2022 (5) TMI 1490 - Tri - Companies Law

Scheme of Amalgamation - objections raised by the Income Tax Department - conditions laid down under Section 72A of the Income Tax Act, 1961, and also in Rule 9(C) of the Income Tax Rules, 1962, to qualify for carrying forward and set off unabsorbed business losses and unabsorbed depreciation of the amalgamating company in the hands of the amalgamated company. HELD THAT - Even if a proposal of a Scheme of Amalgamation has been approved by the Adjudicating Authority, it is clarified that no provision of such a Scheme can override the existing provisions of the Income Tax Act. In any case, the above issues will come up for the consideration of the Assessing Officer at the time of assessment of the petitioner companies, and the Department can analyze the Scheme and is entitled to take any decision as per the provisions of the Income Tax Act on any issues including those discussed above. The Transferee Company has already submitted an undertaking in the form of an affidavit that it would extend its complete cooperation to the income tax authorities in any proceedings that exist/may arise post the sanction of the Scheme of Amalgamation by this Adjudicating Authority. As regards the provision of GAAR, the Income Tax Department is at liberty to invoke the provisions if the Assessing Officer during the course of assessment or reassessment proceedings, believes that GAAR should be invoked but the case will have to be referred to the Principal Commissioner or Commissioner of Income Tax, who in turn has to refer the matter to an Approving Panel in accordance with the provisions of Section 144BA of the Act. In view of the aforementioned discussions, we do not find enough merit in the objections raised by the Income Tax Department to justify any adverse inference with regard to the proposed Scheme of Amalgamation. The certificate of the Statutory Auditors with respect to the Scheme between Applicant Companies to the effect that the accounting treatment proposed in the Scheme is in compliance with applicable Indian Accounting Standards (Ind AS) as specified in Section 133 of the Act, read with Rules thereunder and other Generally Accepted Accounting Principles was filed as Annexure-14 of the petition. Scheme of amalgamation approved.

Summary

Issues Involved:
1. Sanctioning of the Scheme of Amalgamation.
2. Compliance with statutory requirements.
3. Objections raised by the Income Tax Department.
4. Valuation of shares and exchange ratio.
5. Tax implications and potential revenue loss.
6. Applicability of GAAR and compliance with the Income Tax Act, 1961.
7. Protection of revenue interests.
8. Conditions for the transfer of assets and liabilities.
9. Compliance with other regulatory requirements.

Issue-wise Detailed Analysis:

1. Sanctioning of the Scheme of Amalgamation:
The Petitioner Companies, Panasonic India Private Limited (Transferor Company) and Panasonic Life Solutions India Private Limited (Transferee Company), filed a joint second motion application under Sections 230-232 of the Companies Act, 2013, seeking the sanctioning of their Scheme of Amalgamation. The Tribunal sanctioned the Scheme, noting compliance with all statutory requirements and the absence of any objections.

2. Compliance with Statutory Requirements:
The first motion application was disposed of on 01.03.2021, dispensing with meetings of shareholders and creditors. Notices were published and served to relevant authorities, including the Central Government, Competition Commission of India (CCI), Registrar of Companies, Official Liquidator, and Income Tax Department. Compliance affidavits were filed, confirming no public objections were received.

3. Objections Raised by the Income Tax Department:
The Income Tax Department raised concerns about the effective ownership by Panasonic Corporation, Japan, and the potential misuse of accumulated losses for tax benefits. They cited Sections 79 and 72A of the Income Tax Act, 1961, highlighting potential revenue loss and applicability of GAAR provisions.

4. Valuation of Shares and Exchange Ratio:
The Department questioned the share valuation and exchange ratio, suggesting undue benefits to shareholders despite the Transferor Company's negative net worth. The Petitioner Companies clarified that the valuation was conducted by a registered valuer, and the face value of shares should not be misconstrued as their actual value.

5. Tax Implications and Potential Revenue Loss:
The Department estimated a revenue loss of approximately Rs.3,594 Million due to the set-off of accumulated losses and potential non-payment of capital gains by non-resident shareholders. The Petitioner Companies argued that tax neutrality is conferred by the Income Tax Act, 1961, and compliance with Section 72A conditions would be verified during assessment.

6. Applicability of GAAR and Compliance with the Income Tax Act, 1961:
The Petitioner Companies contended that the amalgamation was driven by commercial rationale and not solely for tax benefits, referencing judicial decisions supporting legitimate business transactions. The Tribunal noted that GAAR provisions could be invoked by the Assessing Officer if necessary.

7. Protection of Revenue Interests:
The Tribunal emphasized that provisions under Sections 72A and 79 of the Income Tax Act, 1961, protect revenue interests. The Petitioner Companies undertook to cooperate with tax authorities, and the Tribunal clarified that the Scheme's approval does not override tax provisions.

8. Conditions for the Transfer of Assets and Liabilities:
The Tribunal ordered the transfer of all property, rights, powers, liabilities, and duties from the Transferor Company to the Transferee Company without further act or deed, effective from the appointed date of 01.01.2020.

9. Compliance with Other Regulatory Requirements:
The Tribunal specified that the Scheme does not exempt the Companies from compliance with stamp duty, taxes, or other charges. The Transferee Company was directed to file revised memorandum and articles of association and make requisite payments for authorized capital enhancement.

Conclusion:
The Tribunal sanctioned the Scheme of Amalgamation, confirming compliance with statutory requirements and addressing objections raised by the Income Tax Department. The order emphasized that tax provisions would be upheld during assessment, and regulatory compliance was mandatory. The Scheme's approval was subject to conditions ensuring the protection of revenue interests and adherence to legal requirements.