NCLT Delhi Rejects Scheme Of Amalgation For Being Non Compliant Of Section 72A(2) Of Income Tax Act

Background Facts

Minda TG Rubber Pvt. Ltd. (“Transferor Company”) filed a petition under Section 230-232 of the Companies Act, 2013 before the NCLT, seeking approval of its Scheme of Amalgamation with Toyoda Gosei Minda India Pvt. Ltd. (“Transferee Company”). The NCLT had directed the Transferor Company to publish notice in newspapers and invite objections from the Central Government, Registrar of Company NCT of Delhi & Haryana, Regional Director (Northern Region) MCA, Income Tax Authorities and the Official Liquidator.

The Income Tax Department (Delhi) (“IT Department”) filed its Report on 06.07.2022 raising objections to the Scheme of Amalgamation. The IT Department submitted that Rs. 3,78,02,420/- is recoverable from the Transferor Company. Any current or future demand recoverable from the Transferor Company, shall be enforceable against the Transferee Company.

The IT Department further contended that the Transferee Company accumulated unabsorbed depreciation amounting to Rs. 25,38,93,225/- as on 31.03.2021. The total loss carried forward in the books of Transferor Company to Transferee Company stands at Rs. 2,90,88,939/-, which will decrease the taxable income of the Transferee Company which is otherwise a profit making company. Hence, such tax effect would cause loss of revenue to the Income Tax Department and thus the Scheme of Amalgamation is liable to be rejected.

NCLT Verdict

The Bench opined that the unabsorbed depreciation and losses can only be carried forward by the Transferee Company if it meets the conditions given under Section 72A(2) of the Income Tax Act, 1961. The Bench observed that the Scheme of Amalgamation was not compliant of Section 72A(2), as there was no undertaking that the Transferee Company shall not dispose of all the assets; shall hold at least three-fourths of the book value of fixed assets of the Transferor Company for at least 5 years; and it shall continue business of the Transferor Company for the next five years.

The Bench declined to allow the carry forward and set off of loss and unabsorbed depreciation of Transferor Company in the Transferee Company, which is a condition stipulated in the Scheme. Hence, the Scheme of Amalgamation was rejected and the Petition was dismissed.

Case Title: Minda TG Rubber Pvt. Ltd. v Toyoda Gosei Minda India Pvt. Ltd

Case No.: Company Petition (CAA) No. 111 (ND)/2021

Counsel For Applicant: Adv. Sarvik Singhai

Counsel For OL: Ms. Hemlata Rawat, Mr. Aayushmaan Vatsyayana

Counsel For RD: Adv. Shankari Mishra, Adv. Niharika Tanwar

Counsel for IT Department: Mr. Sunil Aggarwal (Sr. Standing Counsel), Mr. Tushar Gupta (Jr. Standing Counsel), Adv. Radhika Sachdeva.

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