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TMI Blog2015 (3) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... corporated on 7th March 2006, and has been carrying on the business of setting up a container freight station. The Transferee was originally incorporated on 9th December 1998, under the name Cassinath Shipping Private Limited. The Registrar of Companies issued a fresh certificate of incorporation on 17th April 2001, changing the name of the Transferee to its present name. The Transferee has been carrying on the business of logistics and port services across India. 3. According to the Petitioners, the rationale behind the proposed amalgamation is restructuring of the Casby group. The proposed amalgamation will reduce the shareholding tiers and rationalize investments in the Casby group. Further, the proposed amalgamation would result in improved organizational capability and leadership, strong financial structure to all creditors of the Transferor and the Transferee, lower cost of borrowing, increase operational efficiency, economies of scale, standardization and simplification of business processes, productivity improvement, elimination of duplication and streamlining administrative expenses. The interest of the various stakeholders will be secured and unaffected by the proposed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in reply") to the issues raised in the first affidavit of the Regional Director. The Regional Director filed a further affidavit dated 25th September 2014 ("second affidavit") raising further issues. The Transferee filed its affidavit in reply dated 7th November 2014 ("second affidavit in reply") to the second affidavit filed by the Regional Director. The final hearing of the above Petitions commenced on November 2014. 7. As more particularly set out hereinafter, since it was argued on behalf of the Regional Director that the idea of the Petitioners behind propounding the above scheme is inter alia to obtain sanction of this court to the scheme with the appointed date of 1st April, 2008, and thereafter to file revised Income Tax returns in violation of Section 139 (5) of the Income Tax Act and the whole purpose of fixing a retrospective appointed date is to defeat the income tax demands and assessment proceedings either in progress or completed and the retrospective appointed date is nothing but a device to defeat the provisions of the Income Tax Act, particularly Section 139 (5), and the scheme therefore needs to be rejected, this Court directed the Regional Director to contac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA provides that the shares of the Byramjees were to be transferred to the Transferee on the closing date and on fulfillment of certain conditions precedent. The Petitioners have not stated in their pleadings as to when the transaction contemplated in the SPA was completed resulting in the Transferee becoming the beneficial owner of the shares of Byramjees. In fact, recital "H" of the Share Purchase Agreement dated 1st April 2009 ("2009 SPA") expressly states that the transaction contemplated by the 2008 SPA had not been completed. It is therefore clear that even as on 1st April, 2009, the Transferor was not the beneficial owner of the shares of the Byramjees. 9.3 On 7th April, 2008, additional 9,22,460 equity shares of the face value of Rs. 10/each of the Transferor were issued and allotted to the following persons: (a) M. Dinshaw & Co. Pvt. Ltd. : 2,50,000 shares (b) K.B. & Sons (Agency) Pvt. Ltd. : 2,50,000 shares. (c ) Casby Logistics Pvt. Ltd. : 4,72,460 shares. 9.4 The balancesheet of the Transferor as at 31st March, 2008, shows that the share application money for the shares issued and allotted to M. Dinshaw and K.B. & Sons was paid by M. Dinshaw and K.B. & Sons themsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued and allotted to K.B. & Sons. 9.10 On 7th October, 2011, the Board of Directors of the Transferor and the Transferee approved the scheme. As mentioned hereinabove, in November 2011, the Transferor and the Transferee filed Summonses for Directions in respect of the said scheme and subsequently filed Company Scheme Petitions for sanction of the scheme in this Court. 9.11 As on 31st March, 2013, the share capital of the Transferor was held as follows: (a) Transferee : 4,72,460 (b) M. Dinshaw & Co. Pvt. Ltd. : 2,50,000 (c ) K.B. & Sons : 6,00,000 (d) Mr. R.K. Byramjee : 5,000 (e) Mrs. M.K. Byramjee : 5,000 9.12 After the Summonses for Direction Nos. 609 and 610 of 2013 were filed by the Transferor and the Transferee in July 2013, on 24th July 2013, the Transferor filed two Form 20Bs i.e. the annual returns for the years ending 31st March, 2011 and 31st March, 2012. Along with these forms, the Transferor filed annexures containing details of its shareholding pattern. In these annexures it was stated for the first time that M. Dinshaw & Co., K.B. & Sons, Mr. R.K. Byramjee and Mrs. M.K. Byramjee held the shares as nominees of the Transferee. 9.13 On 28th July, 2013, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Regional Director that the purported declarations dated 1st April 2008 filed by the Byramjees and the purported declarations dated 7th April, 2008 filed by the Transferee, M. Dinshaw and K.B. & Sons with the Transferor are false and do not reflect the correct position. 