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TMI Blog2022 (12) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... ed applicability of provisions of Section 2 (22) (a) of The Act holding that demerger of the assessee is not in accordance with provision of section 2 (19AA) of the ACT and therefore there is a distribution by assessee company of its accumulated profits, which entails the release by the company to its shareholders of all or any part of the assets of the company, so it has distributed dividend to its shareholder. However, the amount of dividend determined by the learned AO amounting to Rs. 48,93,44,40,253/- was reduced to Rs. 13,380.68 crores for the purpose of charging dividend distribution tax. Therefore, both the parties are aggrieved with the appellate order and are in appeal before us. 2. The assessee is appellant in ITA No. 1935/MUM/2020 raising following grounds of appeal: - "GROUND NO. 1: 1.1 On the facts and in the circumstances of the case and in law, the id. CIT(A) erred in party confirming the order dated 14.03.2019 passed by the learned Assessing Officer u/s 115Q r.w.s 115-O of the Act for the financial year 2017-18 and holding that dividend distribution tax of Rs 2723,99,21,942/- was payable by the Appellant. 1.2 The Appellant prays that the impugned order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions made by the Appellant. 3.2 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the order of the Id. AO of going behind and doubting the entire basis of the scheme of arrangement approved by the Hon'ble NCLT and alleging that the issuance of the shares by the resulting company to the shareholders of the Appellant is an indirect exercise by the Appellant of distributing the proceeds of the transferred undertaking to the of the Appellant. 3.3 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in upholding the action of the Id. AO in imputing illegality to the action of the Appellant under section 123 of the Companies Act, 2013. 3.4 Without prejudice, the Appellant submits that once the Revenue had not availed of the opportunity provided to it by law to object to the scheme of the arrangement on the notice dated 03.03.2017 served to the learned Assessing Officer prior to the approval granted by the Hon'ble NCLT, thereafter, it is not open to the learned .AO to challenge the object, rationale, basis or genuineness of the said scheme. 3.5 The Id. CIT(A) ought to have held that the Id. AO cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, then the liability of DDT payable in respect of Appellant's non-resident shareholders is to be computed having regard to provisions of the respective Double Taxation Avoidance Agreement. 5.3 The Appellant submits that the valuation adopted by the Id. CIT(A) for computing the amount of DDT is not sustainable in law. GROUND NO. 6. ORDERS PASSED BY THE AO AND THE CIT(A) CONTRARY TO THE PRINCIPAL OF NATURAL JUSTICE: 6.1 On the facts and in the circumstances of the case and in law, the orders passed by the Id. AO and the Id. CIT(A) are bad in law and liable to be quashed being contrary to the principals of natural justice. GROUND NO. 7: LEVY OF INTEREST UNDER SECTION 115P OF THE ACT: 7.1 On the facts and in the circumstances of the case and in law, the Id. AO, and the Id. CIT(A) erred in levying interest under section 115P of the Act. 7.2. The Appellant prays that the interest levied under section 115P of the Act be deleted." 3. The learned AO is aggrieved and is in appeal before us in ITA No.41/MUM/2021 raising following grounds of appeal: - "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion mentioned that Aditya Birla Nuvo Ltd and Birla global finance Ltd belonged to the same group and amalgamation would further overall objective of the group to consolidate financial service business within Aditya Birla Nuvo limited. Birla global finance Ltd was a nonbanking financial company engaged into the business of retail asset financing, capital market, corporate finance, investment and as financial intermediary. 6. Prior to merger Aditya Birla Nuvolimited [ABNL] hasa wholly owned subsidiary in the name of Aditya Birla financial services limited [ABFSL]. Aditya Birla financial services limited [ ABFSL] holds 90.23% equity shares in another company i.e. Aditya Birla finance limited [ ABFL] , further balance 9.77% in Aditya Birla finance limited is held by Aditya Birla Nuvo limited. 7. Board of directors of the assessee on 11 August 2016 approved a composite scheme of arrangement between the assessee [ Grasim Industries Limited / GIL] , Aditya Birla Nuvo limited (ABNL) and Aditya Birla financial services Ltd [ ABFSL] (which was later renamed as Aditya Birla capital limited (ABCL) for merger of ABNL with the assessee appellant company with effect from 1 July 2017 and subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la financial services limited. ii. There is one more entity by the name of Aditya Birla finance limited whose 90.23% equity is held by Aditya Birla financial services limited and 9.77% of the equity is held by Aditya Birla Nuvo limited. iii. On 30 June 2017, Aditya Birla Nuvo limited, out of its 100 % holding of Aditya Birla financial services limited, offloaded 3.93% of its stake to one investor, i.e. PI opportunity fund. Therefore now, in Aditya Birla financial services limited, it holds 96.07% equity and PI opportunity fund holds 3.93% equity. iv. On 1/7/2017 amalgamation took place between Grasim industries limited and Aditya Birla Nuvo limited. Thus, Aditya Birla Nuvo limited merged with Grasim industries limited. Therefore now the merged entity owns 9.77% equity of Aditya Birla finance limited and 96.07% equity of Aditya Birla financial services limited (which were earlier held by Aditya Birla Nuvo limited). v. On 4/7/2017, demerger takes place whereby financial services business undertaking is transferred from the merged entity (Grasim industries limited+ Aditya Birla Nuvo limited)[ Demerged company] to Aditya Birla financial services limited [ Resulting company] whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this price another investor i.e. PI opportunity fund acquired the shares of ABC Ltd on 30 June 2017) paid by the assessee to the shareholders of the assessee and why the assessee should not be deemed to be a "assessee in default' within the meaning of Section 115 Q of the act for non-payment of dividend distribution tax at the rate of 15% amounting to Rs. 2007.10 crores. Assessee requested for time, which was rejected and subsequently assessee was directed to file reply on or before 25 February 2019 which was replied by the assessee on the date. 14. Assessee submitted that demerger is tax neutral and is following the provisions of Section 2 (19AA) of the act. It was stated that i. Aditya Birla Nuvo limited was engaged in the financial services business merged into the assessee and ii. Subsequently financial service business was demerged undertaking transferred from the merged entity of the assessee as well as ABNL to another company to Aditya Birla capital limited. iii. The scheme is approved by the shareholders of all the companies and the national company law tribunal. iv. Assessee also submitted that what is the financial services business undertaking which has been t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is deemed dividend chargeable to dividend distribution tax u/s 2 (22) (a) of the act. vi. The show cause notice was based on the annual accounts of the assessee, Aditya Birla Nuvo limited and other information available on the website of these companies and return of income as well as assessment proceedings in case of those companies. 16. This notice was further applied by assessee on 11 March 2019 mostly reiterating submissions already made. Assessee further stated that i. Aditya Birla Nuvo limited was carrying on financial services business from assessment year 2005 onwards and stated that the quantum of investment in that business grew from Rs. 364 crore to Rs. 5589 crore and therefore it cannot be stated that Aditya Birla Nuvo limited was not carrying on any financial services activity. ii. Assessee relied on the management discussion and analysis for all those years wherein the financial services business of Aditya Birla Nuvo limited was discussed. iii. It was further stated that in the return of income only main 3 activities are required to be disclosed and as the main activity of the assessee was not the financial services it was not disclosed but in the tax audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red Financial services business : - particulars Rs. in crores Assets Tangible assets 16.67 Non-current investment (a minority stake in Aditya Birla finance Ltd, a subsidiary) 1728.93 Current investments 117.13 Loans and advances 13.43 Other current assets 0.21 Total assets (A) 1876.37 Liabilities Deferred tax liability 103.26 Short term borrowings 51.27 Employee liability 0.22 Total liability (B) 154.75 Net assets acquired (c) = (A)-(B) 1721.62 Consideration paid by issue of 92,02,66,951 equity shares of face value of Rs. 10/- each by Aditya Birla capital limited to the shareholders of Grasim industries limited (D) 920.27 Capital reserve recognized by the company (E) = (c) -(D) 801.35 ii. The financial service business which is demerged by the assessee to Aditya Birla capital limited does not constitute an 'undertaking' as defined in explanation 1 to Section 2 (19 AA) of the act for the reason that Aditya Birla Nuvo limited was not carrying on business in the nature of financial services on itsown inferred from the annual accounts and income tax returns for the reason that:- a. Aditya Birla Nuvo limited source of income in the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls into the category of deemed dividend u/s 2 (22) (a) of the act. viii. For the purpose of deriving at the amount of deemed dividend, the learned assessing officer noted that the shares of Aditya Birla capital limited were listed on stock exchange on 1 September 2017, which derived the market value i.e. the fair market value of the shares through exchange on that date. As there is no other evidences were available to derive at the fair market value of those shares, the listed price of Rs. 261.20 per share was adopted to derive at the value of Rs 24,037.37 of the deemed dividend. 