by subsidiary companies cannot be regarded as business of the assessee. It is settled position that subsidiary company pays tax on its own income and assessee does not pay tax on the income of the subsidiary company. As a corollary, the business of the subsidiary cannot be considered to be business of the assessee. IV. The DRP has erred in not considering the contention of the revenue that the shares of ABFL were shown as investments and not as current assets, indicating that they were not part of a business of sale / purchase of shares either (para 17.4 on page no. 152 of CIT(A) order). This supports the case of the revenue as disclosing the assets as part of investment and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting company in such a manner that- (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger: 2[Provided that the provisions of this sub-clause shall not apply where the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015;] (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... split up or reconstruction fulfils 4[such conditions as may be notified in the Official Gazette5, by the Central Government]. 6 [Explanation 5.-For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified7 by the Central Government in the Official Gazette.] 8 [Explanation 6. -For the purposes of this clause, the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company- (i) is a public sector company on the appointed day indicated in such scheme, as may be approved by the Central Government or any other body authorized under the provisions of the Companies Act, 2013 (18 of 2013) or any other law for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f for the words fifteen per cent , the words thirty per cent had been substituted.] 72 [(1A) The amount referred to in sub-section (1) shall be reduced by, - 73 [(i) the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and,- (a) where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend; or (b) where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend: Provided that the same amount of dividend shall not be taken into account for reduction more than once;] (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. Explanation. -For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.] 74 [(1B) For the purposes of determining the tax on distributed profits payable in accordance with this section, any amount b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, distributed or paid by the specified domestic company by way of dividends (whether interim or otherwise) to a business trust out of its current income on or after the specified date: Provided that nothing contained in this sub-section shall apply in respect of any amount declared, distributed or paid, at any time, by the specified domestic company by way of dividends (whether interim or otherwise) out of its accumulated profits and current profits up to the specified date. Explanation.-For the purposes of this sub-section,- (a) specified domestic company means a domestic company in which a business trust has become the holder of whole of the nominal value of equity share capital of the company (excluding the equity share capital required to be held mandatorily by any other person in accordance with any law for the time being in force or any directions of Government or any regulatory authority, or equity share capital held by any Government or Government body); (b) specified date means the date of acquisition by the business trust of such holding as is referred to in clause (a).] 79 [(8) Notwithstanding anything contained in this section, no tax on distribute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO. The relevant objections are as Under: - Objection no 14 Demerger considered to be not compliant with the provisions of Section 2 (19 AA) of the act 1. Erred in passing the impugned order without providing opportunity of personal hearing to the assessee and with premeditated mindset. Further the conclusion of the learned AO was preordained, and the show cause notice was mere formality 2. erred in passing the impugned order and making following additions to the income of the assessee i. long-term capital gain Rs. 16595,24,91,129/- ii. short-term capital gain ₹ 6176,73,22,832/- iii. depreciation allowance disallowed ₹ 28,978,988/- iv. reduction in block of assets ₹ 285,744,847/ 3. erred in holding that the demerger of financial services business (FSB) undertaken by the assessee is not in accordance with the conditions of Section 2 (19 AA) of the act and also erred in holding that the transaction is basically a transaction for transfer of combination of assets and liabilities and thereby income arising on the transfer of the said assets is chargeable to capital gains u/s 45 (1) of the act 4. erred in holding that the conditions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive definition which includes any part of an undertaking or a unit or division of an undertaking or business activity taken as a whole. The learned AO also add in not appreciating that the demerged financial services business was an undertaking and was transferred on a going concern basis x. erred in not appreciating that the income from fund based lending was always taxed by the learned AO as business income xi. erred in not appreciating that the demerger was compliant with the provisions of Section 2 (19 AA) of the act and is expressly exempt u/s 47 of the act xii. in addition to