11. It has been argued by the Petitioners that Section 187C provides for the consequences of not filing Form 22B and/or of the delayed filing thereof and that those are the only consequences which will flow from the nonfiling and/or delayed filing of Form 22B. Consequently, the same will not invalidate the transaction or arrangement under which the beneficial ownership of the shares vested in the Transferee. It is also argued by the Petitioners that the only obligation of the Transferee, the Byramjees, M. Dinshaw and K.B. & Sons was to file declarations with the Transferor, which they did and that the default on the part of the Transferor in not filing Form 22Bs in time cannot prejudice them. It is further submitted on behalf of the Petitioners that the Transferee, the Byramjees, M. Dinshaw and K.B. & Sons cannot be penalized for the default of the Transferor in filing Form 22Bs within the stipulated period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Director, which are narrated hereinabove, more particularly from the 2008 SPA, recital (H) of the 2009 SPA and the balancesheets filed by the Transferor and Transferee, it prima facie appears that the Transferee was not the beneficial owner of the shares of the Transferor with effect from 1st/7th April 2008. As correctly submitted by the Regional Director, the mere filing of Form 22B does not establish or prove that the beneficial ownership of the shares vested in the Transferee, as Form 22B is filed only for the purpose of notifying the world at large about the preexisting arrangement under which the legal ownership of the shares vests in one person and the beneficial ownership of the same shares vests in another. There must be a preexisting and underlying arrangement under which the beneficial ownership of the shares vest in the Transferee, which has not been shown to exist in the present case. In fact, the record clearly suggests the contrary. The argument that the only obligation of the Transferee, the Byramjees, M. Dinshaw and K.B. & Sons was to file declarations with the Transferor which they purportedly did and that the default on the part of the Transferor in not fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Director that apart from evading capital gains tax, it appears that the scheme is devised to evade payment of income tax by the Transferee. In this regard attention is drawn to Section 56(2)(viia) of the Income Tax Act which inter alia provides that the receipt of shares of a Company by another Company without consideration will be treated as income in the hands of the latter, the income to be computed in the manner provided therein. It is submitted that by virtue of the device of beneficial ownership and the scheme, the Transferee is acquiring the shares of the Byramjees, M. Dinshaw and K.B. & Sons without any consideration. This transaction accordingly clearly attracts the provisions of Section 56(2)(viia) thereby making the Transferee liable to pay income tax on the assumed consideration computed in accordance with the aforesaid Section. 16. In response it was contended by the Petitioners that if at all capital gains tax was payable, it would be payable by the Byramjees, M. Dinshaw and K.B. & Sons, all of whom were not involved in the scheme of amalgamation and therefore the aforesaid submission of the Regional Director was irrelevant. The Regional Director has explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orollary to this, the Transferor and Transferee Companies will both file revised Income Tax Returns giving effect to the amalgamation. It is submitted that the filing of revised returns is governed by the provisions of Section 139 (5) of the Act. It is well settled that a revised Income Tax Return can be filed only if the conditions stipulated in Section 139 (5) are satisfied viz. (i) that the assessee discovers any omission or wrong statement in the Income Tax return already filed and (ii) the revised Income Tax return is filed before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. It is only when both these conditions are fulfilled that an assessee is entitled to file revised Income Tax Returns. In support of this submission, the Regional Director has relied on the decisions in (I) CIT vs. A. Sreenivasa Pai (2000) 242 ITR 29 (Ker) para 12, (ii) Golden Insulation & Engineering Ltd. vs. CIT (2008) 305 ITR 427 (Del) para 14, (iii) F.C. Agarwal vs. CIT(1976) 102 ITR 408 (Gau), paras 28 and 30, (iv) Sulemanji Ganibhai vs.CIT (1980) 121 ITR 373 (MP), (v) CIT vs. J.K.A.Subramania Chettiar (1977) 110 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se tax returns, sales tax and value added tax returns, as may be applicable and has expressly reserved the rights to make such in its returns and to claim refunds or credits, etc, if any. Such returns may be revised and filed notwithstanding that the statutory period for such revision and filing may have lapsed." 