18. In the assessment order it was mentioned by the learned assessing officer that if the assessee is aggrieved with the order it can file an application u/s 264 before the principal Commissioner of income tax, Central - 1, Mumbai. Thus the only remedy available with the assessee was to approach the respective authority u/s 264 of the act. Apparently no appeal is provided under the law u/s 246A of the act before the learned CIT - A. 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and further the businesses of subsidiary companies of Aditya Birla financial services limited and not of the appellant company and therefore there is just no question of own independent business of financial services of Assessee. iii. Merely some assets in the nature of shares of Aditya Birla financial services limited to the tune of Rs. 1721.62 crores along with some minor other assets are transferred along with a very few liabilities which shows that it is not capable of being run as an independent business of financial services on a going concern basis and therefore do not qualify to be an undertaking as envisaged u/s 2 (19 AA) of the act. iv. In fact, the scheme itself is like transfer of some shares held by the Grasim industries limited to Aditya Birla capital limited which may result in to capital gains. Thus whatever the assessee has transferred is nothing but a few shares but not an independent undertaking and the same does not qualify to be a demerger as per the income 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 implic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity fund by the assessee on 30/6/2017 on private placement basis which was invested on the basis of valuation report dated 29/6/2017 at Rs. 145.40 per share. xiv. Rejected the argument of the assessee made by letter dated 25/8/2020 that liability of dividend distribution tax payable in respect of foreign shareholders is required to be computed on the basis of the provisions of Double Taxation Avoidance Agreements with respective countries holding that dividend distribution tax liability is only a function of dividend declared and it has nothing to do with the tax residency of the shareholders as it is a primarily the liability of the company and in the hands of residents the dividend income is exempted from tax. Accordingly, the learned CIT - A held that the theory of merger and demerger of the assessee group has failed to pass the test of Section 2 (19 AA) of the act and consequently rejection of the claim of the assessee of transferof financial 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic listed company) and Aditya Birla Capital Limited ("ABCL") [which was earlier known as Aditya Birla Financial Services Limited ("ABFSL")] and their respective shareholders and creditors under section 391 to 394 of the Companies Act, 1956 and other applicable provisions of the Companies Act, 1956 and the Companies Act, 2013 for merger of ABNL with the Appellant and subsequent demerger of the "Financial Services Business" ("FSB")by the Appellant into ABCL. (Scheme is at Pg. No. 25 - 68 Vol I Factual Paper Book ("FPB"). 2. The Hon'ble National Company Law Tribunal ("NCLT"), Ahmedabad Bench, vide its order dated 1st June 2017 approved the said composite scheme of arrangement (Pg. No. 7 - 24 Vol I FPB). As per the said scheme, the merger was effective from 1st July 2017 and the demerger of "FSB" into ABCL was effective from 4th July 2017. 3. Background facts on evolution of FSB: * Birla Global Finance Ltd. - the first 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking and independent business activity and would in any case, tantamount to part of an Undertaking which can function independently as a going concern, if not the entire Undertaking. This establishes that the Appellant is carrying out organized and systematic activity of business. 4. Treatment in Tax Records * Recognition in the Assessment Orders In the assessment orders of ABNL for various assessment years, the AO has clearly mentioned "financial services 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 (08-09) and page 261 (09-10) of FPB - Vol. I]. * Interest income always taxed under the head "Profits and Gains of business or profession": Interest income earned on inter corporate deposits given by the Appellant has all along been offered for tax 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 Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the above, it is evident that the Scheme is based on the fundamental aspect that there is a Financial Service Undertaking which is demerged by the Appellant to ABCL. 5.3 Clause B(Pg. No. 26 - 27 of Vol I FPB), inter alia, provides description of the Transferor Company and Demerged Company and the relevant business carried out by them including FSB carried out by ABNL, relevant extract is reproduced herewith for ready reference: "Aditya BirlaNuvoLimited is a public company, limited by shares, incorporated under the provisions of the Companies Act, 1956, under Corporate Identity No.L17199GJ1956GPLC0011 07, and having its registered office at Indian Rayon Compound, Veraval, Gujarat - 362266 ["Transferor Company"]. Transfer Company is a diversified conglomerate with various business interests including manufacturing of fertilizers, viscose, 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, hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Transferor Company with the Transferee Company / Demerger Company and demerger o the Demerged Undertaking shall be in compliance with the provisions of Section 2(1B) and Section 2(19AA) of the Income-tax Act, 1961, respectively. 5.6 Clause 15 of Part III (Pg. No. 51 - 56 of Vol I FPB) deals with transfer of assets and liabilities of the Demerged Undertaking and provides that the same is done in accordance with the provisions of section 2(19AA) of the Act as well as the fact that the transfer of the undertaking is on a "going concern" basis. The relevant extract is as under: "15.1.Subject to implementation of Part II of this Scheme and with effect from the Effective Date 2, and subject to the provisions of this Scheme in relation to the mode of transfer and vesting of the Demerged Undertaking shall, without 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he "Share Entitlement Ration (Demerger)". It is clarified that no cash consideration shall be paid by the Resulting Company to the Demerged Company or its shareholders." (Emphasis supplied) It is evident from the above extract that under the Scheme no consideration was due to the Appellant, only the Shareholders were entitled to receive the shares of the Resulting Company directly from the Resulting Company. 5.9 An Intimation/ Letter dated March 3, 2017 was sent to the Ld. AO, intimating about the scheme of arrangement and calling for objections, if any, as mandated by Section 230(5) of the Companies Act, 2013 (Page No. 292 to 294 of Vol I FPB). 6. The Revenue did not file any objection to the said scheme of arrangement. 7. Pursuant to above, the Hon'ble NCLT vide order dated June 1, 2017, approved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally incorrect please refer Para 49 - 50 below]. In Profit and Loss A/c in Return of Income, interest (in case of Financial Company) is shown at NIL. Interest income is disclosed in Other income (interest income in case of a company other than a finance company) (Para 13.1(v), (vi) and (vii), Pg. 42 of AO Order)[dealt with in para 53 - 54 below] No Financial Service Business existed in either of the Companies: 11. ABNL never carried on business on a standalone basis, it was only investments in closely held Companies, which companies were carrying on such business (Para 10.1(ii), Pg. 34 of AO Order) [Factually incorrect please refer Para 41, 43-44, 48-50 below].In earlier assessments, gain arising on sale of these shares are offered as Long-term Capital Gains. Engagement of 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 lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erger with GIL only for the purpose of enrichment of the shareholders of GIL.(Para 14.4 and 14.8, Pg. 52-53 of AO Order).The purpose of the Scheme is "to resort to a circuitous route as described in the Scheme is solely to enrich the shareholders of M/s Grasim Industries Ltd. by first taking over the shares of M/s ABFL through merger with M/s Aditya Birla Nuvo Limited and then transferring those shares of ABFL to "M/s Aditya Birla Financial Services Limited" through the so called demerger."(Para 14.8, Pg. 53 of AO Order).The real arrangement was merely to transfer the minority stake of shares of ABFL, by ABNL to its subsidiary ABCL and to realise potential market value by way of transfer of listed shares of ABCL to shareholders of GIL. (Para 17.5, Pg. 65 of AO Order) [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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant were in group concern. Investments were capital in nature and not current assets indicating it was not the closing stock of business (Para 17.6, Pg. 154 - 155 of CIT(A) Order) Not capable of being run Independently on a Going Concern Basis: 26. Only investment in shares of a sister concern namely ABFL of Rs. 1728.93 crore, some current investments of Rs. 117.13 crore and a few tangible assets, valued at Rs. 167.67 crore were transferred. On the contrary liability transferred are even smaller and are in the nature of deferred tax liability of Rs. 103.26 crore and short-term borrowings of Rs. 51.27 crore. The CIT(A) concluded that "A cursory look on these assets and liabilities would convey that these assets and liabilities could not constitute 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 quali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant did not have any pre-existing FSB business and, therefore, there was no Undertaking as contemplated under section 2(19AA) of the Act which could have been transferred. Reliance placed on press release (Pg. 135 of FPB, Vol. I) issued by ABNL to contend that ABNL did not refer to its own division at all and referred only subsidiaries. 34. It is the Subsidiaries which carried out the financial service business and the Appellant independently did not have any FSB. The Appellant did not carry out any FSB, it was merely excess fund management and giving advances to its subsidiaries. No risk factor at all was involved in the activity. 