2015 (3) TMI 816 - HC - Companies Law

Application for scheme of amalgamation under Section 394 of the Companies Act,1956 - Regional Director observation regarding contradictory statement in affidavit in relation to beneficial owner of the shares - Evading capital gains tax - Evading income tax - Retrospective appointed date - Held that - The Learned Senior Advocate appearing for the Petitioners has submitted that afore stated issues pertaining to fixing of the liability qua payment of income tax and capital gains may independently be decided by the tax authorities.- In my view, the Learned Senior Advocate of the Petitioners is right and the aforesaid issues as regards the liability, if any, of the Petitioners and their shareholders, towards payment of capital gains tax as well as income tax can be left to the tax authorities to be decided in accordance with the applicable laws at the appropriate stage without being influenced by the observations made herein. It is quite clear from the record that the Petitioners have been less than forthright in placing the facts on record. As I have already held, prima facie it is apparent that the Transferee was not the beneficial owner of the shares of the Transferor Company either on 1st or 7th April 2008. It is also clear that the Petitioners have taken inconsistent stands in this connection viz. in one place they say that the relevant date on which the Transferee was the beneficial owner of the shares was 1st April 2008 and in another place they say that this date was 7th April 2008. The Petitioners have also not come forth with the correct facts in respect of the two SPAs or the effect thereof. Further, the Petitioners have suppressed the income tax demands, which have undisputedly been raised on them, in the Petitions as well as in their various affidavits filed in this Court. To my mind these were relevant facts which were required to be placed on record by the Petitioners. As rightly pointed out by the Regional Director, the Petitioners have falsely stated in the affidavits filed with me that there were no income tax liabilities. To my mind there is no doubt that the Petitioners have sought to mislead this Court. It is no answer to say that the Court cannot look into these matters in its supervisory jurisdiction. Suppression of material facts and making false and incorrect statements is a very serious matter with serious consequences and it is the duty of the Court to examine the allegations of suppression etc. carefully and if found to be correct to take appropriate action against the party concerned. It is also not an answer to say that M. Dinshaw and K.B. & Sons have affirmed the transaction and have consented to the scheme in writing. Even if that be so, it was the duty of the Petitioners to come clean with the Court and place all the facts on record. The Regional Director prays that the Petitions ought to be dismissed on the ground of suppression alone. According to him a party should not be shown any latitude and indulgence in such matters. Ordinarily, I would have agreed with the Regional Director. However, in the facts of the present case and particularly in view of the final order I propose to make I am of the view that instead of dismissing the Petitions on this ground, imposition of costs on each of the Petitioners will meet the ends of justice. - The scheme of amalgamation conditionally approved.

Issues Involved:
1. Sanction of Scheme of Amalgamation under Section 394 of the Companies Act, 1956.
2. Beneficial Ownership of Shares and its Implications.
3. Compliance with Section 139(5) of the Income Tax Act.
4. Allegations of Suppression of Material Facts and Misleading Statements.
5. Role and Locus of the Regional Director and Income Tax Department.
6. Retrospective Appointed Date and its Legal Validity.
7. Tax Implications, including Capital Gains and Income Tax.
8. Validity of Filing Revised Income Tax Returns Post-Amalgamation.

Detailed Analysis:

1. Sanction of Scheme of Amalgamation under Section 394 of the Companies Act, 1956:
The court was approached for sanction under Section 394 of the Companies Act, 1956, for a scheme of amalgamation between Casby CFS Private Limited (Transferor) and Casby Logistics Private Limited (Transferee). The rationale behind the proposed amalgamation included restructuring the Casby group, reducing shareholding tiers, rationalizing investments, improving organizational capability, and securing the interests of various stakeholders.

2. Beneficial Ownership of Shares and its Implications:
The Petitioners claimed that the Transferor was a wholly-owned subsidiary of the Transferee from 1st April 2008. However, the Regional Director argued that this was false and misleading, pointing out inconsistencies and lack of evidence supporting the claim of beneficial ownership. The court found that the Transferee was not the beneficial owner of the shares with effect from 1st/7th April 2008, as alleged by the Petitioners, and that the declarations appeared to be ante-dated.

3. Compliance with Section 139(5) of the Income Tax Act:
The Regional Director argued that the retrospective appointed date of 1st April 2008 was a device to defeat the provisions of the Income Tax Act, particularly Section 139(5), which governs the filing of revised income tax returns. The court agreed that a revised income tax return could only be filed if the conditions stipulated in Section 139(5) were satisfied and that the scheme's retrospective appointed date was problematic.

4. Allegations of Suppression of Material Facts and Misleading Statements:
The Regional Director submitted that the Petitioners had suppressed material facts, made false and misleading statements, and taken contradictory stands. The court found that the Petitioners had indeed suppressed relevant facts, such as income tax demands and the status of the 2008 SPA, and made inconsistent statements regarding the beneficial ownership of shares.

5. Role and Locus of the Regional Director and Income Tax Department:
The court clarified that the Regional Director has the locus standi to raise objections to the scheme, including those related to income tax implications. The Regional Director is duty-bound to bring any provision in the scheme that may contravene or circumvent the provisions of any law to the court's attention. The court also noted that the circular dated 15th January 2014 did not restrict the Regional Director's rights and duties.

6. Retrospective Appointed Date and its Legal Validity:
The court examined the issue of the retrospective appointed date and found that it was intended to defeat the provisions of the Income Tax Act. The court directed that the Income Tax Department shall not be bound by the appointed date fixed under the scheme while carrying out pending and/or future assessments.

7. Tax Implications, including Capital Gains and Income Tax:
The Regional Director pointed out that the scheme was devised to evade capital gains tax and income tax. The court left the issues regarding the liability of the Petitioners and their shareholders towards payment of capital gains tax and income tax open to be decided by the Income Tax Department in accordance with the applicable laws.

8. Validity of Filing Revised Income Tax Returns Post-Amalgamation:
The court found that the Petitioners' plan to file revised income tax returns retrospectively from 1st April 2008 was problematic. The court directed that the validity and permissibility of any revised income tax returns filed by the Petitioners would be decided by the Income Tax Department, and the department would not be bound by the appointed date fixed by the scheme.

Final Order:
The scheme of amalgamation was sanctioned subject to several conditions, including the deletion of Clause 6.2.1, leaving tax liabilities to be decided by the Income Tax Department, and ensuring that the department is not bound by the appointed date while carrying out assessments. The Petitioners were also ordered to pay costs to the Regional Director and the High Court Legal Services Committee.

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