21. It is submitted that the aforesaid clause 6.2.1 clearly shows that the Petitioners by the device of the scheme planned to file revised Income Tax returns in breach of Section 139 (5) of the Act. What is worse is that the Petitioners are seeking the sanction of this Court to perpetuate such an illegality. 22. As set out hereinabove, during the course of the hearing this Court orally directed the Regional Director to enquire with the Income Tax Department as to whether the Department supported the objections of the Regional Director. In response to the enquiry of the Regional Director, the Income Tax Department issued two separate letters dated 3rd December 2014 in respect of the Transferor and Transferee Companies which have been placed on record by the Regional Director by filing the third Affidavit. In the aforesaid letters, the Income Tax Department has inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders. The Regional Director has not relied on any provision of law or any decision of any Court which states that an appointed date in respect of a scheme of amalgamation cannot be an antecedent date. It is submitted that there is no legal bar to the appointed date being an antecedent date under the Act. In the absence of a bar under the Act, the shareholders of the Companies were free to choose any date as an appointed date in their commercial wisdom. 26. In support of their contention that the appointed date can be an antecedent date, the Petitioners have relied on the decisions of this Court in the case of Bombay Gas Company Pvt. Ltd. (supra), In Re. HCL Limited (1994) 80 Comp. Cases 228 (Del), Gujarat Narmada Valley Fertilizers Ltd. (supra) and Tata Tea Limited (2008) 144 Com Cases 236 (Cal). 27. It is further submitted that the Regional Director has no locus to raise issues under the Income Tax Act. A circular was issued by the Ministry of Corporate Affairs, Govt. of India, on 15th January, 2014, to all the Regional Directors which circular was considered and interpreted by this Court in the case of Universal Mine Developers and Service Providers Pvt. Ltd. and others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to assume the role of the Tax Authorities. Those matters have to be left to the Tax Authorities to decide in accordance with law. In support of this submission, the Petitioners have relied on the decision of this Court in the case of Trinity India Limited Company Petition No. 105 of 2014 and the decisions of the Hon'ble Supreme Court in Tata Tea Ltd. (supra) and in Sequent Scientific Ltd. 151 Company cases 1 Bom. 28. It is next submitted on behalf of the Petitioners that in respect of the assessment proceedings pending sanction of scheme, the Hon'ble Supreme Court has in the case of Marshall Sons & Co. (India) Ltd. vs. Income Tax Officer 88 Company cases 528 (SC) held thus: "15. Counsel for the Revenue contended that if the aforesaid view is adopted then several complications will ensue in case the Court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the Transferee taking into account the income of both the Transferor and Transferee. Secondly, and probably the more advisable course from the point of view of the Revenue would be to make one assessment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d owing to the threat issued by the Regional Director to the concerned Income Tax Officers. The Regional Director has exceeded his jurisdiction in issuing such threats. 29. It is further submitted on behalf of the Petitioners that the Regional Director's apprehension in respect of any alleged misuse of clause 6.2.1 of the scheme of amalgamation by the Transferee by filing a revised return, has been subsumed by paragraph 6 (e) of the Regional Director's first affidavit and the Transferor's reply in para 6 of its affidavit dated 7th August, 2014. The same has also been dealt with by the Transferee in its first affidavit in reply. Without prejudice to its contention that the Petitioners are entitled to retain clause 6.2.1 in the scheme, in order to obviate any apprehension on the part of the Regional Director, the Petitioners submit that they are willing to delete clause 6.2.1 of the Scheme. This statement was made on behalf of the Petitioners during the hearing. Dealing with the decisions relied upon by the Regional Director in support of his arguments relating to Section 139(5) of the Income Tax Act, it is submitted on behalf of the Petitioners that the said decisions do not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the attention of the Court any provision in the scheme which may contravene/circumvent the provisions of any law including the law pertaining to Income Tax. This is to ensure that a company does not obtain sanction of a scheme and thereafter use the same as a shield to protect itself from the consequences arising out of the contravention of provisions of law. In the present case itself, the Petitioners have included clause 6.2.1 in the scheme which expressly permits the Transferee inter alia to file revised Income Tax returns and that too notwithstanding the expiry of the statutory period for filing such returns and without satisfying the conditions stipulated by Section 139(5) of the Income Tax Act. The Regional Director has submitted that the