35. ABNL was engaged in holding of investments in subsidiaries and joint venture companies, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, Pg. 937 Vol II FPB). Since then, ABNL has been engaged in the FS Business. 42. The term 'undertaking 'as such has not been defined in the Act. Undertaking as is generally understood means that it is business unit through which a gainful occupation can be carried out and is capable of being run independently. Undertaking has been defined by Hon'ble Supreme Court in the case of Secretary, Madras Gymkhana Club Employees' Union Vs. Management of Gymkhana Club [1968 (1) SCR 742] (@ Para 29 - Pg. 10, Pg. 1-13 of Legal Paper Book, Vol. I)to mean "any business or any work or any project which one engages in or attempts as an enterprise analogous to business or trade". 'Undertaking' is not in its real meaning anything 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shu 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") as per the requirement of the RBI. (Para 4.2.7 (g) / (h), Pg. 101 of CIT(A) Order Conditions for being qualified as NBFC CIC). In other words, if the aforesaid undertaking was to be transferred to a new company, it would be required to seek registration from RBI as a NBFC and, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 (08-09) and page 261 (09-10) of FPB - Vol. I]. 49. Acceptance by the Assessing Officer in the assessment orders for all years that the interest income from loans and advances is taxable as business income. These loans and advances constitute activity of the FSB of ABNL which is clearly as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions 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 the said issue, the same has been assessed as business income. For instance, AY 2013-14 & AY 2015-16. (Pg. 1001 - 1009 Vol III FPB). 54. In so far as the 'profit and loss account' is concerned, the AO has stated that the interest (in the case of financial company) is shown as 'nil' and has been show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 treatment only for the shares of ABFL. 58. The Appellant further submits that it is for the parties to negotiate and consent upon to formulate which assets and liabilities are to be taken over and the same cannot be challenged by the revenue. Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Page 43 - 58, LP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample 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 the importance of FSB. (Pg. 330 - 538 Vol I, Vol II FPB) 64. Holding and nurturing investments is also recognized as 'businesses under the Indian income tax law and the term business are defined in inclusive manner. a) Vodafone India Services (P.) Ltd. Vs. DCIT [2018] 89 taxmann.com 299 (Ahmedabad - Trib.) (wherein one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 other sources. We have also noted that as long as shares are acquired on the grounds of business expediency, any loss on sale thereof is also required to be treated as an admissible business deduction. Hon'ble Supreme Court"s judgment in the case of Patnaik & Co (supra) deals with a situation in which the assessee had subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was relying on Camelot for manufacturing of toothbrushes to be traded by the assessee, the investment is nothing but a measure of commercial expediency to further business objectives and primarily related to the business operations of the assessee. At no point of time the investment in Camelot was made with an intention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 companies which are carrying on the business is not sustainable in law. The Appellant once again reiterates that the Appellant was engaged in two sets of activities I) fund-based lending which the Appellant carried out by itself and ii) making, holding, nurturing investments into Companies in Financial Service Sector. The argument of the Revenue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 being demerged is hived off as a going concern, that means, if it constitutes a business activity capable of being run independently for a foreseeable future. To ensure that it is a going concern, the Court while sanctioning a Scheme can certainly examine whether essential and integral assets like plant, machinery and manpower without which it would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, not permitted: 72. The Appellant submits that the interpretation canvassed by the Ld. AO, Ld. CIT(A) and canvassed during the course of argument in-fact destroys the very edifice of the sanctioned Scheme that there existed an Undertaking which was demerged to ABCL. The entire scheme is based on the fact that there existed an established Undertaking of FSB which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnai 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. .................... On a plain reading of section 119(2)(b), we find that this provision would not be applicable where an assessee has restructured their business and filed a revised Return of Income with the prior approval and sanction of the NCLT, without any objection from the Department. (Emphasis supplied) b) Electrocast Sales India Ltd. v. DCIT (170 ITD 507 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 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. Similar view has been taken in following decisions * Sadananda Varde vs. State of Maharashtra (115 Taxman 407) (Para 80, Pg. 415, Pg. 391-423 of Legal Paper Book, Vol. II) Bom HC, * Vodafone Essar Gujarat Ltd Vs. CIT (24 taxmann.com 323) (Para 43, Pg. 456, Pg. 436-464 of Legal Paper Book, Vol. II), * Priapus Developers (176 ITD 223) (Para 13 onw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 to submit its representations / objection and there is a statutory presumption in that section that if no response is received within 30 days, the tax department has "no representations to make on the proposal". Copy of letter dated 03.03.2017 duly acknowledged by the Assessing Officer of GIL is at (Page No. 292 to 294 of Vol I FPB). The Appellant submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 viz. the promoters of the transferor company (who are also the promoters of the transferee company) shall directly hold shares in the transferee company and the promoters would continue to hold the same percentage of shares in the Transferee company pre and post-merger. 37. The above rationale presented by the petitioner company is without any Justification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. What is the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the revenue cannot object the impugned scheme of amalgamation. It is because, it is implied that the revenue has given its consent in the impugned scheme of amalgamation by raising no objection in response to the letter issued by the regional director of the MCA as discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 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 following this long scheme is unfounded. The Appellant submits that on account of the merger of the ABNL into the Appellant and demerger of the financial service business to ABCL, there is no enrichment to the shareholders of any of the entities. On account of the merger, the shareholders of ABNL have got shares of the Appellant of the same value as the value of the shares held in ABNL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise, 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 company. d. distribution must be to its shareholders. The Appellant submits that in the present case, none of the aforesaid 4 conditions are satisfied and, hence, the question of applicability of section 2(22)(a) in the present case, does not arise. 89. The Appellant submits that in the present case, there is no 'distribution' by the Appellant Company. The Appellant submits that the transfer and ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been presumed to be issued to the Demerged company which the Demerged company has distributed to its shareholder. The Appellant submits that the submission of the Revenue will, therefore, clearly lead to absurdity. Further, if such an argument cannot be canvassed for the purpose of section 2(19AA), the same would certainly also not hold good for the purpose of section 2(22). The Appellant places reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be the owners of the assets of the transferee company, nor can they be said to have held any interest in the assets of the transferee company - Bacha F. Guzdarv. CIT AIR 1955 SC 74. Right from the time of Salomon"s case [Salomon& Co. [1897] AC 22], a company has always been treated as a separate and distinct juristic person with a personality of its own different from that of its shareholders. No shareholder ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders, 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) Cal HC (Pg. 507-511 of Legal Paper Book, Vol. II). 96. The Appellant further submits that the presumption that such imaginary dividend is out of "accumulated profits" is also a result of Ld. AO consciously ignoring the actual facts, the scheme and the accounting entries as per which the debit in respect of net assets has gone to amalgamation reserve account and not to accumulated profits. Indeed, as submitted earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Committee (197 ITR (St.) 177), wherein it has been suggested that in order to remove any controversy or doubt as to the taxability of any shares or assets received by the Shareholders in Scheme of Reconstruction, it may be clarified that provisions of section 2(22)(a) of the Act will not be applicable. The Appellant further submits that Clause (v) in section 2(22) has been inserted out of abundant caution and to allay fear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Hon'ble Court. In DCIT Vs. Ozone land Agra Pvt. Ltd. (4854/M/16) (Mum ITAT) (Pg. 665-677 of Legal Paper Book, Vol. II) it is held that when statute provides for rule to compute fair value, the AO cannot choose any other method. 