Ad2Pro Media Solutions Pvt. Ltd vs Regional Director, (Ser), Ministry Of ...

[Arising out of Order dated 8th March, 2019 passed by the National Company Law Tribunal, Bengaluru Bench in CP(CAA)No.59/BB/2018 and CP(CAA)No.45/BB/2018]

IN THE MATTER OF:

Ad2Pro Global Creative Solutions Private Limited 80, (old no. 2/3), Hulkul Ascent, 2nd Cross, Lavelle Road, Bengaluru - 560 001. ...Appellant/ Transferee Company

Vs

1. Regional Director, (SER), Ministry of Corporate Affairs 3rd Floor, Corporate Bhawan, Bandlagunda, Nagole, Tattiannaram Village, Hayat Nagar, Mandal, Ranga Reddy District, Hyderabad, Telengana - 500068.

2. Registrar of companies, Ministry of Corporate Affairs 2nd Floor, E Wing, Kendriya Sadan, Koramangala, Bengaluru-34.

3. Designated Nodal Officer, Income Tax Department (for Karnataka State) Pr. CCIT, Karnataka and Goa, CR Building No. 1, Queens Road, Bengaluru - 560 001.

4. Pr. Commissioner of Income Tax - I 5th Floor, BMTC Building, 80 Feet Road, 6th Block, Kormangala, Bengaluru - 560 095. -2-

5. Official Liquidator, Bengaluru, Ministry of Corporate Affairs, High Court of Karnataka, Corporate Bhavan, No.26-27, 12th Floor, Raheja Towers, M.G. Road., Bengaluru.

6. Regional Director, Reserve Bank of India, 10/3/8, Nrupathunga Road, Bengaluru, Karnataka - 560 001. ....Respondents

With

Company Appeal (AT) No. 99 of 2019

[Arising out of Order dated 8th March, 2019 passed by the National Company Law Tribunal, Bengaluru Bench in CP(CAA)No.59/BB/2018 and CP(CAA)No.45/BB/2018]

IN THE MATTER OF:

Ad2Pro Media Solutions Private Limited 2nd Floor, No. 10, Bannerghatta Road, Bengaluru - 560 078. ...Appellant/ Transferor Company

Vs

1. Regional Director, (SER), Ministry of Corporate Affairs 3rd Floor, Corporate Bhawan, Bandlagunda, Nagole, Tattiannaram Village, Hayat Nagar, Mandal, Ranga Reddy District, Hyderabad, Telengana - 500068.

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -3-

2. Registrar of companies, Ministry of Corporate Affairs 2nd Floor, E Wing, Kendriya Sadan, Koramangala, Bengaluru-34.

3. Designated Nodal Officer, Income Tax Department (for Karnataka State) Pr. CCIT, Karnataka and Goa, CR Building No. 1, Queens Road, Bengaluru - 560 001.

4. Pr. Commissioner of Income Tax - I 5th Floor, BMTC Building, 80 Feet Road, 6th Block, Kormangala, Bengaluru - 560 095.

5. Official Liquidator, Bengaluru, Ministry of Corporate Affairs, High Court of Karnataka, Corporate Bhavan, No.26-27, 12th Floor, Raheja Towers, M.G. Road., Bengaluru.

6. Regional Director, Reserve Bank of India, 10/3/8, Nrupathunga Road, Bengaluru, Karnataka - 560 001. ....Respondents

Present:

For Appellant: Mr. Abhinav Vashisht, Sr. Advocate with Ms. Priya Singh, Ms. Akshita Sachdeva, Mr. Nishant Singh, Mr. Sandeep Grover, Ms. Vaishnavi Rao, Mr. Nikhil Bhat and Mr. Kshitij Parashar, Advocates.

For Respondents: Mr. Zoheb Hossain, Sr. Standing Counsel with Mr. Piyush Goyal, Advocates for Income Tax Department.

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -4-

BANSI LAL BHAT, J.

This batch of two appeals is limited to a condition in the order dated

8th March, 2019 passed by National Company Law Tribunal, Bengaluru

Bench, Bengaluru (hereinafter referred to as 'the Tribunal') by virtue whereof

the Tribunal while allowing the Company Petitions bearing Nos.