Petitioners by the device of the scheme have planned to file revised Income Tax returns in breach of Section 139 (5) of the Income Tax Act and are seeking the sanction of this Court to perpetuate such an illegality. In support of his contention, the Regional Director has relied on several decisions of various High Courts which I have referred to above and which have held that a revised Income Tax Return can be filed if and only if the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Learned Single Judge of the Goa Bench of the Bombay High Court dated 6th November 2012 passed in the case of Commissioner of Income Tax v/s. Sesa Goa17 where the Learned Single Judge followed an earlier decision of this Court in Jindal Iron and Steel Limited's case and held that it was only the Regional Director who had locus standi to oppose the scheme and the Income Tax Department had no locus to intervene in proceedings 17 Unreported decision in Company Application No. 70 of 2012 in Company Petition No. 11 of 2012. under Sections 391 to 394 of the Act. The Regional Director also placed before me the decision of the Division Bench of the Goa Bench of the Bombay High Court in the same case passed on 14th February 2013 whereby the Division Bench dismissed the Appeal of the Revenue and confirmed the decision of the Learned Single Judge. In this case I am not required to comment on whether the Income Tax Authorities have any independent locus or not. However, it is apparent that these decisions support the contention of the Regional Director that he has the necessary locus to appear before the Court and place his views before the Court on all aspects of the scheme. In any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Department is deemed to have no objection to the scheme and cannot raise any objection after the expiry of this period. According to the Petitioners the word "may" used in the 3rd sentence of para 3 means "shall". The Petitioners rely upon the order of this Court in Universal Mine Developers and Service Providers Private Limited & Ors. (Supra) in support of their aforesaid contention. It is further submitted by the Petitioners that by virtue of para 4 of the circular if the Regional Director did not agree with the views of the Income Tax Department, he was required to make a reference to the MCA for taking up the matter with the Finance Ministry before filing his representation under Section 394A, which was not done in the present case. According to the Petitioners, by not raising any objection within 15 days, the Income Tax Department had consented to the Scheme and accordingly if the Regional Director did not agree with this view, he ought to have pursued the matter in accordance with the procedure prescribed in para 4 of the Circular. In this regard, the Petitioners rely upon the decision of this Court in the case of All India Bluestar Employees Federation and Anr. v/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar did not fall for the consideration of the Court in that case. In fact as is clear from the cause title, the Petitioners were not even represented. In the circumstances, the aforesaid order of this court is of no assistance to the Petitioners. The decision of this Court in the case of All India Bluestar Employees Federation and Anr. V/s. Bluestar Limited (supra) is also of no assistance to the Petitioners inasmuch as the issue in that case was completely different and the said Circular dated 15th January 2014 was not being considered in that case. 37. When the arguments in the matter were in progress and the Regional Director was doing his duty of pointing out what in his view was wrong and illegal, the Petitioners criticized the role played by the Regional Director and submitted that he was exceeding his jurisdiction. This Court therefore orally directed the Regional Director to ask the Income Tax Department to submit its views on the objections raised by the Regional Director. The Regional Director conveyed the aforesaid directions of this Court to the Income Tax Department and while doing so he has inter alia recorded that if the Income Tax authorities do not forward their v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petitioners and the decision of the Income Tax Authority is binding on the Petitioners and since the Petitioners have accepted this position in their Affidavits in Reply, nothing survives in the objections of the Regional Director. In other words, according to the Petitioners, the objections of the Regional Director do not survive once the Petitioners accept that it will be open to the Income Tax Authorities to deal with the tax issues arising out of the scheme regardless of the approval of the scheme by this Court. 