TaxTMI 
TaxTMI 
2018 (11) TMI 1797
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....s to the following effect: 7.1 The proposed scheme of Amalgamation shall result in transfer and vesting of the Petitioner/AmaIgamating Company I,and Petitioner/ Amalgamating Company 2 (Petitioner/Amalgamating Companies)into and with the Petitioner/Amalgamated Company on a going concern basis. 7.2 The proposed amalgamation of the Petitioner/AmaIgamating Company I and the Petitioner/AmaIgamating Company 2 with the Petitioner/Amalgamated Company pursuant to this Scheme shall be in the interest of both the Petitioner/Amalgamating Companies and the Petitioner/Amalgamated Company and all their concerned stakeholders including shareholders, creditors, employees, and general public in the following ways: (i) The amalgamation would lead to simplification of the shareholding structure and reduction of shareholding tiers and also provides transparency to the Promoters' direct engagement with theAmalgamated company, (ii) the amalgamation is being undertaken pursuant to a succession planning of the Promoters intended to streamline the Promotersj shareholding in the Applicant/Amalgamated Company, inter-alia held through Petitioner/Amalgamating Company 1 an....
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....y 2 shall stand transferred to and to be deemed to be the proceedings by or against the Amalgamated Company. D. It is provided for in the Scheme that all employees of the Amalgamating Company land Amalgamating Company 2 as on the Effective Date shall become the employees of the Amalgamated Company on such terms and conditions as are no less favourable than those on which they are currently engaged by the Amalgamating Company without any interruption of service. E. The Scheme further provides that in terms of Clause 5.1 of Part IV of the Scheme, upon the Scheme becoming effective and in consideration of the amalgamation of the Amalgamating Company I with the Amalgamated Company, the Amalgamated Company shall issue Equity Shares of Rs. 2 each in the proportion of the number of equity shares held by the shareholders of the Amalgamating Company 1, F. The Scheme further provides that in terms of Clause 5.2 Of Part IV of the Scheme, upon the Scheme becoming effective and in consideration of the amalgamation of the Amalgamating Company 2 with the Amalgamated Company, the Amalgamated Company shall issue Equity Shares of Rs. 2 each in the proportion of the number ....
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.... notice of hearing of the petition and as well as notices directed to be issued to regulatory authorities as contemplated under the provisions of Sections 230-232 of the Companies Act, 2013 for which an affidavit of compliance had also been filed dated 24.11.2017. 6. Consequent to all compliances, this joint petition filed by the petitioner companies came up for consideration before this Tribunal on 05.04.2018 for final hearing during the course of which the submissions of the learned counsels for the petitioner companies as well as Learned Company Prosecutor for Regional Director/ROC, Learned Advocate for Official Liquidator and Learned Standing Counsel for Income Tax were heard in detail and orders were reserved subject to clarifications, if any. The matter was listed again on 28.08.2018 in view of the clarifications sought for from the petitioners in relation to the respective Trusts having control over the Amalgamating Companies and upon the same being filed and produced before this Tribunal orders were reserved again on 26.09.2018. 7. Perusal of the report of the Independent Chairman appointed for the meetings of the equity shareholders and unsecured creditors of the Ama....
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.... the amalgamating companies, the Office of the Official Liquidator in its report filed vide Diary No.5058 dated 06.12.2017 is of the view that the affairs of the aforesaid Transferor Companies does not appear to have been conducted in a manner prejudicial to the interest of its members or public interest as per the provisions of Companies Act 1956/2013. 11. However, the Income Tax Department in its detailed reply filed dated 20.03.2018 in relation to the Petitioner - Amalgamating Company No.2, which during the course of oral submissions was also represented by the Ld.Sr.Senior Standing Counsel for Income Tax to be considered applicable to the Petitioner - Amalgamating Company No.l as well as the transfer contemplated of assets of the amalgamating companies and allotment of equity shares being similar, has brought out certain background facts which prima facie is not discernable from a perusal of the petition and which is extracted from the reply in order to better understand the factual context under which objections have been raised by Income Tax to the sanction of the Scheme, namely: - That the Amalgamating Company 1 and 2got incorporated as a Private Limited Co....