the provisions of explanation 1 to Section 2 (19 AA) of the act, the learned AO erred in concluding that the conditions mentioned in clause (i), clause(ii) and clause (vi) of Section 2 (19 AA) of the act were not complied with by the assessee xiii. erred in not appreciating in facts and in law that the holding investment in subsidiary company is also a business activity xiv. erred in placing reliance on various judicial precedent on essentials of validity of demerger which are clearly distinguishable from the facts of the assessee s case OBJECTION no 15 scheme of arrangement once app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he demerger in taxing the transaction as capital gains in the hands of the assessee i. erred in holding that the transaction of demerger is not covered within the exceptions contained in the provisions of Section 47 of the act as it is not a tax compliant demerger. Also the learned AO erred in relying on the order of the learned AO and CIT A in the proceedings u/s 115Q read with Section 115O of the act without appreciating the fact that same is challenged before the ITAT by the assessee ii. erred in stating that Simon tenuously merger and demerger is for enrichment of shareholders of the assessee in camouflaged manner and avoiding payment of taxes on capital gains and dividend distribution tax in the hands of the assessee iii. erred in holding that consideration in form of shares of ABCL was receivable by the assessee and the same has been distributed to the shareholders. Further, the learned AO failed to appreciate that in absence of actual consideration received or accruing to the assessee there cannot be any capital gains chargeable to tax in the hands of the assessee iv. without prejudice erred in adopting the fair market value of shares of ABCL at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger of Aditya Birla Nuvo Ltd. (ABNL) with the Assessee and subsequent demerger of the 'Financial Services Business' (FSB) into Aditya Birla Capital Ltd (ABCL) earlier known as Aditya Birla Financial Services Ltd (ABFSL) Subsequently, the NCLT, Ahmedabad Bench, vide order dated June 01, 2017 approved the scheme as per which, the merger became effective from July 01. 2017 and the demerger became effective from July 04, 2017. 25.2 However, during the assessment proceedings, the Assessing Officer (AO) held that the demerger of FSB is not in accordance with the conditions of section 2(19AA) of the Income-tax Act, 1961 (the Act) citing the following reasons and went on to compute capital gains in the hands of Assessee: i) No business activity in the nature of Financial Services by GIL/ABNI (Para 10.2 of the draft assessment order): ii) FSB was hived off for enrichment of the shareholders of GIL and to avoid paying the capital gain tax which would have otherwise become due (para 10.4 of the draft assessment order) iii) No new resulting company came in existence post demerger (para 10.5 of the draft assessment order); iv) Conditions prescribed under sub-clause (i), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices sector Further, the Explanatory Statement to Amalgamation of ABNL and Birla Global Finance Ltd (BGFL), effected in 2006, also mentioned the reason behind amalgamation that ABNI and BGFL belonged to the same group and amalgamation would further the overall objective of the Group to consolidate Financial Services Business within ABNL. 25.4.3 The panel has considered the rival contentions it is noted that the term Finance Company is not defined anywhere in the Income-tax Act 1961 (the Act ) Guidance Note of ICAI on Revised Schedule VI states that Finance Company is not defined under Companies Act also, therefore, all Companies carrying on activities which are in the nature of business of non-banking financial institute as defined u/s 451(f) of RBI Act, 1935 shall be considered as a finance company. 25.4.4 As per RBI Press release (1269 dated April 8, 1999), a Company is to be identified as NBFC, if its financial assets are more than 50% of total assets (netted off by intangible assets) and income from financial assets are more than 50% of gross income. As per these criteria, Pre-demerger, ABNL as a company was not an NBFC as: -It did not satisfy the criteria of financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation. 25.4.9 Moreover, a Core Investment Company is defined to mean a non-banking financial company carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet: -- it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies: -- its investments in the equity shares... in group companies... constitute not less than 60% of its net assets as mentioned in clause above. --it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies... Based on the description of assets/liabilities as mentioned in para 25.4.5 above, the demerged undertaking, viewed independently, fulfilled the criteria of being a Core Investment Company ( CIC ) prior to demerger as well. If the resulting company was a new company, it would have only required registration as NBFC and would be qualified to be regarded as CIC. Further, ABCL was NBFC, CIC ND SI (Non-Deposit taking Systemically Important Core Investment Company) before the demerger, and retains the same statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... One of the distinct divisions/units mentioned therein is Finance Services Division, situated in Mumbai which is stated to be engaged in asset based financial services. 