TaxTMI 
TaxTMI 
2015 (11) TMI 1144
X X X X Extracts X X X X
X X X X Extracts X X X X
....d (transferor company No.1). Company Petition No.180 of 2014 is filed by M/s. Himagiri Bio-Tech Private Limited (transferor company No.2). Company Petition No.181 of 2015 is filed by M/s. Himagiri Greenfields Private Limited (transferor company No.3). Company Petition No.182 of 2015 is filed by M/s. Konar Greenlands Private Limited (transferor company No.4). Company Petition No.183 of 2015 is filed by M/s.Medravati Agro-Farms Private Limited (transferor company No.5). Company Petition No.184 of 2015 is filed by M/s. Nagavali Greenlands Private Limited (transferor company No.6). Company Petition No.185 of 2015 is filed by M/s.Sindhu Greedlands Private Limited (transferor company No.7). Company Petition No.186 of 2015 is filed by M/s. Swarnagiri Greenfields Private Limited (transferor company No.8). Company Petition No.187 of 2015 is filed by M/s. Swarnamukhi Greenfields Private Limited (transferor company No.9). Company Petition No.188 of 2015 is filed by M/s. Uttarashada Bio-Tech Private Limited (transferor company No.10). Company Petition No.189 of 2015 is filed by M/s. Vamsadhara Agro Private Limited (transferor company No.11). Company Petition No.190 of 2015 is filed by M/s. Vin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d, clean, mix, grade, polish, can, import, export, buy, sell warehouse, and to act as an agent, broker, stockiest, indenter, consignor, merchant, farmer, or otherwise to deal in all types of seeds, grains, vegetables, foods, cereals, herbals, flowers, fruits, edibles, non-edibles, commercial, non-commercial crops etc. 4. In Company Petition No.193 of 2015, the petitioner transferee company averred that it was originally incorporated under the Act on 20.05.2005 as Maytas Rajeshwari Development Private Limited; that its name was further changed as Maytas Hill Country Private Limited on 28.12.2005, as Maytas Hill County Limited on 20.12.2007, as Maytas Properties Limited on 31.12.2007, and finally as Hill County Properties Limited, vide certificate of incorporation, dated 16.08.2013; that its authorized share capital is Rs. 75,00,00,000/- divided into 75,00,000 equity shares of Rs. 100/- each; that its issued, subscribed and paid-up share capital is Rs. 25,00,000/- divided into 25,000 equity shares of Rs. 100/-each; and that its main objects are to construct, erect, build, repair, remodel, demolish, develop, improve, grade, curve, pave, macadamize, cement and maintain buildings, st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that it has no secured and unsecured creditors. That it has two share holders out of whom the transferee company is holding 24,999 shares (99.99% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company is holding 1 share (0.01% shareholding). (ii) In Company Petition No.180 of 2015, the petitioner averred that it has no secured and unsecured creditors. That it has three shareholders out of whom the transferee company is holding 24,449 shares (97.99% shareholding), that one Mr. B. Suryanarayana Raju is holding 500 shares (2.00% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company) is holding 1 share (0.004% shareholding). (iii) In Company Petition No.181 of 2015, the petitioner averred that it has no secured and unsecured creditors. That it has three shareholders out of whom the transferee company is holding 24,449 shares (97.99% shareholding), that one Mr. B. Suryanarayana Raju is holding 500 shares (2.00% shareholding) and that one Mr. G. Venkateswar Reddy (Nominee of the transferee company) is holding 1 share (0.004% shareholding). (iv) In Company Petition No.182 of 2015, the petitioner averred that it has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(ii) Chandrabhaga Agro Farms Private Limited (Rs.77,143/-); (iii) Nallamala Agro Farms (Rs.9,113/-) and (iv) Vindhya Bio-tech Private Limited (Rs.16,36,743/-). That it has two shareholders out of whom the transferee company is holding 24,999 shares (99.99% shareholding) and that one Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.01% shareholding). (ix) In Company Petition No.187 of 2015, the petitioner averred that it has no secured and unsecured creditors. That it has two shareholders out of whom the transferee company is holding 24,999 shares (99.99% shareholding) and that one Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.01% shareholding). (x) In Company Petition No.188 of 2015, the petitioner averred that it has no secured creditors, but it has seven unsecured creditors for a total amount of Rs. 2,13,46,454/-, i.e., (i) Chandrabhaga Agro Farms Private Limited (Rs.15,41,945/-); (ii) Continental Thermits Private Limited (Rs.414/-); (iii) JRB Agro Private Limited (Rs.12,000/-); (iv) Nallamala Agro Farms Private Limited (Rs.8,985/-); (v) Vindhya Bio-Tech Private Limited (Rs.20,18,670/-); (vi) B. Radha (Rs.1,77,53,204)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yable (Potnuru & Associates) (Rs.11,236/-). That it has four shareholders out of whom the transferee company is holding 24,049 shares (96.196% shareholding), that one Mr. B. Rama Raju is holding 900 shares (3.80% shareholding), that Ms. Nandini Raju is holding 50 shares (0.20% shareholding) and that Mr. Neerav Kapasi (Nominee of the transferee company) is holding 1 share (0.001%). With regard to the issue of shares by the transferee company, in Company Petition Nos.179, 186, 187 and 191 of 2015 it is averred that since the entire equity share capital of these transferor companies is being held by the transferee company and its nominee, there would be no issue of equity shares of the transferee company to the shareholders of the transferor companies and that pursuant to the vesting of the undertaking in the transferee company, the investment in the shares of the transferor companies appearing in the books of account of the transferee company will stand cancelled. However, in Company petition Nos.180, 181, 182, 183, 184, 185, 188, 189, 190 and 192 of 2015 it is averred that upon this scheme being effective, the transferee company shall without any further application, act, instrum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unsecured creditors for a total amount of Rs. 10,051.04 millions, i.e., (i) IL&FS Engineering & Construction Company Limited (Rs.970.17 millions); (ii) Maytas Estates Private Limited (Rs.7.93 millions); (iii) Unsecured compulsory convertible debenture holders (Rs.6,000 millions) and (iv) Trade Creditors (Rs.3,072.94 millions). That it has sixteen shareholders in that (i) Infrastructure Leasing and Financial Services Limited is holding 2,250 shares (9% shareholding); (ii) IL&FS Townships and Urban Assets Limited - 10,000 shares (40%); (iii) IL&FS Engineering and Construction Company Limited - 7,744 shares (30.97%); (iv) Maytas Estates Private Limited - 4,400 shares (17.6%); (v) Ms. B. Divya 100 shares (0.4%); (vi) Ms. B. Teja Raju 100 shares (0.4%); (vii) Mr. B. Rama Raju 100 shares (0.4%); (viii) Ms. B. Nandini Raju 100 shares (0.4%); (ix) Ms. B. Appala Narasamma 100 shares (0.4%); (x) Ms. B. Sri Sandhya 100 shares (0.4%); (xi) Mr. Maharudra Wagle (Nominee of IL&FS Engineering and Construction Company Limited) 1 share (0.004%); (xii) Mr. Jignesh Ramesh Shah (Nominee of IL&FS Engineering and Construction Company Limited) 1 share (0.004%); (xiii) Mr. Neerav Yashwant Kapasi (Nominee o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and shareholders of the transferee company and that the Chairperson filed his reports dt.21.5.2015. (iii) In the report relating to the meeting of the secured creditors of the transferee company, the Chairperson has stated that pursuant to the order of this Court, after issuing individual notices to the secured creditors of the transferee company and causing publication of the advertisement in two daily newspapers, he has conducted the meeting of the secured creditors on 21.5.2015 at 1.00 p.m., that as the said meeting was attended by five members, the quorum of two members was fulfilled, that the scheme of arrangement was read out and explained to them, and that they have voted in favour of the proposed scheme of arrangement. (iv) In the report relating to the meeting of the unsecured creditors of the transferee company, the Chairperson has stated that pursuant to the order of this Court, after issuing individual notices to the unsecured creditors of the transferee company and causing publication of the advertisement in two daily newspapers, he has conducted the meeting of the unsecured creditors on 21.5.2015 at 11.30 a.m., that as the said meeting was attended by 33 unsecur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from the details available in this office it is seen that there was never any agricultural activity or any such trading activity in agricultural produce by any of these Transferor companies. The only activity that was undertaken by these transferor companies was entering into development agreement with the transferor company. M/s. HCPL entered into a development agreement with all these transferor companies for commercial exploitation of the so called agricultural lands, acquired by all these transferor companies. The scheme for arrangement was that after the project is developed and sold to various customers, a proportion of the sale proceeds would be given to each these entities (transferor companies) in the respective proportion of their contribution of land. In the petition filed by the assessee-company before the Honble High Court it was mentioned that all these transferor companies are 96% subsidiary companies of M/s.HCPL. In other words the flagship company M/s.HCPL entered into development agreements with its own subsidiary companies. Since these transferor companies acquired the lands at very low cost and there being no cost of construction being incurred by these compani....
