NCLAT & NCLT approved schemes can’t avoid tax recovery by tax department: SC

Case Details: Joint Commissioner of Income-tax (OSD) v. Reliance Jio Infocomm Ltd. - [2022] 145 taxmann.com 642 (SC)

Judiciary and Counsel Details

• • M.R. Shah & Krishna Murari, JJ.
  • Balbir Singh, ASG, Manish Pushkaran, Ms Deepabali Dutta, Ms Monica Benjamin, Samarvir Singh, Prahlad Singh, Advs. & Raj Bahadur Yadav, AOR for the Petitioner.
  • Dr Abhishek Manu Singhvi, Sr. Adv., K. R. Sasiprabhu, AOR Raghav Shankar, Amey Nabar, Amit Bhandari, Vishnu Sharma A.S. & Avishkar Singhvi, Advs. for the Respondent.

Facts of the Case

In the instant case, a petition was lied under sections 230-232 of Companies Act, 2013, seeking sanction of the Composite Scheme of Arrangement amongst ‘Reliance Jio Infocomm Limited’ and ‘Jio Digitial Fibre Private Limited’ and ‘Reliance Jio Infratel Private Limited’ and their respective shareholders and creditors.

Consequently, the NCLT issued notices to Regional Director, concerned income-tax authority, Securities and Exchange Board of India, Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd., for the representations, if any.

The Joint Income Tax Commissioner and the Income Tax Officer filed an appeal with the NCLAT, contending that by way of arrangement, the transferor company had sought to convert the redeemable preference shares into loans i.e. conversion of equity into debt which was not only contrary to the Companies Act, 2013 but also would reduce the profitability or the net total income of the transferor company causing a huge loss of revenue to the income-tax department.

NCLAT Held

The NCLAT held that without providing any evidence it is not possible for the Income-tax department to determine that the scheme of arrangement gives undue favor to shareholders and results in tax avoidance. The approval of the scheme by the NCLT should not be interfered with.

Subsequently, the IT department preferred an appeal with the apex court. Joint Commissioner of Income-tax submitted that impugned orders and/or sanctions of the Scheme might come in way of Department while framing assessment and to that extent, interest of revenue would be affected.

The Apex Court held that impugned judgment and orders passed by NCLAT as well as NCLT approving scheme was not to be interfered with. Further, NCLT as well as NCLAT had already clarified that IT department would be entitled to take out appropriate proceedings for recovery of any tax statutorily due from the transferor or transferee company or any other person who was liable for payment of such tax due.

List of Cases Reviewed

• • Jt. CIT v. Reliance Jio Infocomm Ltd. [2019] 112 taxmann.com 275 (NCL-AT) (para 7) affirmed.