25.4.14 The Assessee has further submitted that interest income from fund-based lending earned by ABNI has always been disclosed under the head business income in the computation of income and has been so accepted by the Assessing Officer in scrutiny assessment of all the assessment years (including AY 2018-19); and that the AO having accepted interest income earned on fund-based lending business income, it is now not open to the Revenue to allege that FSB was not a separate Business . In this regard, the panel perused the record, and more specifically, assessment orders pertaining to AY 2006-07, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19 It is noted that in the assessment order for AY 2006-07, one of the divisions of ABNL has been mentioned as Birla Global Finance, Mumbai whose main activity is mentioned as Financial Services In AY 2013-14 and 2014-15, the assessee had shown income from financial activities of ₹209.25 crore and ₹152.80 crore, respectively, (as seen from page no B-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by NCLT has to be complied with. In view of the above, it is held that ABNL did carry out a Financial Services Business prior to the implementation of the Scheme. 25.5 Applicability of Section 2(19AA) 25.5.1 Demerger has been defined under the Act in sub-section 19AA of section 2 For ready reference, the provisions of section 2(19AA) are extracted below: (19AA) demerger , in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 39411 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that- i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger. (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger. (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred al values appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such demerged company immediately before the demerger. Explanation 3 - For determining the value of the property referred to in sub clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation 4 - For the purposes of this clause, the splitting up or the reconstruction of any authority of a body constituted or established under a Central State or Provincial Act or a focal authority or a public sector company into separate authorities or bodies or local authorities of companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government. Explanation 5 - For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified by the Central Government i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. As can be seen, there is a statutory presumption in that section that it no response is received within 30 days the Department has no representations to make on the proposal . Further circular No 1/2014 issued by MCA dated 15th January 2014 provides that if no comments are received it may be presumed that the Department has no objection. 25.5.5 The aforesaid legal position has been re-iterated by the CBDT itself vide Instruction No. F No. 279/Misc.M-171/2013-IT dated April 11, 2014, wherein the CBDT has stated that only opportunity available to the Department to object to the scheme of amalgamation if it is found to be prejudicial to the of the Revenue is at the stage of sanctioning of the scheme. Authorities were directed to send their comments to Regional Director for placing it before the Court. Also, reference can be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ABFL, being Rs. 1728 93 crore and cumint investment of Rs 11713 crore. It was further stated that the balance sheet of ABNL and Gil 5 on 31.03.2017 did not show any current Investments and therefore was highly unlikely that any such current investment could have been created or generated in the intervening period, when no business of Financial Services was ever in existence. The above observation of the AO is considered. The A.O. has based his observation only on surmises and conjectures without bringing anything on record to refute the assertion of the assessee that current investments in the form of investments in Mutual Funds of Rs. 117.13 crore are transferred. The panel has also perused the segmental accounts of ABNL for the F.Y. 2016-17. It can be seen from Note 4C (Current Investment) that ABNL was holding current investments worth Rs. 532.10 crore in the form Mutual Funds as on 31.03.2017. Therefore, the observation of the AO that the balance sheet of ABNL and GIL as on 31.03.2017 did not show any current investments is not borne out of record. As regards the existence of business of Financial Services, the panel has already given its findings by holding that there d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company: 25.5.12 It is noted that there appears to be no dispute on the conditions mentioned under sub-sections (iv) and (v) of section 2(19AA). However, the panel independently examined the Scheme, and perused Clause 20.1 of Part thereof which provides for consideration for vesting of demerged undertaking. The said clause states that in consideration for transfer and vesting of the demerged undertaking into the resulting company, the resulting company shall issue and allot to each shareholder of the demerged company, shares of the resulting company in specified ratio. It further provides that no cash consideration shall be paid resulting company to the demerged company or its shareholders. Further, the assessee has submitted that in accordance with the terms of the Scheme as consideration of the demerger, the