TaxTMI 
TaxTMI 
2020 (9) TMI 515
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.... indenters, importers, exporters, distributors, dealers and agents in all kinds of bulk drugs, drug intermediates, pharmaceuticals, medicinal formulations and biological preparations including injections, tablets, capsules, syrups, ointments, balm, veterinary drugs and formulations, other food products and raw materials and by-product items. 3. The background, rationale and benefits of the Scheme are inter alia as follows: (a) It would be advantageous of both the Transferor Company and the Transferee Company to combine the operations by amalgamation into a single company to reap the benefits of economies of scale, optimum utilisation of common resources by harnessing the synergies of business operation which will contribute in enhancing the profitability of the Transferee Company; (b) Implementation of the Scheme of Amalgamation is expected to rationalise both the entities into one combined entity thereby reducing transactional and administration costs. (c) The scheme of amalgamation will contribute in fulfilling and furthering the objects of these companies. It will strengthen, consolidate and stabilise the business of these companies and will facilit....
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....the Petitioner Companies are required to serve Notice for Scheme for Arrangement to the Income Tax Department for their comments. It appears that the company vide letter dated 21.06.2017 has served a copy of company scheme application No. 255 and 256 of 2017 along with relevant orders etc. to IT Department. further, this Directorate has also issued a reminder letter dated 24.10.2017, to IT Department. d. The Tax implications if any arising out of the scheme is subject to final decisions of Income Tax Authorities. The Approval of the scheme by this Hon'ble Court may not deter the Income Tax Authority to scrutinise the tax return filed by the transferee company after giving effect to the scheme. The decision of the Income Tax Authority is binding on the Petitioner Company. e. Certificate stating that the accounting treatment if any proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133 of the Companies Act, 2013 read with Rules not submitted. f. In view of the objection raised by ROC Mumbai, mentioned at Para 11 above, the NCLT may pass appropriate order(s) deem fit. 7. As far a....
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....ree Company. (iii) The statutory information of financial position of the Transferor Company (Reserves of Rs. 1.07 Crore as at 31.03.2016) as provided to Hon'ble NCLT u/s 230(2)(a) of the Companies Act, 2013 are totally unreliable and mala fide and do not present true and fair view of financial position, as such Reserves contain an amount of Rs. 1.16 Cr (Gross) illegally credited directly to the Reserve in the balance sheet of the Company in previous year's without first recognising the same as Income of the Year 2012-13 (proof of such mala fide financial details are enclosed herewith). (iv) With reference to para 11.2 of the Scheme, such illegal reserves of Rs. 1.07 Crore cannot be allowed to be taken by the Transferee Company which is actually involved in this transaction as other party. (v) With reference to para 11.3 of the scheme, it shall be adjusted with Capital Reserve only, instead of to the Profit and Loss Account/General Reserve Account of Transferee Company, and further it should compulsorily follow "pooling of interests method" only in all respects. (vi) Page 138 of the Scheme papers furnished to Hon'ble NCLT (Directors R....
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....said Land and building in favour of the Transferee Company pursuant to the Transfer Order dated 5th May 2012 for a consideration of ' 1,16,76,600/-. The necessary stamp duty on the said document was duly paid. (vi) As per Accounting Standard (AS) 10, "13.7 An increase in net book value arising on revaluation of fixed assets is normally credited directly to owner's interests under the heading of revaluation reserves and is regarded as not available for distributiono?=." Thus, on revaluation of the said land, as per AS 10, the increase in the net book value would have to be credited to the owner's interest under the heading of revaluation reserves and not to the profit and loss account. Therefore, the difference between the revalued value and the historic value would have to be credited under the heading "Revaluation Reserves." (vii) Therefore, the difference between the monies received from the transaction under the said Assignment Deed and the historical value as reflected prior to the revaluation has been correctly reflected in the Surplus of the Company. (d) As far as the observation of the Registrar of Companies, as stated in para 11(iv) of the R....
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....efore, this objection of the ROC also cannot be sustained. (e) As far as the observation of the Registrar of Companies, as stated in para 11 (v) of the RD's report is concerned, Learned Counsel for the Petitioner Companies submits that upon the scheme being sanctioned, the Petitioner Companies undertake that the balance, if any, in capital reserve after adjusting balance of investment shall be added to the Capital Reserve only following the "pooling of interests" method. (f) As far as the observation of the Registrar of Companies, as stated in Para 11(vi) of the RD's report is concerned, the Learned Counsel of the Petitioner Companies submits that Page No. 138 of the Scheme was inadvertently annexed and the correct pages have been placed on record with affidavit dated 26.07.2020 of Mr. Sailesh Sanghvi at Annexure "C" thereto. 14. The observations of the RD have been explained by the Petitioner Companies in Para Nos. 7 to 13 above. Thereafter, the RD has filed a supplementary report on 06.02.2019, wherein most of the replies proffered by the Petitioner Companies regarding the earlier report have been accepted to be satisfactory. 15. The RoC has also filed a separ....
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....ribution." 21. Para 26 of AS-10 reads, "Losses arising from the retirement or gains or losses arising from disposal of fixed asset which is carried at cost should be recognised in the profit and loss statement." The Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) have the effect of law in terms of section 133 of the Companies Act, 2013. 22. The Transferor Company has submitted that the profit has not arisen on the sale or transfer of the asset, and therefore, the relevant para for of AS-10 is para 42 and not para 26 thereof. This contention appears to be correct, since there was a revaluation of the asset of the Transferor Company prior to the transfer. Only after the revaluation of the asset, the asset was alienated in favour of the Transferee Company by way of sale, and the full value of the sale was also realised from the Transferor Company. Therefore, there is some merit in the contention that no profit has arisen out of the sale or transfer of the asset. The fact that the revaluation was undertaken at the instance of the Transferee Company ipso facto cannot make it a dubious transaction, unless there are compelling other reasons. ....
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.... alia stating that the affairs of the Transferor Company have been conducted in a proper manner. It is clear from the report of M/s. P R Agarwal and Awasthi, Chartered Accountants appointed vide order dated 28.07.2017, which is annexed to the OL Report, that the affairs of the Transferor Company have not been conducted in a manner prejudicial to the interest of the members or to the public interest. 25. There is, therefore, no reason to doubt the correctness of the transaction and the accounting entries made in this regard by the Transferor Company. 26. Nevertheless, in so far as tax liability in respect of the transaction itself is concerned, the Income Tax Department is free to take an independent view and determine whether there is any tax due on this score. Sanction of the Scheme by this Tribunal shall not come in the way of any such determination, and the Income Tax Department is free to proceed in accordance with law. 27. The rest of the clarifications and undertakings provided by the Petitioner Companies are found satisfactory and are, therefore, accepted. 28. It is noted that no objector has come before this Tribunal to oppose the scheme nor has any party contro....