106. The Appellant submits that the CIT(A) ought not have rejected the Valuation Report under Rule 11UA submitted by the Appellant without bringing on record any evidence contradicting the finding gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-section 1 of section 115-O of the Act refers to dividend declared and approved under the Companies Act and no other Dividend. The Appellant submits that deeming fiction provided under section 2(22)(a) of the Act do not travel beyond the provisions of that section. It is settled proposition that legal fictions are restricted to the purpose it sought to achieve and cannot expand beyond its legitimate field. The Appellant submits that any other interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection 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 not declared, distributed, or paid any amount to its shareholders. It is further submitted that such amount has to be paid 'by way of dividend', which condition is admittedly not fulfilled in the present case as the Appellant has neither given any amount to its shareholders by way of dividend. In relation to the condition of "distribution" of dividend, the Appellant reiterates the submission made in relation to non-applicability of section 2(22)(a) of the Act that;(a)There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als 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 regard draws Your Honors attention to Pg. No. 755 - 756 of Principles of Statutory interpretation by Justice G.P. Singh (14th Edition): "Under the common law rule the consequence of repeal of a statute are very drastic. Except as to transaction past and closed, a statute after its repeal is as completely obliterated as it had never been enacted. The effect is to destroy all inchoate rights and causes of action that may have arisen under the repealed statute. Therefore, leaving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 liability as per the annual report of the assessee for financial year 2017 - 18 and breakup of the deferred tax liability related to financial services business and statement showing net assets of financial services business after excluding the shares of Aditya Birla finance limited and deferred tax liability pertaining to those shares to demonstrate that the assessee has transferred an undertaking of financial services business which is capable of running on its own on standalone basis and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities 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. At the fag end of hearing, Assessee submitted the copies of directions of LDDRP dated 30-6-2022 in assessment proceeding of the assessee. ld. Sr Advocate submitted that the assessee has filed return of income on 30/11/2018 which was revised on 29/3/2019. In revised return the assessee company has declared total income of Rs. 20,701,265,313 for assessment year 2018 - 19. The learned Deputy Commissioner of Income Tax, Transfer Pricing - 2 (2) (1), Mumbai passed an assessment order dated 30/7/2021 making an adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementation 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. The DRP further held that that the learned assessing officer has not disputed that the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in books of accounts immediately before the demerger and therefore it is compliant of clause (iii) of the provisions of Section 2 (19 AA) of the act. vi. The learned dispute resolution panel further held that there is no dispute with respect to the compliance with subsection (iv) and (v) of Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el 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 written submission on 16/4/2021 of 27 pages relying heavily on the decision of the Honourable Supreme Court in case of CIT versus Sutlej cotton Mills supply agency Ltd (1975) 100 ITR 706 (SC) and the decision of the Honourable Delhi High Court in case of CIT versus Salora international Ltd 386 ITR 580 (Delhi) (2016) submitting that details of financial services business as claimed by the assessee of Aditya Birla Nuvo limited is merely a high sounding word and it is like an ordinary activity of fund management which is common in any business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities 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 assets and liabilities which do not constitute an undertaking and business activity which do not fall within the ambit of the provisions of Section 2 (19 AA) of the act. 40. Further on 19/05/2021, once again the learned special counsel reiterated that there is a distinction between the assessee's business and business of subsidiaries. The assessee has failed to show that who are its clients, service recipient, how many transactions took place as financial transactions, what are the taxes charged on the processing fees, payment of goods and ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 taken the value arrived at the traded price of those shares which is most transparent and proximate in time with the comparable taken from the stock market when the shares of Aditya Birla capital limited was listed on 1/9/2017 at Bombay stock exchange. It was further claimed that levy of interest u/s 115P is proper and consequential. 42. Further submission was made on 7/7/2021, relying on the decision of the Honourable Delhi High Court in case of salora international Ltd (supra), it was submitted that that the present distribution of shares to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 services business of merged GII went to ABFSL (renamed as ABCL). 8. Thus, ABFSL became 100% holding company of ABFL and for this transfer ABFSL allotted shares of ABFSL directly to the shareholders of merged GII 9. The entire purpose and object of the scheme was to benefit the shareholder of original GIL and ABNL or the merged GIL. Had this demerger step not taken place either ABNL or merged GIL would have been constrained to sell 9.77% of ABFL to ABFSL. 10. For this sale ABFSL would have paid monies to merged GIL, which monies would be accumulated profits, which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 viz: - 1. Is there an existing business activity which was being carried out and demerged? 2. If no, then no further enquiry would arise. 3. if yes, then whether that business activity has been transferred as a going concern basis 5. It is submitted that a distinction needs to be drawn here between carrying out financial services business and being the holding company of companies that may be carrying on financial services business. 6. As would be evident from the record, highlighted herein below, ABNL did not carry out financial services business itself but was the holding company of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per 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 this to be true, the business of financial services even if controlled by ABNL, cannot and would not amount to ABNL carrying out the business of financial services. The business of financial services was being done only by the subsidiaries and JVs 14. The subsidiaries and JVs being separate juristic entities under the law cannot be equated to ABNL and would stand on a separate and independent footing. 15. Hence, on the face of it, ABNL was not carrying on financial services business. At the highest, it was the holding company of companies which were carrying on financial services business. The two however, cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at the time of amalgamation and particularly demerger. The Assessee has failed to give any particulars of the financial business service activity. 26. The arguments of the Revenue is that the scheme in question does not pass the test under the Income-tax Act 1961. 27. The Revenue is not challenging the scheme. It is merely determining the incidence of tax, and this is clearly permissible as per the law laid down in para 18 and 19 in [2016] 70 taxmann.com 92 (Delhi) Commissioner of Income-tax v Salora International Ltd. para 46 to 48 in Indo Rama Textile Ltd (2012) (23 taxmann.com 390) (Del HC) 27. (2012) 24 taxmann.com 323 (Guj) V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act 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 what is dividend is an illustrative definition which begins by the word "includes" Hence, the Legislative intent to ensure that the word dividend is construed broadly, except for the few exceptions mentioned in the Section itself is evident. 38.Relevant facts 1. Pre-transfer/alleged demerger, the shares of ABFL were the assets of the Assessee: 2. Admittedly, this asset i.e., the shares of ABFL were owned by the Assessee and not its shareholders. 3. These shares of ABFL were transferred to ABCL. 4. Compensation in lieu of such transfer would be receivable by the Assessee only and or payable to the Assessee only, and not its shareholders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agreement. Mere sanctioning or approval under Section 391- 394 of the Companies Act 1956 would not alter the character of the scheme or the nature of transaction embodied therein for the purposes of levy of income tax under the Act. To illustrate the aforesaid, let us take an instance of a company which enters into an agreement for sale of one of its undertakings (substantial) and in terms of the agreement, a part of the consideration is payable directly to its shareholders. The company also obtains the necessary approvals of its shareholders as required under the provision of Section 180 of the Companies Act, 2013, which is part material to Section 293 of the Companies Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution 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 there has been a distribution of dividend, which is thus, liable to be taxed as such. 43. Lastly, without prejudice to the fact that there is no ground raised either before CIT(Appeals) or in the Appeal Memo as to the applicability of Section 115-0, it 15 submitted that the same would be applicable in the instant case. 44. A perusal of Section 115-0, would evince that 1. the Section opens with non-obstanteclause. 