resulting company issued its equity shares to the shareholders of the demerged company on proportionate basis all the shareholders of the demerged com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of being run as an independent undertaking on a going concern basis as it, on a standalone basis, qualified to be NBFC CIC as per the RBI regulations, which requires that 90% of net assets should be in the form of investments in group companies and investment in equity shares in group companies is not less than 60% of its net assets. As per RBI guideline, asset size required to carry out NBFC CIC business is Rs 100 crore and the demerged undertaking had far more capital to carry out the business. Demerged undertaking possessed requisite sufficient infrastructure consisting of office, computer, equipment, furniture, vehicle, liquid assets, fund-based lending, securities etc. to carry our NBFC business of its own on sustainable basis. 25.5.18 it is pointed out here that even if out of gross asset of Rs. 1,876 crores transferred under the demerger, an amount of Rs. 1,728 crores related to stake in a subsidiary company is not considered, the demerged entity included assets totaling to Rs. 157.66 crore, such as tangible assets, current investments, non-current investments, loans, etc. 255.10 Further the term Business is defined in section 2(13) in inclusive manner and deletio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders holding not less than three fourth in value of the shares assessee became the shareholders of ABCL by virtue of the said demerger; 5. The transfer of undertaking was on a going concern basis 25.6 The Scheme is a mere transfer of assets and liabilities AND No new Resulting Company came in existence post demerger 25.6.1 The AO, in para 10.5 of the draft assessment order has noted that No New Resulting Company came into being as a result of Demerger as the Demerged Financial Services Business could not have come to being as an Independent Undertaking in absence of any such business being carried out by either of the companies, and also in view of the fact that, it was a case of mere transfer of few assets and liabilities including a 9.77% stake in ABFL that was transferred to M/s Aditya Birla Financial Services Limited . 25.6.2 In this regard, it is noted that the Act defines a Resulting Company in sub- section (41A) of section 2 in following manner: (41A) resulting company means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the shares of ABCL should have first been received by the Assessee, and by not doing so, that the Assessee has bypassed the normal practice of booking capital gains. 25.8.3 However, if such interpretation is entertained then I would amount to completely nullifying the provisions related to demerger. In the opinion of the panel, though the Department can examine an NCLT approved Scheme for compliance of tax laws it cannot re-write the Scheme to hold that arrangement is not a compliant demerger. If the scheme is not a tax compliant demerger on the basis of the facts admitted in the Scheme then the Department can hold it to be a non-tax compliant demerger. For example, under the Scheme, if the consideration is receivable by the demerged company, it will not be regarded as a tax compliant demerger and the assessee will have to pay tax on resultant capital gains. However, if on a thorough examination of an approved Scheme vis- -vis tax laws, no conflict is found out, then it is not open to re-interpret the Scheme so as to impose tax liabilities. 25.8.5 Clause (iv) of section 2(19AA) clearly provides that in consideration of demerger, the resulting company shall issue its share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that a distinctly demarcated financial sector business within ABNL was demerged as per the Composite Scheme. The demerged entity, in itself and on stand-alone basis, was qualified to be recognized as an NBFC under the extant RBI regulations, should it have chosen that way, and was capable of being run on a Going Concern Basis. The panel has examined the Scheme in detail in terms of the provisions of section 2(19AA) of the Act, and it holds that the Scheme satisfies all the conditions laid down u/s 2(19AA) to qualify as a case of valid demerger in terms of the Income-tax Act, 1961. In view of the above, the panel allows objection no. 14, 15 and 16. 53. According to provisions of Section 144C (10) of the Act, every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. Further Rule 13 of Income Tax (Dispute Resolution Panel) Rules, 2019 provides that after the issue of directions Under rule 10, if any, mistake or error is apparent in such direction, the panel may, Suo motu, or on an application from the eligible assessee or the assessing officer, rectify such mistake or error, and also direct the assessing officer to modify the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account of the transferor prior to the demerger and transferee company issues proportionate shares to the shareholders of the transferor or company then the demerger shall be considered as tax neutral. Then it is also entitled to certain tax concessions. Now the crux of the issue is that what is required to be transferred is an undertaking along with all its assets and relatable liabilities on going concern basis. ii. LD AO held for only one reason that what is transferred is not at all an undertaking as ABNL was not carrying on any financial business prior to merger and therefore there could not have been any undertaking which is transferred on going concern basis. Then he held that it is a transfer of combination of assets and liabilities and does not constituted an Undertaking . iii. Thus, the most important aspect of the issue is that there should be a transfer of one or more undertakings in the case of demerger. Explanation 1 to Section 2 (19 AA) defines undertaking as Under:- Explanation 1.