40. It is submitted on behalf of the Regional Director that the Petitioners have completely misconstrued the objection of the Regional Director contained in para 6 (e) of his affidavit. In this para the Regional Director has referred to the Income Tax implications that arise "after giving effect to the amalgamation". This para therefore refers to the tax issues that may arise upon the scheme being sanctioned and the amalgamation of the two companies taking effect. This objection of the Regional Director proceeds on the basis that the scheme is sanctioned. It is therefore submitted that this objection is different from the objection of the Regional Director to the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted date being contrary to the provisions of the Income Tax Act. As such it is not possible to accept the contention of the Petitioners that para 6(e) of the first affidavit of the Regional Director read with para 6 of the Affidavit in Reply of the Petitioners is a complete answer to the objection of the Regional Director. 43. In support of their contentions, the Petitioners have relied upon the decision of this Court in the case of Trinity India Ltd. (supra). In that case, the Regional Director placed on record the letter of the Income Tax Department to the effect that tax issues, if any, arising out of the Scheme, would be subject to the final decision of the Income Tax Department and the approval of the scheme by this Court cannot deter the Income Tax Department from examining the Income Tax Returns filed by the Petitioner Company therein. With regard to this objection, this Court accepted the clarification of the Petitioner therein to the effect that the scheme would not have an impact on ongoing assessment proceedings and that it was from the appointed date that the Transferor therein would cease to be in existence and would merge with the Transferee in which case the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court is considering an argument that the scheme is in violation of the provisions of law viz. the Income Tax Act. Moreover, in Sequent Scientific, this Court came to the conclusion that the scheme did not violate the supply agreement between the intervener and the Transferor. This decision is again of no assistance to the Petitioners. 46. The Petitioners also relied upon the decision of this Court in the case of Sadanand Varde referred to in Sequent Scientific. In the case of Sadanand Varde, this Court (in a PIL) examined the objection pertaining to the violation of the Income Tax Act on its merits and recorded a categorical finding that the provisions of Chapter XXC were not attracted and that a No Objection Certificate under Chapter XXC was not required prior to the sanction of the scheme. This Court did not hold that the objection of the Income Tax Department was liable to be ignored by this Court and that the Income Tax Department may raise the same in the course of assessment proceedings. This decision therefore also does not assist the Petitioners. 47. In my view therefore the Regional Director is right in saying that in the instant case the objection of the Regional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. Hence it is not open to them to raise this contention during the course of arguments. In any case, as I already observed above, the mere making of protective assessments does not preclude the Income Tax Department from objecting to the scheme. Further, it is well settled that there is no estoppel against statute and consequently it is always open to the Income Tax Department to point out that the scheme is contrary to the provisions of the Income Tax Act. In any case it is always open to the Regional Director, who has not made any protective assessment, to point out that the scheme is in violation of Income Tax Act. 50. Next, I come to the contention of the Regional Director that the scheme is violative of Section 139(5) of the Income Tax Act and in particular the retrospective appointed date of 1st April 2008 is violative of Section 139(5) of the Income Tax Act. According to the Regional Director it is well settled that a revised income tax return can be filed if and only if the conditions stipulated in Section 139(5) are satisfied viz. (i) that the Assesse discovers any omission or wrong statement in the income tax return already filed, and (ii) the revised income tax retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petitioners even agreed to the deletion of Clause 6.2.1 of the scheme, which provided for the filing of revised returns. In the circumstances, in my view, it would be proper to direct 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 of the Transferor and Transferee companies whether on the basis of the income tax returns already filed or revised returns, if any, that may be filed or otherwise and shall carry out such assessments without being influenced by the observations made herein. 52. As regard the objection of the Regional Director pertaining to stamp duty, as it pertains to a post amalgamation stage, the same shall be decided by the Stamp Authorities at the appropriate stage. 53. Finally I come to the issue of suppression of material facts and false and misleading statements and contradictory and inconsistent stands by the Petitioners. According to the Regional Director the Petitioners have suppressed several material facts from the Court. The Petitioners have not disclosed the income tax demands on the Transferor and Transferee Companies. On the contrary, the Petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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