X X X X Extracts X X X X
X X X X Extracts X X X X
....struction company were allotted 10,000 equity shares of Rs. 100/- each. It is further stated that the project Hill Residency has been developed by the transferee company in the land registered in the name of the 14 transferor companies and that the investment in equity capital of land owning companies are concluded to be in violation of Section 372A(1)(c) of the Act and the inspection report has recommended prosecution of the company and its officer in default during the commission of offence and the same is under consideration before the Ministry of Corporate Affairs. The Regional Director, however, stated that the Registrar of Companies, Hyderabad, has reported that the transferor companies and the transferee company involved in the scheme of amalgamation are regular in filing the statutory returns and that no complaints, no investigations and no inspection are pending against the transferor companies and that inspection against the transferee company is pending. 14. In substance, the main objection raised by the Regional Director is based on the letter addressed by the Income Tax Department, wherein a view has been expressed that the scheme is intended only to offset the loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....&FS Employees Welfare Trust & Others. It is accordingly pleaded that the operations of the IL&FS Group are only in public interest as all the major shareholders of the company are Public Sector Undertakings and the funds which are invested by the Group are also public funds. It is further averred that after taking over the management of the transferee company, IL&FS Group has infused about Rs. 850 crores into the transferee company for the due completion of the Hill County project in public interest to fulfil the contractual obligation of the company and delivered residential units to 800 families in the city of Hyderabad, that the funds were also used for the purpose of completion of Hill County project, part repayment to project lenders, trade creditors, settlement with commercial banks and financial institutions, that new promoters paid around Rs. 57 crores towards pending income tax dues, which became liable during the erstwhile management regime, and that this payment towards pending income tax was also from public money. That in spite of the said investment of Rs. 850 crores, the transferee company continues to be in losses even as on the effective date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter of approval of the scheme of arrangement, Income Tax Department has no locus standi to raise objections; (ii) The proposed the scheme of amalgamation is intended to close 14 transferor companies, which were floated by the erstwhile management, and not carrying on any activity, with a view to have a proper and complete control over the affairs of the transferee company and that in that process even if there is resultant avoidance of tax it amounts to tax planning, but not tax evasion, and therefore the same cannot constitute a ground for declining to approve the scheme. In support of his submissions, the learned Senior Counsel has referred to the following judgments. (i) In Re: Indo Continental Hotels & Resorts Ltd. (1990) 69 Comp. Cases 93 (Raj.) (ii) In Re: Indo Continental Hotel and Resorts Ltd. (1998) 93 Comp. Cases 194 (Raj.) (iii) In Re: AVM Capital Services Private Limited (2012) 173 Comp. Cases 355 (Bom.) : 2012 (114) Bom.LR 2533 (iv) Anu Trading Private Limited v. Shinano Retail Private Limited 2014 (1) MPHT 521 (v) Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1 (vi) Vodaphone International Holdings ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a court of law. No court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r sanction of the scheme comes to the conclusion that the scheme is not fair, just and reasonable, or the same is contrary to the provisions of law or it violates any public policy, it should not decline to sanction the scheme. 20. As noted hereinbefore, the main objection raised by the Income Tax Department for the proposed amalgamation is that there is a likelihood of the transferee company setting off its losses against profits that are being made by the transferor companies in future. In other words, there is an implicit plea that the scheme is affecting public interest or violating public policy. 21. There was indeed a big debate as to whether a transaction by which the parties achieve avoidance of tax, is illegal or not? In Commissioners of Inland Revenue v. Duke of Westminster (1936 AC 1), Lord Tomlin, it was held as under: Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however, unappreciative the Commissioners of Inland Revenue or his fellow tax gatherers may be of his ingenuity, he cannot be compelled ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s effective for tax purposes even if it has no business purpose and has been entered into to avoid tax. The Supreme Court has also referred to and relied upon the judgments of His Lordships in W.T. Ramsay v. I.R.C (1982) AC 300) wherein the following principles were culled out. (1) A taxpayer was only to be taxed if the Legislation clearly indicated that this was the case; (2) A taxpayer was entitled to manage his or her affairs so as to reduce tax; (3) Even if the purpose or object of a transaction was to avoid tax this did not invalidate a transaction unless an anti- avoidance provision applied; and (4) If a document or transaction was genuine and not a sham in the traditional sense, the Court had to adhere to the form of the transaction following the Duke Westminster (8 supra) concept. In conclusion, the Supreme Court in paragraph 332 in Vodaphone International Holdings B.V. (6 supra), inter alia held as under: Needless to say if the arrangement is to be effective, it is essential that the transaction has some economic or commercial substance. The Supreme Court further held in paragraph 334 as under: Revenue cannot tax a subject....