-For the purposes of this clause, undertaking shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -referred case that an undertaking was not, in its real meaning, anything which may be described as a tangible piece of property like land, machinery or equipment. It was held by the court that an undertaking within the meaning of the above provisions was an activity which in commercial or in business parlance meant an activity engaged in with a view to earn profit. In this case, a dispute arose between the official liquidator of the company under liquidation and a secured creditor who was the mortgagee in respect of practically all the assets of the company and the question arose as to whether the security created was in respect of the undertaking and was liable to be treated as void for want of resolution of the general body of the company. It was held by the court that section 293(1)(a) of the Act was not applicable. During the course of the judgment, the learned judge referred to the meaning of the expression undertaking given in Webster's Dictionary as under (page 484): An undertaking, according to Webster's Dictionary, only means something that is undertaken or a business, work or project which one engages in or attempts, or an enterprise. This judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a view that the board of directors cannot dispose of all the capital assets of the company taken together which will denude the company of its business or will leave merely the husk left behind. In the present case, however, the first respondent-company owns three vessels and the vessel in question was acquired only in June, 1989, and the same is lying idle. The first respondent-company is carrying on its business with the help of the other two vessels. The company itself was a party to the transaction in respect of the disposal of one of its vessels in the ordinary course of its business for the reasons stated in the application seeking approval of the Director-General of Shipping signed by its vice-president. If the company had owned only one vessel and the result of the sale of the said vessel had been to wind up the company or to wind up the business of the company in entirety or substantially, different criteria would have applied. This is a case of a business decision taken by the board of directors of the company as far back as on 21st May, 1990, in respect of sale of one of its assets which was lying idle in respect whereof operational expenses were mounting. The vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the court was not subject to fetters imposed on the board of directors under section 293(1)(a) of the Act. Accordingly, reliance on this section by the petitioners before the court was misplaced. I am in respectful agreement with the view expressed by the High Court of Calcutta on the interpretation of sections 293(1)(a), 397 and 398 of the Act to this extent only. Secondly, it was held in this case that section 293(1)(a) did not apply to the proposed sale of the Dankuni unit of the company as it could not be considered as an undertaking because of its having remained closed for more than five years. With great respect to the honourable Division Bench of the High Court of Calcutta, I am unable to persuade myself to agree with this part of the enunciation of law. I respectfully differ. In my humble view, section 293(1)(a) makes no distinction whatsoever between a running undertaking and a closed undertaking. It is, however, not necessary to pursue this discussion further as having regard to the facts of this case, even if the vessel under sale constituted about 50 per cent. of the capital asset of the first respondent-company acquired in June, 1989 (the company having been incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the undertaking of the first respondent-company. It is merely one of several business assets of the company. It could, therefore, be disposed of by the board of directors and no general body consent is required. Thus it is clear that, if the assets are transferred which are a wholesome business unit, but not an individual assets, then only, it can constitute an undertaking . Therefore, the crux of the issue is that the undertaking being demerged should constitute a separate business activity itself. If individual assets or liabilities or any combination thereof is transferred, if it does not constitute a business activity, it cannot be considered as an undertaking . v. Firstly whether there was a financial services business carried out by the merged entity or not is the primary issue. Further it also needs to be examined that assessee has transferred any part of the undertaking or unit or division of the undertaking constituting business activity. In this regard it is apparent that what is hived off is consisting of (1) fixed assets of ₹ 16.67 crores, (2) equity shares of Aditya Birla finance limited being 9.77% stake in that company of 6,12,73,146 equity shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi. So far as the compliance with provisions of Section 2 (19 AA) of the act is concerned, all the property of the undertaking transferred by the demerged company immediately before the demerger, becomes the property of the resulting company by virtue of the demerger is also satisfied. vii. It is not the case of the revenue that i. some of the properties of the undertaking have not been transferred, or ii. some of the properties which are not the assets of the undertaking are transferred, if that be the case, naturally, in both the above situations, demerger did not satisfy the conditions u/s 2 (19AA) of the act. Thus loading of an asset to the undertaking and offloading an asset of the undertaking, both these situations will make the demerger non-compliant with the provisions of Section 2 (19 AA) of the act. In the present case,No such instances were pointed out before us. viii. It is also not the case of the revenue that assessee in the scheme of demerger has only transferred 9.77% stake in another company. It is not in dispute that it has transferred other assets and liabilities of an undertaking wherein the shares are also comprised in as part of assets of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned assessing officer has held that prior to the transfer or alleged demerger; shares of Aditya Birla finance limited were the assets of the assessee and admittedly these assets were owned by the assessee and not its shareholders. The shares were transferred to Aditya Birla capital limited and compensation in lieu of such transfer would be receivable by the assessee only and payable to the assessee only and not to shareholders. However, as part of structuring of the transaction, this payment was made by issuance of shares of Aditya Birla capital limited to the shareholders of the assessee company. Therefore, assessee, by way of the scheme has undertaken sale of shares by the assessee to Aditya Birla capital limited, consideration of which should have been received by the assessee but instead of that the shareholders of the assessee company were allotted shares of Aditya Birla capital limited. Thus, instead of receiving the consideration for the sale of shares in the corpus of the assessee company, it directed these profits of the assessee arising on the sale of shares to Aditya Birla capital limited. Assessee directed that these profits are distributed amongst its shareholders a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant of any of the assets to the shareholders. In fact, there is no direct transaction between the assessee company and its shareholders but transfer of an undertaking by the assessee company in favour of an existing company and that existing company has issued share to the shareholders of the assessee company. Several judicial precedents relied upon were already placed before us in the form of written submission extracted earlier. It was also contended that the shares of Aditya Birla capital limited issued to the shareholders of the assessee company were not the assets of the assessee company earlier but those shares were issued by ABCL afresh. It was stated that distribution by itself presupposes existence of an asset. It was further contended that the deemed dividend provisions does not take within its ambit an indirect transfer of assets by the appellant to its shareholders. Assessee also submitted that there are specific exceptions carved out u/s 2 (22) by the finance act 1999, with effect from 1/4/2000 wherein clause (v) was inserted which provided that any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, we do not agree with the contentions raised by the revenue firstly for the reason that there is no distribution by the assessee to any of its asset to the shareholders and further the deemed dividend itself excludes the distribution of shares pursuant to demerger by the resulting company to the shareholders of the demerged company. Therefore, according to us in the above scheme of demerger, there is no applicability of provisions of Section 2 (22) (a) of the act. This are wrongly invoked. 60. Even otherwise circular number 5P dated 9/10/1967 provides as Under :- CIRCULAR: NO. 5-P, DATED 9-10-1967 1. A doubt has been raised in certain quarters whether the transfer by a subsidiary company of its assets to its parent company in a scheme of amalgamation may be held to result in a distribution of dividend by the subsidiary company to its parent company to the extent of its accumulated profits, within the meaning of the term dividend in sub-clause (a) or sub-clause (c) of section 2(22). 2. Under sub-clause (a) of section 2(22), dividend includes any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the provisions of demerger were introduced in income tax by the finance act 1999. In the case of demerger also there is a transfer of undertaking from demerged company to resultant company and in consideration of transfer of such undertaking, resultant company issues proportionate shares to the shareholders of demerged company. Therefore in substance the circular says that in case of corporate reorganization, if it is otherwise compliant with the law, the provisions of deemed dividend does not apply. This is also one of the reasons where the issue of demerger was kept out of deemed dividend u/s 2 (22) of the act by subclause (v) of Section 2 (22) which provides that the dividend does not include any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company, whether there is reduction of capital in the demerged company or not. It is also to be noted that the exemption only covers the issue of distribution of shares and not any other assets. In the present case, there is only distribution of shares; no other assets are distributed by the resultant company to the shareholders of the demerged company. 