2. It provides that any amount declared, distributed or paid by such company by way of dividends - hence, it is a disjunctive test, viz. that the dividend must either be declared or distributed or paid. This interpretation is also borne out sub-section 3 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares 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 CIT(A) is contrary to the apex judgment in CIT v. Central India Industries Ltd. 82 ITR 555 (SC) (Pg. 152-158) wherein the apex court held as "Therefore when dividend is received in kind, in order to find out the true income received by an assessee, the property that has been received by him has to be valued on the basis of its market value. Otherwise, it is not possible to compute the income received by him. It is well known that the face value of shares need not be their real value at a given point of time. The market price of particular shares may be very much more than their face value or very much less. It would be wrong to say that when shares are distributed as dividend, the person who receives them gets only their face value in terms of money What he really receives is the market value of those shares as on the date he became entitled to those shares. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench 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 the dispute resolution panel's direction to show that all the arguments raised by the revenue in this appeal , impugned order of The ld. AO in this appeal and Appellate order of the learned CIT - A - advanced before us, comes to a nullity. 46. It was also pointed out by the bench that now the order of the learned CIT - A which is passed by the one Commissioner has now been overruled by a panel of 3 commissioners i.e. DRP. Further it was also pointed out to LD DR that directions of the learned dispute resolution panel are non-appealable by revenue. It was also pointed out that unless the direction of DRP are upset by invoking the powers of section 263 of the Act, the issue becomes final that the demerger is tax neutral as per the provisions of Section 2 (19 AA) of the act. Therefore, now the appeal of the assessee deserves to be allowed and appeal of the learned AO dese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;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 26.07.2022 is the compliance to the provision of clause(13) of Section 144C. In respect to it, it is submitted that the department has not accepted the directions of the Hon the DRP on merit. So, department, in the absence of any appeal filing opportunity against the direction, has raised a rectification request under rule 13 of the Income Tax (DRP) Rules, 2009 as there are mistakes/errors apparent in the above directions given by Hon'ble DRP vide its directions dated 30.06.2022 The grounds for rectification request filed to the Hon'ble DRP as under: I. A cursory look on these assets and liabilities transferred by assessee would convey that these assets and liabilities could not constitute an independently running business and it could not qualify to be an undertaking as defined u/s 2(19AA) of the IT Act. In fact explanation to sec 2(19AA) clearly lays down that a mere transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as stock in trade in books of accounts also shows that assessee is not carrying out any financial services business. V. Revenue has relied on various judicial precedents as given below (para 17.5 on page no. 153-154 of CIT(A) order), which have not been considered by the DRP: * L&T Finance Ltd Vs. Deputy Commissioner of Income-tax, Circle 2(2)(4), Mumbai (2017) 87 taxmann.com 03 (Mumbai-Trib.) * Duchem Laboratories Ltd v/s ACTT (2010) 47 DTR 0484 (Mumbai -Tribunal) * Avaya Global Connect Lid v/s ACIT (2008) 13 DTR 0309) - Mumbai Tribunal * CIT v/s Bharat Bijlee Ltd. (2014) 365 ITR 258 (Dom) - Hon'ble High Court of Bombay * DCIT v/s NOCIL Ltd. [2017) 159 DTR 0009 (Mumbai(Trib)] Bombay Tribunal, * Mahindra Engineering & Chemical Products Ltd. v/s ITO (2012) 51 SOT 0496)-Bombay Tribunal * M/s. KBD Sugars & Distilleries Ltd. vs. Asstt. Commissioner of Income Tax, Circle 11(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged 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 the demerged company on a proportionate basis 3[except where the resulting company itself a shareholder of the demerged company is]; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders 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; (vi) the transfer of the undertaking is on a going concern basis; (vii) The demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. Explanation 1. -For the purposes of this clause, "undertaking" shall include any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the time being in force governing such public sector companies in this behalf; and (ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf;] B) Section 2 (22) (a) and exceptions to deemed dividend (22) 14"dividend"15 includes- (a) any distribution15 by a company of accumulated profits15, 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 ; but "dividend" does not include- (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] C) Section 2 (19AAA) Definition of Demerged Company (19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;] D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, 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 by way of dividends referred to in sub-section (1) as reduced by the amount referred to in sub-section (1A) [hereafter referred to as net distributed profits], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in sub-section (1), be equal to the net distributed profits:] 74a[Provided that this sub-section shall not apply in respect of dividend referred to in sub-clause (e) of clause (22) of section 2.] (2) Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on distributed profits under sub-section (1) shall be payable by such company. (3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of- (a) declaration of any dividend; or (b) distribution of any dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te" 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 distributed profits shall be chargeable in respect of the total income of a company, being a unit of an International Financial Services Centre, deriving income solely in convertible foreign exchange, for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2017, out of its current income, either in the hands of the company or the person receiving such dividend. Explanation.-For the purposes of this sub-section,- (a) "International Financial Services Centre" shall have the same meaning as assigned to it in clause (q) of section 280 of the Special Economic Zones Act, 2005 (28 of 2005); (b) "unit" means a unit established in an International Financial Services Centre, on or after the 1st day of April, 2016; (c) "Convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby 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 of Section 2 (19 AA) of the act are not complied on account of the following reasons: - i. considering that FSB was not a separate undertaking is no business activities in the nature of financial services have been carried out basis the perusal of the annual report in the return of income of the company and ABNL ii. considering that as part of demerger the assets and liabilities transferred from the assessee mainly and substantially is constituted by equity shares of Aditya Birla finance limited (ABF) and hence such transfer is not capable of running the FSB on a going concern iii. not appreciating the true essence of the composite scheme of merger and demerger and in holding that the logical reasoning is the enrichment of the shareholders of the assessee in a camouflaged manner and avoiding payment of taxes on a capital gain and dividend distribution tax iv. not considering the fact that along with the assets and liabilities related to the FSB of the assessee, employees, having experience in the field of finance were also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of demerger which are clearly distinguishable from the facts of the assessee's case OBJECTION no 15 scheme of arrangement once approved by the national company law tribunal cannot be challenged i. failed to appreciate that composite scheme of arrangement which included the merger of ABNL with Grasim industries limited and subsequent demerger of FSB of the assessee to ABCL was duly approved by the NCLT by its order dated 1 June 2017 where the scheme specifically states that the demerger of FSB is compliant with the provisions of Section 2 (19 AA) of the act ii. erred in appreciating the Cardinal principle of law that once the scheme presented is approved by the court/NCLT, the same is sacrosanct, binding on all the parties concerned, especially when the scheme is approved after giving due opportunity to all parties concerned iii. erred in not appreciating that NCLT had given an opportunity to the revenue to raise objections, if any against the scheme and where there were no objections raised, such scheme cannot be challenged now during the course of assessment iv. was not justified in treating the scheme approved by NCLT is clandestinely arrangement to dilute the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee iv. without prejudice erred in adopting the fair market value of shares of ABCL at the rate of Rs. 261.20 per share on the day of listing on 1 September 2017 for the purposes of computing sale consideration v. without prejudice to the above even if it is considered that the transaction is liable to tax as capital gain, in absence of consideration, the computation mechanism u/s 48 of the act fails vi. without prejudice, the learned AO erred in not appreciating that it is a case of demerger involving lump-sum consideration and in absence of any provision Under the act it is not permitted to appropriate lump-sum consideration to various assets and liabilities transferred mechanism for computation of capital gains fails and therefore no capital gain is chargeable to tax vii. without prejudice, the learned AO failed to appreciate that consideration for demerger directly accrued to and was received by the shareholders by virtue of statutory vesting as per NCLT order and accordingly no income accrue to the assessee and therefore cannot be said to be part of income of the assessee 51. on reading of the above objections raised by the assessee before the learned d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erger (para 10.5 of the draft assessment order); iv) Conditions prescribed under sub-clause (i), (ii) and (vi) of section 2(19AA) of the Act are not satisfied as a new resulting company capable of running finance business has not come into existence (para 10.7/12.1/12.2/12.3 of the draft assessment order). v) Approval of the scheme of demerger by NCLT does not automatically mean that it is a valid demerger in terms of the provisions of section 2(19AA) of the Act unless mandatory conditions prescribed therein are satisfied; vi) As no financial service business existed either in GIL or ABNL, the scheme is a mere transfer of assets and liabilities (para 12.5 of the draft assessment order); vi) The so-called FSB demerged from GIL was not capable of being run as a Going Concern (para 13.3 of the draft assessment order); vii) Proceedings before NCLT are non-obstante to the proceedings under Income-tax Act, 1961 (para 14 of the draft assessment order). 