IT Dept Now Finds Merit In NCLAT Order

Within eight months of challenging the National Company Law Tribunal’s (NCLT’s) order giving a green signal to Reliance Jio Infocomm’s proposed demerger, the income-tax (I-T) department is learnt to have found merit in the appellate tribunal’s December ruling, which dismissed the I-T petition.

The tax department shared its opinion and the rationale in a communique to the law ministry 10 days ago, where it sought the ministry’s legal opinion on the matter to decide further course of action, said an official privy to the development.

The National Company Law Appellate Tribunal (NCLAT) had dismissed the I-T department’s petition objecting to the proposed demerger of Jio’s tower and fibre optic network assets into two infrastructure trusts.

According to sources, the department is of the view that the NCLAT order, which had cited multiple verdicts by the Supreme Court, including the Vodafone-Essar tax avoidance case, needs to be taken into consideration. “Some of the instances quoted in the appellate order apply to the Jio case as well. So an appeal against the existing verdict may not stand legal scrutiny in the apex court,” said a tax official.

The final decision on whether to challenge the appellate tribunal order in the Supreme Court would, however, depend on the law ministry’s response, which is expected in two weeks, said an official.

An email sent to the Reliance group did not elicit any response.

The NCLAT in its December 20 order dismissed the objection raised by the I-T department over the approval granted to Reliance Jio Infocomm’s scheme by the NCLT, Ahmedabad, to reduce debt by transferring the telecom tower and the fibre businesses into two separate entities. The I-T department had raised concerns over avoidance and evasion of taxes.

“Mere fact that a scheme may result in reduction of tax liability does not furnish a basis for challenging the validity of the same… We are not inclined to interfere with the scheme of arrangement as approved by the tribunal. Both the appeals are dismissed,” the appellate tribunal had said in the final order. The NCLAT had also questioned the basis of the tax department interference in the scheme of arrangement when approved by the NCLT.

“While sanctioning the scheme, it is observed that the said sanction shall not defeat the right of the income-tax department to take appropriate recourse for recovering the existing or previous liability of the transferor company,” it had said in the order.

The appellate tribunal quoted the Supreme Court order in the Vodafone-Essar case, where it stated, “We are not inclined to entertain the special leave petitions… I-T is entitled to take out appropriate proceedings for recovery of any tax statutorily due from the transferor or the transferee company or any other person who is liable for payment of such due,” the NCLAT said.―Business Standard