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....and to evade its income tax liabilities. 12. Taking into consideration the above facts relating as to how the shares of the amalgamated company being a listed company had been transferred within a short period of time and as to the nature in which the entire transaction relating to transfer of equity shares of the Amalgamated Company had been structured, it is contended by Income Tax in its reply that the petitioner companies is not in any way benefited by the restructuring exercise but on the other hand independent of amalgamation seems to be an exercise to benefit solely the Family Trusts of the revalued NIIT shares from Global Solutions Pvt. Ltd (GSPL) to the Thadani Family Trust through the medium of Petitioner-Amalgamating Company 2. It is contended that the transaction as contemplated has to be examined in light of Section 2(47) of Income Tax Act, 1961 defining "Transfer" and more particularly Explanation 2 given under Section 2(47) of the said Act and that the transfer of shares of NIIT Ltd from Amalgamating Company 2 to Thadatli Family Trust without paying capital gains will lead to tax evasion and that the applicant companies are trying to misuse the provisions of Secti....
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....he simplification of the share holding structure of the Trusts in the amalgamated company by bringing the shares directly under the control of the trusts which is necessitated for the succession planning of these families and that the settlement of capital assets in irrevocable Trusts are exempted anyways from capital gains tax and hence the hypothesis of the Income Tax that the transfer of shares would result in tax liability are mere assumptions and unsustainable. The petitioner companies in relation to the Scheme further seeks to draw support from a decision of Hon'ble Bombay High Court rendered in AVM Capital Services Private Limited and other Transferor Companies and Unichem Laboratories Limited (Transferee company) in Company Scheme Petition No.670 of 2011 wherein a Scheme of similar nature to that of the present one before this Tribunal was approved taking into consideration the long term stability and transparency in the listed company in order to enable the promoter to directly hold shares in the listed company instead of exercising through private limited companies, It is further stated that promoters have preferred the Trust structure as it enables smooth transition ....
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....2012) 341 ITR 1 (SC) and 001 v. Azadi Bachao Andolan (2004) 10 SCC 1 (SC) The objection regarding valuation of the shares of 2.53 crore shares and 2.59 crore shares in the books of the respective petitioner-amalgamating at Rs. 100/- each of the amalgamating companies, the same is sought to be fended off on the basis that the shares were received as gift by the respective companies from their holding companies and being non-current assets in the hands Of the respective amalgamating companies taking into consideration the relevant Accounting Standards it was reflected at a nominal value of Rs. 100/- and the department in this regard has been vague as to how the shares get revalued in the hands of the amalgamating companies. The objections of the Department it is hence contended by the petitioner companies are merely hypothetical and made without any basis and without placing any evidence on record to back its hypothesis and that this Tribunal should sanction the Scheme as contemplated amongst the companies involved in the Scheme particularly in view of the approval of the shareholders and creditors of all the three companies. 15. While all the procedures and compliances as are req....
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...., inter-alia, raised by the Income Tax Department as above, this Tribunal has to be definite as to the contours within which it is required to exercise its jurisdiction When considering a Scheme coming up before it for sanction, particularly when objections are put forth by the revenue as compared to other authorities, say Central Government or the Regional Director who have not raised any adverse observations about the Scheme as already noted. In this connection reference is made to paragraph 70 of the decision cited by the parties of the Hon'ble High Court of Delhi in the matter of - M/s.Vodafone Essar Limited and others and M/s.Vodafone Essar Infrastructure Limited in C.P.No.334 of 2009 dated 29.03.2011 which is to the following effect:- 70. In my view, if the Court is indeed to sanction the Scheme, the powers of the Income Tax Department must remain intact. The authorities relied on by the petitioners also support this proposition, with the only exception being a situation where the Scheme itself has only one purpose, which is to create a vehicle to evade the payment of tax, rather than mere avoidance of tax, It is also true that the scope of objection that may be ....