45/BB/2018 and 59/BB/2018 approved the scheme of arrangement filed

by the Transferor Company (Ad2Pro Media Solutions Pvt. Ltd.) and

Transferee Company (Ad2Pro Global Creative Solutions Pvt. Ltd.) subject to

imposition of certain conditions, one of which relevant for the purposes of

disposal of these appeals and in regard to which the Appellants are

aggrieved being that the scheme of arrangement can only be given effect to

subject to the Transferor Company paying the entire tax liability allegedly

outstanding to the tune of Rs.18,13,24,680/- to the Income Tax Department

and Rs.86,81,439/- to the concerned Service Tax Authorities. The issue

raised in these appeals is whether the Tribunal could impose a condition to

make payment of alleged tax liabilities when the same are disputed by the

Company before the concerned authorities and make it a precondition to

sanctioning of the scheme of amalgamation, more so, when no such demand

has been made by the concerned/ relevant authorities and no objection has

been raised before the Tribunal. The further issue for consideration raised

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -5-

in these appeals is whether the Tribunal could direct the Transferor

Company to make payment of alleged tax despite an express undertaking by

the Transferee Company to make such payment on behalf of Transferor

Company if found due and payable after adjudication.

2. The relevant condition in the impugned order to which exception has

been taken by the Appellants may be reproduced as under:-

"(10) b. In case of Income Tax, a sum of

Rs.19,88,24,680/- is due for the financial year 2010-11 to

2016-17 and amount deposited in protest is only

Rs.1,75,00,000/- and presently is pending before the

Commissioner of Income Tax Appeals. The Transferor

Company is directed to pay the entire outstanding dues,

i.e., Rs.18,13,24,680/- (An Amount of Rs.1,75,00,000

which was paid in protest is subtracted from the original

amount, Rs.19,88,24,680/-) to the Commissioner of Income

Tax Appeals-1, Bangalore and Service Tax outstanding

amount of Rs.86,81,439/- to the competent Authorities.

The appropriate refund amount as may be, on finality, can

be transferred to the Transferee Company."

3. Learned counsel for the Appellants submitted that the demand as

raised by the Income Tax and Service Tax Authorities has not yet

crystallized, same being challenged by the Transferor Company before the

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -6-

competent Appellate Tribunals where the adjudication is underway. It is

further submitted that the demand emanating from the Income Tax

Authorities initially at Rs.19,88,24,680/- was subsequently reduced to

Rs.12,65,95,403/- by the Deputy Commissioner of Income Tax vide order

dated 5th March, 2019. Subsequently, it was further reduced to

Rs.10,66,37,594/- by the same authority. The Transferor Company has

filed an appeal qua the said demand before Income Tax Appellate Tribunal

(ITAT), Bengaluru which has stayed the demands raised by the Income Tax

Authorities for the assessment year 2011-2012 to 2017-2018 subject to the

Transferor Company depositing an amount of Rs.50,00,000/-, which has

been deposited. Appellants claim to have issued notice to Income Tax

Department in the proceedings under Section 230 (5) of the Companies Act,

2013 (for short 'the Act') before the Tribunal, in response whereof NOC dated

24th September, 2018 was issued by the Income Tax Department but the

same was not placed on the record of the Tribunal within the statutory

period. The Appellants claim to have obtained copy thereof through RTI

application and submitted the same before this Appellate Tribunal which

states that the Respondent No. 4 (Principal Commissioner of Income Tax - I)

had no objection to the sanction of scheme but requested to make provision

for any future demands that may be raised by the Income Tax Department.

It is pointed out that the NOC aforestated was issued much after the original

demand of Rs.19,88,24,680/- was raised by Respondent No. 4.

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -7-

4. According to Appellants, it had provided an undertaking to the

Tribunal that whenever the Income Tax and Service Tax demands become

crystallized, the Transferee Company shall payoff the same to the concerned

authorities. The Transferor Company has also reiterated this fact before

this Appellate Tribunal. Reference is made to clause 12.7 of the Scheme of

Arrangement which provides that post amalgamation all tax assessment

proceedings and appeals shall be continued with the Transferee Company

and all or any dues payable shall be paid by the Transferee Company. The

Transferee Company has undertaken to satisfy any and all demands raised

by the Tax authorities as would be determined in the proceedings. It is

submitted that the Transferor Company did not refuse to comply with the

demands raised by Respondent No. 3 (Designated Nodal Officer, Income Tax

Department, Karnataka) and Respondent No.4 (Principal Commissioner of

Income Tax - I) and in fact it made payments in terms of the order of the

Tribunal dated 3rd May, 2019.