25.3 The panel has carefully considered the submissions of the assessee, the issues raised by the AO in the draft assessment order, the Composite Scheme of merger of GIL with ABNL and subsequent (purported) demerger of Financial Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ABNL as a company was not an NBFC as: -It did not satisfy the criteria of financial asset constituting more than 50% of the Total assets; and also -It did not satisfy the criteria of income from financial asset constituting more than 50% total income. 25.4.5 However, the panel notes that for the issue at hand, it is not relevant whether ABNL, as a whole, could have been regarded as a Finance Company. What is to be analyzed is whether the observation of the AO that ABNL did not possess any Financial Services business segment is correct or not. 25.4.6 Viewed from this angle, it is noted that during the period prior to the implementation of the composite scheme (the Scheme), Financial Services Segment of ABNL did satisfy the above mentioned two tests but it could not be regarded as an NBFC as the said definition is qua an entity and not qua a division. This is clearly borne out of a perusal of assets, liabilities, borrowings etc. hived off in The Scheme: the above description of assets, liabilities, borrowings etc. hived off from ABNL as a separate FSB (as claimed by the assessee) that taken independently, any entity having the above assets/liabilities will satisfy both the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Company) before the demerger, and retains the same status after the demerger as well. 25.4.10 What follows is that the Demerged undertaking qualified to be NBFC Resulting Company was already a NBFC and the demerged undertaking became part of it. The resulting company is carrying out the business of BFC with the demerged undertaking as a going concern. 25.4.11 It may not be out of place to mention that even if the FSB were to be demerged in a new resulting company, the regulatory requirement of a minimum asset size of Rs 100 crore would have been satisfied and the new standalone resulting company could have carried on the business as a Systemically Important CIC under the RBI regulations. It would still have been a transfer on a going concern basis. This requirement would have been satisfied by the hived off entity even if one would disregard, though without any valid reasons, the value of shares of ABFL (Rs 1718.72 crore) held by it. 25.4.12 The AO has also stated that in the Return of Income, separate business of financial service has not been disclosed and, therefore, it must be concluded that there is no financial service business of the Assessee. The panel does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .80 crore, respectively, (as seen from page no B-1974 of the paper book filed before the DRP/note 17 forming part of the financial statements) under the head Business Income within the sub-head other income and was accepted as such by the AO. In his order u/s 143(3) of the Act Same has been the case for the AY 2016-17 to 2018-19 as well. The financial statement of quarter ending June 2017 at notes 15/page B-2393 of the paper book, and March 2017 & March 2016 at Note 15 at page B-2386 of the paper book, similarly shows interest income under the head Business Income within the sub-head other income. This being so, it is not possible to agree with the AO that there was no financial services business being carried out by ABNL prior to the implementation of composite scheme. 25.4.15 The panel has also noted that before the demerger, the GIL/ABNL held total financial assets of Rs. 5853.37 crore (carrying cost), and except for following two assets, all of them were part of the FSB demerged under the Scheme: (1) Shares of ABCL (Rs. 4721.57 crore) were not included as a part of demerged undertaking as a company cannot receive its own shares. The same is also as per approved Scheme (cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany are transferred al values appearing in its books of account immediately before the demerger: 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 the demerged company on a proportionate basis except where the resulting company itself a shareholder of the demerged company is: (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Central Government in the Official Gazette. 12-13[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 the time being in force governing such public sector companies in this behalf, and (ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf.] 25.5.2 As mentioned above, the NCLT, Ahmedabad Bench, vide order dated June 01, 2017, had approved the composite scheme as per which, the merger of ABNL with GIL became effective from July 01, 2017, and the demerger of Financial Services Business of GIL in to ABFSL (now known as ABCL) became effective from July 04 2017. 25.5.3 The NCLT at para 36 of the order approving t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence can be made to the decisions in the case of Dalmia Power Ltd v ACIT (112 taxmann.com 252) (SC) and Sadanand S. Varde State of Maharashtra (274 ITR 609) (Bombay HC) for reiteration of the same principle by Hon'ble Supreme Court and Hon'ble Bombay High Court. 25.5.6 Notwithstanding the above, and the finding by NCLT that the Scheme is compliant of section 2(19AA) of the Act, the panel has examined the Scheme vis- à-vis various clauses of section 2(19AA) of the Act. Sub-section (1): 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, 25.5.7 The AO in para 12.1 of his draft order has stated that "since no undertaking carrying out the business of financial services existed in the demerged company (as no such business of "finance services' was being carried out by either of the companies), it can be said with certainty that no property attributable to such business undertaking could have been transferred..." Based on this observation, it was held that sub-section (1) is not complied with. 25.5.8 As the panel has already he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there did exist a business of Financial Services. (ii) that the nature of liabilities transferred, i.e., Deferred tax liabilities of Rs. 103.26 crore, short-term borrowing of Rs. 51.27 crore and employee's liability of Rs. 0.22 crore are not reflective of an undertaking carrying on business of 'Financial Services.' The panel does not find the above argument persuasive. The AO has once again based his arguments on his claim already discussed that no business of Financial Services was being carried out by ABNL prior to the demerger. What is important for the purposes of sub-section (i) of section 2(19AA) is to examine that whether all the liabilities of the undertaking before the demerger are taken over by the demerged company or not. There is no suggestion in the assessment order that this was not the case. Further, Para 15.2.9 of the scheme, inter alia, provides that all debts, liabilities, loans, obligations, duties etc. of the demerged undertaking shall be transferred to the resulting company. Details of all liabilities including current liabilities, deferred tax liabilities, borrowings etc. relatable to the demerged undertaking and transferred to the resulting co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company received shares from the resulting company in the proportion of their holding in demerged company. Sub-section (vi): the transfer of the undertaking is on a going concern basis: 25.5.13 The AO in para 12.3 of his order has stated that the condition of 'the transfer of the undertaking being on a going concern Basis' is not satisfied. While reaching this conclusion it has been observed that: From the discussions contained in the preceding Paras, which are based on the findings in the Annual Report Returns of Income, and Assessment Records & 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 terming as 'Demerger" 25.5.14 The panel has already held above that ABNL was carrying out Financial Services Business (FSB). However, it is recognized that while this a necessary condition for the demerged undertaking to be a 'going concern', it may not be sufficient for it to be able to operate on a going concern basis. As such, the panel has examined various aspects of the entity demerged f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y wide The term 'undertaking' has been defined in section 218AA) of the Act to include why part of 'undertaking', a unit or division of undertaking or a business activity taken as a whole 'but does not include individual assets or liabilities or combination thereof not constituting a business activity. As held above, the assessee was carrying out a financial services business in ABNL the income from which was duly assessed as Business Income consistently by the A.O. it is also noted that Explanation 1 to section 2(19AA) goes as far as recognizing a 'part of undertaking' to be 'undertaking'. Based on the facts of the case, it is apparent that the activities of the FSB are at least a part of the undertaking and FSB would therefore quality to be an 'undertaking' for the purposes of section 2(19AA). 