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....e petitioners of which reference will be made in the later part of this order. Paragraphs 42 to paragraphs 47 of the above noted judgement of the Hon'ble Delhi High Court in CIT Vs. Shiv Raj Gupta's case brings out the distinction of which paragraphs are given as hereunder: 42, To appreciate the concept of abusive tax avoidance, it would be appropriate to first delineate with precision the expressions "tax mitigation" and "tax evasion" as their boundaries and confines would enable us to draw lines amongst the four concepts; tax mitigation, tax evasion, acceptable tax avoidance and abusive tax avoidance. Each of the said expressions involves an element of tax planning. It would be hard to conceive of a situation where the assessed does not indulge to some sort of tax planning, be it tax mitigation, acceptable tax avoidance, abusive tax avoidance or tax evasion. "Tax planning", being common to all situations, cannot be the distinguishing feature, but nature and character of the planning and its nexus with the transaction is decisive, 43. Tax mitigation in simple words would refer to a taxpayer taking advantage or benefit of a beneficent provision under the t....
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....laws to minimise tax liability. The assessed breaches the relevant law and it involves contumacious be haviour or actual knowledge of wrong doing, This can happen when an assessee deliberately fails to report an item in the income tax return, or knowingly claims a deduction which he is aware he is not entitled to, or consciously omits to supply information even When there is duty to furnish the said details. It can also apply to situations when the assessee fails to clarify a matter, which has been misunderstood by the income tax authorities, and keeps quiet. In these cases, there is element of wilfulness, dishonesty or contemptuous conduct or even absence of honest belief. If the taxpayer cannot show that he had an honest belief that he was not liable to tax or liable to a lower tax, then prima facie such conduct would fall within the ambit/scope of tax evasion. 45. Tax avoidance by elimination would mean the residual and surplus, after we exclude cases of tax mitigation and tax evasion. Tax mitigation and tax evasion are two end points. It is easier and more beneficial to follow this discernment to define tax avoidance, for the confines and bounds of tax mitigation and t....
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.... has not been undertaken for the purpose of tax evasion and that on the other hand Schemes which contemplates the exercise as envisaged to the Scheme presently under consideration have come up for consideration before other High Courts as well including one before the Bombay High Court and the said Schemes have been approved, instance cited being the decision rendered in AVM Capital Services Private Limited and other Transferor Companies and Unichem Laboratories Limited (Transferee company) in Company Scheme Petition No.670 of 2011dated 12th July 2012 and on which decision heavy reliance is placed by the Learned Counsel for the petitioner to canvass his position for approval of the Scheme. Eschewing the narration of facts for the sake of brevity Which is similar in all respects, save that the allotment of shares upon implementation of the Scheme was to be made therein to the individual promoters of the listed company being the shareholders of the amalgamating company as well , in the instant case to a family trust of the individual promoters being trustees and they being the beneficiaries along with their lineal descendants, the Scheme therein envisaged the following purpose as ext....
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....in this context, also referred to the decision of the Gujarat High Court in the case of Wood Polymer Limited (1977)47 Comp. cases 597 (Guj) in which case, the learned Single Judge of the Gujarat High Court refused to sanction a scheme which was found to be a device to evade tax. The Objector has also submitted that the decision of the Hon'ble Supreme Court in the case of Union of India and Anr.. V/s. Azadi BachaoAndo/an and Anr. (2004) 10 SCC 1 (SC) is per in curium as it is contrary to the decision of the Constitutional Bench in McDowell's case (supra). 6. The learned Senior Advocate appearing for the Petitioners has submitted that the aforestated submissions/allegations/contentions of the Objector are untenable and baseless. It is submitted that the correct legal position with regard to tax avoidance/evasion is laid down in the decisions of the Hon'ble Supreme Court in the case of Azadi BachaoAndoIan (supra) and more recently in the case of Y2.daphæe-l-Qtecngflgngl Holdinqs V/s. Union of India and Ors. 341 'TR 1 (SC) He submitted that in the case of Azadi BachaoAndolan (Supra), the Hon'ble Supreme Court has in paragraphs 137 to 166 explained the....
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....hat every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavor. Though, the Madras High Court had occasion to refer to the judgement of the Privy Council in IRC v. Challenge Corpn. Ltd and did not have the benefit of the House of Lord's pronouncement in Craven the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. 148. WE may also refer to the judgment of the Gujarat mHigh Court in Banyan and Berry v. CIT where referring to McDowell, the Court observed : (ITR p.850 E-H) "The Court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the Act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell case, The ratio of any decision has....