5. In their reply affidavit Respondent Nos. 3 and 4 pleaded that there are

outstanding tax dues against the Transferor Company as per following

details:-

i. Office of DCIT, Circle 1(1)(1), Bangalore

Ad2Pro Media Solutions Pvt. Ltd. (PAN - AAFCA9418A)

AY Demand Payment Balance

2012-13 Nil

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -8-

2013-14 6,22,800 6,22,800 0

2016-17 5,36,67,417 15,00,000 5,21,67,417

On an application made before Pr. CIT, Bengaluru I an installment

scheme has been granted on 5th March, 2019 to make payment of 20% of

the demand in installments of Rs.15 Lakhs by the 15th of each month.

ii. Office of DCIT, Circle 1(1), International Taxation, Bangalore

Sl. AY Demand Payment Balance No.

1 2011-12 66,75,757 17,04,309 49,71,448

2 2012-13 66,99,818 17,10,452 49,89,366

3 2013-14 1,08,11,545 27,60,168 80,51,366

4 2014-15 1,78,66,117 44,38,186 1,34,27,931

5 2015-16 1,89,62,686 47,10,590 1,42,52,096

6 2016-17 1,64,93,981 42,10,884 1,22,83,097

7 2017-18 2,91,27,688 67,92,929 2,23,34,759

Total 8,03,10,074

It is submitted that pending income tax dues against the Transferor

Company is Rs.8,03,10,074/-. The demand is likely to arise in scrutiny

proceedings as against the Transferor Company.

6. Heard learned counsel for the parties and perused the record. It is

well settled by a catena of Rulings that while sanctioning a scheme of

arrangement the right of Tax Authorities remains intact to initiate

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -9-

appropriate proceedings regarding recovery of any tax. The Tax Authorities

concern is in regard to recovery of the outstanding tax dues and in the event

of a scheme of arrangement/merger/amalgamation the Tax Authorities right

to recover the outstanding tax dues must remain intact. Once a scheme has

been sanctioned by a Tribunal in accordance with law, as admittedly in the

instant case it is and the same goes unassailed, nothing precludes the Tax

Authorities from recovering its legitimate and recoverable outstanding tax

dues from the Transferor or the Transferee Company, as provided in the

scheme. Where in a given case the liability has arisen or would arise or the

demand would be raised against the Transferor Company for the relevant

period after due scrutiny, assessment, review or determination through a

due judicial process and the Transferee Company undertakes to make

payment of all outstanding tax dues as determined in the aforesaid manner,

the scheme cannot be refused and has to be allowed. Reference can be

made to the judgment rendered by the Hon'ble High Court of Delhi in

Company Petition No. 597/2014 reported in 2016 SCC Online Del 1135, para

45 whereof which is relevant for our purposes is reproduced as under:-

"45. In response to the aforesaid objections, the

transferee company in the affidavit dated 7th November,

2015 of Mr. Rajesh Bhatia, authorized signatory of the

transferee company, has undertaken that in case of any

liability, which may be legally assessed and payable by

the transferor companies to the Income Tax Department,

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -10-

the same shall be paid by the transferee company. They

further undertake that none of the provisions of the

Scheme, shall prejudice the income tax dues and the

income tax department shall be free to recover the said

tax, if any, from the transferee company. The undertaking

given by the transferee company is accepted and it shall

remain bound by the same. In view of the aforesaid, the

objection raised by the Regional Director stands satisfied."