62. It is further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking to the shareholders of the appellant. 70. The submission of the appellant is that the order of the learned assessing officer has destroyed the verdict of the sanctioned scheme by the national company law tribunal and by holding that that assessee has not transferred the financial services business undertaking of the merged entity to the Aditya Birla capital limited as a going concern is nothing but an attempt to rewrite a sanctioned scheme which is not permissible. It was the claim that once the scheme has been approved by the national company law tribunal, revenue cannot set to overreach or depart from the explicit provisions of the scheme. It is argued that the terms of the scheme are binding on the AO and it is not open to proceed on the basis that the scheme was effected solely with a view to transfer the shares of Aditya Birla finance limited in a circuitous transaction. The learned senior advocate further submitted that the scheme on its approval by national company law tribunal attains binding force not only inter se the transferor and the transferee companies but in rem. For this proposition he relied upon the decision of the Honourable Supreme Court in Dalmia po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the scheme only. He further referred to the decision of the Honourable Bombay High Court in Director of Income Tax versus Besix Kier Dabhol SA (210 taxman 151) to submit that revenue cannot recharacterize a transaction. He also submitted that the reliance placed by the revenue in case of CIT versus salora international Ltd (386 ITR 580) does not apply to the facts of the case as in the present case there is no consideration paid by the assessee directly to the shareholders and therefore it is distinguishable on the facts. 71. The learned Additional Solicitor General categorically submitted that revenue is not challenging or seeking to reopen the scheme which has been approved by the NCLT but revenue is merely examining the tax implication of the scheme of arrangement. It was stated that such an exercise would be in the exclusive domain of the tax authorities. He submits that tax authorities are merely examining the scheme to identify the true nature of the transaction and impose tax accordingly. He further stated that in the order of the National Company Law Tribunal dated 1 June 2017, while approving the scheme, NCLT itself noted that Grasim industries limited undertakes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer is rewriting the scheme which is already approved by national company law tribunal. We do not agree with the contention of the assessee. We have not been shown that there is any attempt by the learned AO to tinker with the scheme approved by NCLT. He is merely examining that according to the terms and condition of the scheme, the assessee fulfils the conditions of demerger for tax neutrality u/s 2 (19 AA) of the act as well as the chargeability of deemed dividend in the hands of the shareholders of the assessee company. According to us, he is duty-bound to do so. None of the decisions cited by the learned senior advocate held that the revenue does not have an authority to compute the tax liability of the assessee in pursuance to the scheme of corporate reorganization approved by the National Company Law Tribunal. Further, the object of the representation before the National Company Law Tribunal is only with respect to the scheme, if it is to defraud the revenue. Naturally, any scheme which is framed for with the object of defrauding the revenue cannot be approved by the NCLT. The circular of Ministry of corporate affairs as well as the instructions of central board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Director do not survive once the Petitioners accept that it will be open to the Income Tax Authorities to deal with the tax issues arising out of the scheme regardless of the approval of the scheme by this Court. XXXXXX 42. In my view the contentions of the Regional Director in this regard deserve to be accepted. The distinction between para 6(c) and 6(e) of the first affidavit of the Regional Director is apparent. As rightly pointed out by the Regional Director para 6(e) deals with the situation that arises in the event of the Court sanctioning the scheme. According to the Regional Director if the Court sanctioned the scheme, then the tax issues that may arise from the amalgamation must be left open for the Income Tax Authorities to decide. In other words according to the Regional Director, the sanction of the scheme should not prevent the Income Tax Authorities from scrutinizing tax returns filed by the Petitioners after giving effect to the amalgamation. In other words the Petitioners should not escape the liability, if any, to taxation upon giving effect to the amalgamation. This is very different from the contention raised by the Regional Director in para 6(c) of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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