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....Without payment of tax. This transfer was part of the scheme. The Court thus concluded that this was a clear device to avoid tax and consequently rejected the scheme. The Wood Polymer Limited (supra) case is therefore clearly distinguishable on facts. Infact, in a later case in Ambalal Sarabhai Enterprises [1984] 147 ITR 294 (Guj) the Division Bench of the Gujarat High Court approved the scheme despite the fact that tax was avoided by the scheme and held that the Wood Polymer Limited (supra) was decided on the basis of the peculiar facts of the case. The Gujarat High Court reiterated the principle that a tax payer can always arrange his affairs to avoid tax. 23. Thus the decisions cited by the Income Tax during the course of submissions in the instant case including that of Wood Polymer Private Limited case in order to fortify its contentions is no longer good law and hence cannot be taken note of by this Tribunal. Again, in relation to objection to valuation as well as the mode of transfer of shares which are transferrable and tradable being listed securities of the Transferee Company through pre-ordained route adopted by the Petitioner companies culminating in the Scheme objec....
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....ected, 24. Presently in the instant case too in relation to valuation,the shares of the Transferee Company being the only asset held by the transferor companies, apart from cash and bank balance in the Transferor Companies, the adoption of value of the said shares held in the transferee company for the valuation of shares of the Transferor Companies is only reasonable and proper. In this connection the Valuation Report of M/s.SSPA& Co., Chartered Accountant, a Fairness Opinion of M/S. Fortress Capital Management Services Pvt. Ltd being a Merchant Banker has also been obtained and produced in terms of the relevant clause in the Listing Agreement before this Tribunal and prior to it before SEBI as well, which had approved in principle subject to compliance as already seen of the Scheme coming up for sanction and which was also asserted by the Counsel for SEBI present before the Tribunal during the proceedings. 25, Further even though the Income Tax Department was repeatedly pointing out during the course of oral submissions that the intent of the petitioner companies is manifest from the manner in which the Appointed Date has been fixed in the Scheme as 31.03.2017 in order to b....
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....ax cannot be accepted and it also clearly points out that in any case under tax laws up to 31.03.2017 the same was permissible. 27. During the course of oral submissions Ld. Counsel for the petitioners repeatedly stressed that in relation to the Trust Deeds namely that of Thadani Family Trust (Trustee Vijay Kumar Thadani) and Pawar Family Trust ( Trustee Rajendra Singh Pawar) respective Trusts being the proposed acquirers had sought the approval of SEB! under the regulations namely Security and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulation, 2011 and SEBI upon a detailed examination of the clauses of the Trust Deeds, sought for the following clarifications by email dated December 6, 2016. "Based on the recommendation received from SEBI Takeover Panel, you are requested to confirm whether the acquirers are willing to remove the clause related to professional trustees from the Master Trust and Child Trust (Deeds). to which it is seen that a reply has also been sent dated 12.12.2016 and 16.12.2016 wherein the clauses as pointed out for which SEBl's clarifications were sought, stood revised to the effect that in relation to....
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....bears credence. It is seen that based on the queries raised by SEBI as well as subsequent amendments, respective Trust Deeds clearly shows that the shares are sought to be retained within the family as it was done previously as well prior to such transfers and not otherwise as sought to be portrayed by the Income Tax. 28. However, we propose in order to assuage the submissions of the revenue to the effect that if the Tribunal is inclined to sanction the Scheme, then protection be afforded at the very least to the Income Tax in relation to the transactions preceding and subsequent to the sanction and their being no serious objections to it on the part of petitioner companies which is also reflected in the rejoinder filed by them to the reply filed of the Income Tax Department and also taking into consideration the clauses contained in the Scheme in relation to liability to tax and also as insisted upon by the Income Tax and in terms of the decision in RE: Vodafone Essar Gujarat Limited v. Department of Income Tax (2013)353 ITR 222 (Guj) and the same being also affirmed by the Hon'ble Supreme Court and as reported in (2016) 66 taxmann.com.374(SC) from which it is seen that at ....