25.5.20 Fact that shares of ABFL held by the Assessee formed part of the FSB undertaking is irrelevant to the present proceedings. The FSB undertaking not only includes all the other assets and liabilities of demerged undertaking but also the share of ABFL as part of nurturing investment in FSB. As has been discussed above, even such shares were not part of the demerged entity; it would s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger; 25.6.3 It can be seen from the definition that there is no reference to any precondition that a new entity or company must come in existence for the purpose of qualifying to be termed as resulting company. Rather by use of words ".... One or more companies to which the undertaking of the demerged company is transferred......", intention of the legislature is clear that the undertaking of demerged company can be transferred to an existing company as well. As such, the argument that since no new resulting company came into existence, it is not a valid demerger is not liable to be accepted. 25.6.4 As regards the Scheme being a mere transfer of a few assets and liabilities as perceived by the A.O., it is stated that the same could have been a case had there been no business of financial services in the demerged company or else the undertaking being demerged was not capable of being run on 'going concern Basis' on its own. As the panel has already h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the demerged company. The subject scheme is of demerger, and the scheme provides for issue of shares by the resulting company to the shareholders of the demerger company in consideration of demerger. If in a case of demerger, it is allowed to assume that the consideration was receivable by the Demerged company, then the provisions related to demerger will not work at off and become meaningless Consideration in case of a demerger is always receivable by the shareholders of the demerged company and not by the demerged company and if contentions of the accepted, no tax compliant demerger can take place. As such, the panel does not find the observation of the AO that the Scheme was put in place only for enrichment of the shareholders of the assessee company to be legally tenable. 25.9 Approval of NCLT doesn't automatically mean a demerger as per the Act AND Proceedings before the NCLT are non-obstante to the proceedings under the Act 25.9.1 The panel agrees with the AO that the approval of NCLT does not prevent the Revenue from examining the Scheme for tax compliance. Though the Scheme approved by NCLT does have force of law, it has still to pass the test of being in confor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this rule, The learned assessing officer filed an application before the learned dispute resolution panel as per letter dated 17 August 2022 to rectify directions. Till to date, neither of the parties have informed about the fate of such rectification application. On carefully going through the application, we find that all the issues raised in the rectification application have already been considered by the learned Dispute Resolution Panel. Whether such mistakes are apparent or not that would be the sole jurisdiction of the learned Dispute Resolution Panel therefore, we are not authorized to comment on the same. 54. The Directions of the ld. Dispute Resolution panel are also not disturbed by invoking the provision of section 263 of the Act. 55. May it be so, However, we independently deal with the issues which have been raised in the present appeal hereinafter with respect to the compliance with the provisions of Section 2 (19 AA) of the act as Under. i. Demerger was introduced in The Income Tax Act by The Finance Act 1999 to specifically provide for income tax implication in case of a demerger so as to bring clarity about the taxation on capital gain and other concession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets or liabilities or any combination thereof not constituting a business activity." Thus, it can be (1) a part of an undertaking, or (2) a unit or division of an undertaking, or (3) a business activity taken as a whole. iv. Honourable Bombay High court in P S Off shore Interland Services P Limited V Bombay Offshore suppliers and services [ 1992] 75 COMP CASE 583 (Bombay)[22-03-2009] had an occasion to deal with the issue that what is an undertaking with reference to the provision of the companies act. A question of interpretation of section 293(1)( a) of the Companies Act, 1956 (1 of 1956), and the word "undertaking" used therein arose. The issues was a ground that 'a vessel " where company had another two vessels , constitutes the 'undertaking' of company and it cannot be disposed of without a general body resolution as required under section 293(1)(a) of the Companies Act. The Honourable High court held that: - "In my judgment, the expression "undertaking" used in this section is liable to be interpreted to mean "the unit", the business as a going concern, the activity of the company duly integrated with all its components in the form of assets and not merely some as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in International Cotton Corporation P. Ltd. v. Bank of Maharashtra [1970] 40 Comp Cas 1154. A somewhat similar question arose in a different context in the case of R.C. Cooper v. Union of India [1970] 40 Comp Cas 325 (SC), necessitating discussion of the meaning of the word "undertaking" as interpreted in judicial decisions, Indian and English. The Honourable Mr. Justice A. N. Ray in his dissenting judgment (Note : The judgment is not a dissenting judgment on the meaning of the word "undertaking") observed at page 415 of his judgment that the expression "undertaking" meant a "going concern". The learned judge observed that the undertaking meant the entire organisation. It was observed by the learned judge, at page 417, that the undertaking was an amalgam of all ingredients of property and was not capable of being dismembered. It was further held on this aspect as under: "In reality the undertaking is a complete and complex weft and the various types of business and assets are threads which cannot be taken apart from the weft." It appears that the undertaking means a "unit", a business or a project. Each factory of a company may be considered as a separate undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the viability report and in the justification put forward in the application made to the Director-General of Shipping for approval of the sale of the vessel cannot be ignored while considering the question as to whether one of the three vessels by itself, without anything more, can be considered as an undertaking. It is impossible for me to treat merely one of the assets of the company as an "undertaking". Several judgments have been cited by Mr. Zaiwala on behalf of the petitioners as well as by Mr. Cooper on behalf of respondents Nos. 1 and 3 under the Industrial Disputes Act, 1947, where the question arose as to how the expression "industrial undertaking" was to- be interpreted in industrial law. Mr. Zaiwala relied on the judgment of our High Court in the case of National Union of Commercial Employees v. M. R. Meher, AIR 1960 Bom 22, and the judgments of the Supreme Court in S. G. Chemicals and Dyes Trading Employees' Union v. S. G. Chemicals and Dyes Trading Limited. [1986] 2 SCR 126 and Management of Hindustan Steel Ltd. v. Their Workmen [1973] 3 SCR 303. Mr. Cooper relied on the judgment of the Supreme Court in the case of Madras Gymkhana Club Employees' Union v. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to record even a prima facie finding to the effect that the transaction amounts to sale of the undertaking within the meaning of section 293(1)(a) of the Act. Mr. Aspi Chinai, learned counsel appearing for respondents Nos. 9 and 10, invited my attention to the meaning of the word "undertaking" from Words and Phrases Legally Defined by Butterworths, second edition, pages 240-241. The relevant extract from the various meanings of the expression "undertaking" given therein relied on by learned counsel reads as under : "Australia-'undertaking' is a word of variable meaning ... Basically the idea which it conveys is that of a business or enterprise ... The word 'undertaking', like the word 'business' ... will commonly embrace, when used dispositively, the property or some property which is used in connection with the undertaking and it may be too, the debts and liabilities, or some debts and liabilities, which have arisen in relation thereto." (emphasis supplied) For the sake of brevity, I am not extracting all the meanings of the expression "undertaking" given in the said standard work. I am in agreement with the meaning given in the above standard wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e redeemable preference shares of Aditya Birla finance limited of Rs. 10.21 crores, (4) fund based lending in the form of intercorporate deposit amounting to Rs. 13.63 crores, (5) small amount of deposits with the regulatory/statutory authorities and (6) investment in mutual funds amounting to Rs. 117.13 crores. This amounts to the total assets of Rs. 1876.38 crores. Along with these assets it has also transferred borrowings of Rs. 51.27 crores, current liabilities of 0.23 crores and deferred tax liability attached with the shares of Rs. 103.25 crores. Thus, along with the total assets of Rs. 1876.38 crores liabilities of Rs. 154.76 crores were also transferred which resulted in excess of assets over liabilities transferred of Rs. 1721.61 crores. It is undisputed that the principal business of the Aditya Birla Nuvo limited was not of financial services business but it was one of the business segments of that company. Past history of that company of its merger with Birla Global Finance Ltd also shows that it was carrying on Financial services Business. Therefore, out of the many business segments of Aditya Birla Nuvo limited one of the segments was of financial business services. Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an undertaking in view of the decision of the honourable Bombay High Court in case of principal Commissioner of income tax - 16 versus UTV software Communications Ltd [103 taxmann.com 12.] ix. Similarly all the liabilities relatable to that undertaking are also transferred in the form of borrowings of Rs. 51.27 crores and current liabilities of Rs. 0.23 crores. The liability of deferred tax of Rs. 103.25 crores also relate to the equity shares of Aditya Birla finance limited of Rs. 1718.72 crores of the investment. x. There is no dispute that all the assets and liabilities of the undertaking transferred at the book value which were appearing in the books of accounts before the demerger. xi. The resulting company has issued the shares to the shareholders of the demerged entity on a proportionate basis is also not in dispute. xii. The dispute is whether the transfer of the undertaking is made on a going concern basis or not. For this the, assessee company has shown that it has transferred fixed assets, along with the investments, interoperate deposits and investment in mutual funds along with their corresponding liability coupled with employees. All contracts, litigations wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly the provisions of Section 2 (22) (a) of the act was invoked. 57. The learned counsel for the revenue and learned ASG heavily relied on the decision of the Honourable Delhi High Court in case of CIT versus Salora international Ltd 70 taxmann.com 92 (Delhi), specifically paragraph number 18, 27 and 30 of that decision. Thus it was argued that it satisfies the 4 tests. It was stated that (i) there is a distribution by a company as assessee has distributed the sale proceeds receivable against the sale of its assets i.e. the shares of Aditya Birla finance limited to the shareholders of the assessee, (ii) there is a distribution of accumulated profits as the sale proceeds had been received by the assessee company from Aditya Birla capital limited would have been a part of the accumulated profits, (iii) the distribution has entailed release of all or any part of the assets of the company as assessee has released its assessed in the form of shares of Aditya Birla finance limited, and (iv) distribution is made to its shareholders as the sale proceeds which are due and payable to the assessee company only and not to its shareholders, have been distributed to its shareholders. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is any ambiguity it needs to be resolved in favour of the assessee by placing reliance on the decision of the Honourable Supreme Court in case of Gopal & Sons HUF Vs CIT 391 ITR 1. Thus, it was submitted that there is no applicability of the provisions of Section 2 (22) (a) of the act in the present case. 59. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. The provisions of Section 2 (22) (a) provides that dividend includes 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. In the present case shares were issued under the scheme of demerger by the resulting company to the shareholders of demerged company. According to the provisions of Section 2 (19 AA) of the act, clause (iv) provides that the resulting company should issue its shares in consideration of the demerger, to the shareholders of the demerged company on proportionate basis, to qualify as tax neutral demerger. The resulting company has been defined u/s 2 (41A) of the act which means one or more compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any distributes its accumulated profits to its shareholders, and (b) such distribution entails the release by the company to its shareholders of all or any part of its assets. However, where a company transfers its assets to another company in a scheme of amalgamation, such transfer may not be regarded as a "distribution" by the company of its accumulated profits to its shareholders even though its accumulated profits are embedded in the assets so transferred by it. This will be clear if one considers a case where, before the amalgamation of two companies, only a part of the shares of the amalgamating company were held by the amalgamated company and the remaining part by other shareholders in such a case the other shareholders will not receive any part of the assets transferred by the amalgamated company to the amalgamating company. 3. Under sub-clause (c) of section 2(22), "dividend" includes any distribution made by a company to its shareholders on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. This provision is attracted only in a case where a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he demerger qualifies u/s 2 (19 AA) of the act or not, the provisions of this circular still can be applied so far as applicability of deemed dividend u/s 2 (22) (a) in case of demerger is concerned. 63. Hence the orders of the lower authorities holding that in the present scheme of demerger, Assessee Company has distributed its assets to its shareholders are not sustainable and hence quashed. 64. As we have already held that, there is no deemed dividend chargeable to tax in the hands of the shareholders of the assessee company pursuant to the scheme of demerger, where the shares have been issued by Aditya Birla capital limited to the shareholders of the Grasim industries limited, consequent issues of any computation of such deemed dividend, payment of dividend distribution tax and interest thereon does not arise. 65. In view of our above findings, ground number 2, 4 and 5 of the appeal of the assessee are allowed. 66. Ground number 1 is general in nature, therefore, same is dismissed. 67. Ground number 6 challenging the issue of principle of natural justice also becomes redundant and hence dismissed. 68. Ground number 7 is with respect of levy of interest u/s 115P of the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersus Purbanchal power Co Ltd (ITA number 201/2010) (Kol). It was submitted that once the scheme is approved it cannot be disregarded or its terms sought to be differed from or modified by the revenue. He further relied upon the decision of Honourable Bombay High Court in case of Sadanand Varde versus state of Maharashtra (115 taxman 407), Vodafone Essar Gujarat Ltd versus CIT (24 taxmann.com 323). Thus it was stated that the arguments of the revenue to the extent those are contrary to the scheme are not sustainable in law. The learned senior advocate further referred to the provisions of Section 180 of The Companies Act 2013 and submitted that same does not come to the rescue of the revenue as it deals with the powers of the board and does not deal with the schemes of merger and demerger approved by NCLT. It was also submitted that the reliance placed by the learned lower authorities on the decision of Indo Rama textile Ltd (2012) 23 taxmann.com 390 particularly on paragraph number 47 to argue that whether the demerger is a tax compliant demerger or not is to be determined by the tax authorities post demerger for the reason that the learned assessing officer is trying to rewrite t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do so to discharge its tax liabilities arising out of the scheme now cannot seek to resile therefrom. It was stated that even otherwise, the assessee would be liable to pay the tax statutory payable upon the said transaction/scheme. He relied upon the decision of the Honourable Delhi High Court in case of Salora international Ltd (supra) and Indo Rama textile Ltd (supra) and Honourable Gujarat High Court in case of Vodafone Essar Gujarat Ltd (supra). 72. We have carefully considered the rival contentions and perused the orders of the lower authorities as well as the several judicial precedents relied upon before us. We have also carefully considered the direction of the learned Dispute Resolution Panel wherein as per direction dated 30 June 2022 in paragraph number 25.9 this issue has been dealt with. The learned dispute addition panel agreed with the learned assessing officer that the approval of NCLT does not preclude revenue from examining the scheme for tax compliances. We do not have any hesitation in upholding the finding of the learned dispute resolution panel that it is the duty of the learned assessing officer to examine the impact of the scheme for tax purposes. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these above instructions and circular does not prevent the assessing officer in applying the provisions of the income tax act to the return of income of the assessee filed in compliance with the scheme approved by National Company Law Tribunal. The ld. Special Counsel has also placed before us decision of NCLT in Panasonic India Pvt Ltd V Panasonic Life Solutions India P Ltd in CP (CAA) no.8/ CHD/HRY/2021 dated 19/5/2022 where in para no 7.15 even NCLT has agreed that even if a proposal of a scheme of amalgamation is approved by the Adjudicating Authority, it is clarified that no provision of such a scheme can override the existing provision of the Act. In any case, the issues may come up before the ld. AO at time of the assessment of those companies, and the department can analyze the scheme and is entitled to take any decision as per the provisions of the Income Tax Act on issues including issues in NCLT order. That decision also noted that Transferee Company has deposited anundertaking before court/NCLT also to that effect. 73. In commentary of Kanga , Palkhivala and Vyas in "the Law and practice of income tax "it has been observed that provisions relating to the taxation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to the provisions of the Income Tax Act. As such it is not possible to accept the contention of the Petitioners that para 6(e) of the first affidavit of the Regional Director read with para 6 of the Affidavit in Reply of the Petitioners is a complete answer to the objection of the Regional Director." This judgment also supports the case of revenue instead of Assessee. 75. 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. 76. Accordingly, appeal of assessee is partly allowed. 77. Coming to the appeal of the revenue, where the only issue is computation of deemed dividend in ground number 1 - 5 of the appeal, 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. 78. In the result Appeal of Ld. AO is dismissed. 79. Accordingly appeal of assessee is partly allowed and appeal of ld. AO is dismissed. 80. As appeal of assessee is disposed of by this order, SA No 135/M/2021 becomes infructuous and hence, dismissed. Order pronounced in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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