TaxTMI 
TaxTMI 
2019 (1) TMI 869
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....ited company incorporated under the Companies Act, 1956 on June 29, 1964 under the name and style of "The Andhra Pradesh Paper Mills Ltd.". Subsequently, the name was changed to International Paper APPM Ltd., on December 16, 2013. (b) The main objects of the company are to carry on business of manufacturers and dealers in all kinds of paper, board and pulp including writing paper, printing paper, drawing paper, etc. (c) The authorised, issued, subscribed and paid-up share capital of the company as on March 31, 2016 is as under : A. Authorised capital Amount in Rs. 4,00,00,000 equity shares of Rs. 10 each 40,00,00,000 5,00,000 redeemable cumulative preference shares of Rs. 100 each 5,00,00,000 Total 45,00,00,000 B. Issued, subscribed and paid-up share capital Amount in Rs. 3,97,70,039 equity shares of Rs. 10 each 39,77,00,390 Total 39,77,00,390 There is no change in the capital structure of the petitioner-company as on date. 3. The rationale for the proposed scheme are : (a) It enables greater flexibility in utilisation of the excess amounts lying to the credit of the general reserves which is more than required for current and anticipated operational needs of ....
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....ibunal that all the reserves proposed to be transferred to the credit of the profit and loss account suffered taxation earlier, subject to the fulfilment of which, the reclassification can be permitted. 9. The Regional Director vide his additional affidavit dated November 21, 2017 reported that the decision to utilise general reserve in the manner deemed fit, is at the discretion of the shareholders of the company and not be a subject to any judicial determination/intervention/judicial oversight and if voluntary transfer is resorted to by the company, then it has to submit itself to the Companies (Declaration of Dividends from Reserves) Rules, 2014 (referred to as the Rules, 2014), which implies that where the reserves comprise of statutory transfers made earlier, the same shall not be subjected to the Rules, 2014 and accordingly, the compulsory transfer to reserves made in accordance with the Rules, 1956 should not be subjected to the rigorous of the Rules 2014. The Regional Director vide his subsequent additional affidavits dated December 15, 2017 and May 4, 2018 stated it is of the view that the scheme is not maintainable for the reasons mentioned in the affidavit dated Novembe....
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....s built up over the years through transfer of profits. The scheme envisages upon transfer and upon reclassification of the amount standing to the credit of general reserve and there after credit to the profit and loss account may be paid out to the members of the petitioner-company from time to time. 18. The petitioner-company has filed accounting treatment certificate issued by Deloitte Haskins and Sells. They confirmed the proposed accounting treatment contained in approved scheme is in compliance with other generally accepted Accounting Principles in India, the SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015 and Circulars issued thereunder. 19. The Regional Director, South East Region, Ministry of Corporate Affairs, Hyderabad filed his report on June 5, 2017. He has stated in the first report that notice was issued to the Income-tax Department for submitting its comments. The Income-tax Officer (HQrs-II) (i/c), O/o Principal Commissioner of Income-tax, Rajahmundry vide letter dated April 26, 2017 submitted observations/comments on the scheme. A letter was also addressed to the SEBI, with a copy to the National Stock Exchange for submitting their commen....
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....ed under sections 230-232 of the Companies Act, 2013 since he has raised his objection in the additional affidavit dated November 21, 2017. Similarly, he has held the same view in the fourth additional report dated May 4, 2018. 22. On the other hand, learned counsel for the petitioner-company filed memo dated July 13, 2017. It is stated in the memo that the amounts in general reserve was built up in view of provisions contained in section 205(2A) of the Companies Act, 1956 as it was mandatory for a company to transfer certain portion of current profits to the general reserves before declaring dividends. This provision was in force till the Companies Act, 1956 is replaced by the Companies Act, 2013. Section 123(1) of the Companies Act, 2013 makes it optional for a company to transfer any amount to general reserve before declaring dividends in any financial year. Therefore, he contended that the arrangement can be permitted. He relied on the decision reported in Alembic Ltd., In re [2008] 144 Comp Cas 105 (Guj) of the hon'ble Gujarat High Court. In this decision the hon'ble High Court held, the amounts lying to the credit of general reserves to be utilised against the debt o....
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..... Now, the petition is filed by the company stating that there is an arrangement between the company and its members. The company petition is filed by the company. An arrangement can be made between the company and its members. The present scheme is an arrangement between the company and its members for transfer of amounts lying in the general reserve to the profit and loss account. The amount is lying in the general reserve account built up over the years because of statutory directions. Now under the Companies Act, 2013, it is not compulsory to transfer some portion of the profit to the general reserve. Now company wanted to pay out the amount to its members by transferring the money from general reserve to the profit and loss account. This arrangement is approved by the shareholders. 27. Learned counsel for the applicant-company relied on the decisions : (1) Navjivan Mills Co. Ltd., In re [1972] 42 Comp Cas 265 (Guj). (2) Vasant Investment Corporation Ltd. v. Official Liquidator, Colaba Land and Mill Co. Ltd. [1981] 51 Comp Cas 20 (Bom). (3) Larsen and Toubro Ltd., In re [2004] 121 Comp Cas 523 (Bom). 28. The contention of learned counsel for the petitioner-company that ....
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....t for transfer of amount lying in the general reserve after reclassification to the profit and loss account can very well be approved by the Tribunal. 31. It is true the definition "arrangement" in section 390(1)(b) of the Companies Act is wide enough to include the proposed arrangement, wherein the petitioner-company is seeking approval for transfer of funds in the general reserve after reclassification to profit and loss account. 32. The contention of learned counsel, the arrangement proposed involves reclassification of amount standing in the general reserve to the credit balance of profit and loss account of the petitioner-company. The amounts in general reserve arose out of transfer of certain percentage of the current profits of the petitioner-company in compliance with section 205(2A) of the Companies Act, 1956, read with the Companies (Transfer of Profits to Reserves) Rules, 1975. The contention of learned counsel that it was mandatory for a company to transfer a certain portion of current profits to the general reserve before declaring equity dividend. Thus, an amount of Rs. 288.76 crores is accumulated in the general reserve of the petitioner-company. 33. The contentio....