7. In the instant case, Appellants have assailed the impugned order

approving the Scheme of Arrangement manifesting in amalgamation of the

Transferor Company with the Transferee Company approved and sanctioned

by the Tribunal in terms of provisions of Section 230 and Section 232 of the

Act to the limited extent of condition 10(b) in the impugned order in terms

whereof the Transferor Company has been directed to pay the entire dues

i.e. Rs.18,13,24,680/- to the Commissioner of Income Tax Appeals I,

Bengaluru and Service Tax amount of Rs.86,81,439/- to the competent

authorities. It emerges from the impugned order that the approval of the

Scheme is subject to compliance of various conditions including the

condition of which the Appellants are aggrieved. Appellants have not taken

exception in so far as other conditions, to which the approval of Scheme has

been subjected to, are concerned. The amalgamation of the Transferor

Company with the Transferee Company was to be effective from

1st February, 2018 in terms of the impugned order. However, it is submitted

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -11-

that the approved Scheme of Arrangement cannot be made effective till such

time as the Transferor Company makes payment of the outstanding dues to

the Income Tax and Service Tax Authorities in terms of the condition in the

order impugned in this appeal. Though the Appellant's claim is that the

outstanding tax liability in regard to income tax dues has been reduced to

Rs.8,03,10,076/- , according to Respondents 3 and 4 pending income tax

dues against the Transferor Company are Rs.8,03,10,074/-. This is besides

the demand position in regard to balance of Rs.5,21,67,417/- emanating

from DCIT, Circle 1(1)(1), Bengaluru. It appears that Respondent No. 4 has

issued a No Objection Certificate (NOC) dated 24th September, 2018 raising

no objection to the sanction of the Scheme, however, seeking to protect its

legitimate interests by raising future demands as warranted. It is not

disputed that in terms of affidavits sworn on 18th December, 2018 and 19th

December, 2018 and filed before the Tribunal, the Transferee Company has

undertaken to make payments in regard to the demand raised by the

Income Tax and Service Tax Authorities upon the same becoming

crystallized. The Transferor Company too has reiterated the same before

the Tribunal. This is forthcoming from the record of the Tribunal to which

reference has been made in the memos of appeals. Our attention has also

been invited to clause 12.7 of the approved Scheme of Arrangement which

eloquently states that post amalgamation all the tax assessment proceedings

and appeals shall be continued with the Transferee Company and all or any

dues payable in accordance with law shall be paid by the Transferee

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -12-

Company. Admittedly, proceedings are pending in appeal before ITAT and

depending upon the outcome of such proceedings, the Transferee Company

has undertaken to satisfy all demands emanating from and raised by the

competent tax authorities. The Scheme having been approved and

sanctioned and the same being in consonance with law, no fault can be

found with the Transferee's undertaking to satisfy all demands raised by the

tax authorities as finally determined by due process. The Appellants are

justified in maintaining that the tax liabilities would be satisfied by the

Transferee as determined by the competent forum seised of the matter in

accordance with the approved Scheme which admittedly does not come in

conflict with any express provision of the Companies Act, 2013. The

legitimate interests of the concerned Tax Authorities have been lawfully

protected and their right to recover the tax dues as determined by ITAT or

any other competent forum as the case may be, remains intact.

8. In view of the foregoing discussion while the Scheme of Arrangement

approved by the Tribunal remains intact, condition 10(b) cannot be

sustained and the same requires modification in line with the observations

made hereinabove. The aforesaid condition is recast as under:-

10(b). As regards Income Tax liability, the

Transferee Company shall pay the Income Tax dues of

Rs.8,03,10,074/- lying outstanding against the

Transferor Company as per outstanding demand

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -13-

position of Income Tax with DCIT, Circle (1) (1),

International Taxation Bengaluru for assessment

years 2011-12 to 2017-18 or such amount as may be

determined by the ITAT, Bengaluru besides the

balance outstanding tax liability of Rs.5,21,67,417/-

for assessment years 2012-13 to 2016-17 in terms of

the arrangement/installment scheme sanctioned by

Pr.CIT, Bengaluru - I. The Transferee Company shall

also be liable to pay any additional amount found due

upon scrutiny of return pertaining to AY 2017-18 in

respect whereof demand may be raised by the

concerned Income Tax Authority together with

interest, if any, leviable thereon. The Transferee

Company shall also be liable to pay Service Tax

outstanding amount of Rs.86,81,439/- to the

competent authorities.

Compliance in regard to the outstanding

Income Tax liability of Rs.8,03,10,074/- shall not be

treated as a condition precedent for implementation

of approved Scheme of Arrangement and such

compliance shall be subject to determination of

liability by the ITAT, Bengaluru in appeal

proceedings. Pending conclusion of appeal

Company Appeal (AT) No. 98 of 2019 and 99 of 2019 -14-

proceedings the approved Scheme of Arrangement

shall be implemented without insisting upon

compliance of demands raised for the aforestated

period subject to any interim directions given by

ITAT in this regard.

9. The appeals are allowed in the aforesaid terms. A copy of this

Judgment be sent to the Tribunal for incorporating the modification in

terms of this judgment in the Scheme of Arrangement approved by the

Tribunal vide the impugned order and for taking appropriate follow up

action. Appellants shall be at liberty to seek necessary modification in the

approved scheme before the Tribunal in conformity with this Judgment and

to render the Scheme workable. There shall be no order as to costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[Mr. Balvinder Singh] Member (Technical)

NEW DELHI 25th September, 2019

AM

Company Appeal (AT) No. 98 of 2019 and 99 of 2019