‘Clear case of organisation form or legal form abuse, without reasonable business purpose’

I-T demand of tax on $150 million investment in NDTV

Written by Aanchal Magazine , Sunny Verma | New Delhi | Published:July 19, 2017 1:55 am
ndtv raid, cbi raid on ndtv, prannoy roy, radhika roy, press freedom, bribery, icici bank loss, arun shourie, bjp, india news, indian express The Appellate Tribunal ruling pertains to investments by a step-down subsidiary of US television network NBC Universal (then a subsidiary of the GE Group) in NDTV in 2008

The Income Tax Appellate Tribunal (ITAT) has upheld the Income Tax Department’s demand to tax investment of $150 million (Rs 642.54 crore) in New Delhi Television Ltd (NDTV) during assessment year 2009-10, pronouncing that “courts cannot shut their eyes and close their ears by accepting the complex cobweb of structures for tax avoidance devices adopted like this”. Responding to the July 14 ITAT order, NDTV informed the stock exchanges on Tuesday, “it is important to note foremost that the ITAT has accepted that there was no round-tripping or money laundering, as was alleged by income tax department.” NDTV also said that it will continue to fight the “misguided case” made by tax department and that it is “exploring all options available to it in accordance with law.”

The Appellate Tribunal ruling pertains to investments by a step-down subsidiary of US television network NBC Universal (then a subsidiary of the GE Group) in NDTV in 2008. “According to us, it is a clear cut case of abuse of organisation form/legal form and without reasonable business purpose and therefore, no fault can be found with the order of the Assessing Officer/DRP in charging to tax Rs 642 crore by re-characterising the conditions according to its economic substance and imposing the tax on the actual controlling Indian entity,” the ITAT said in its order.

“We are of the opinion that Assessing Officer has correctly made the addition of Rs 642.54 crore by invoking section 69A of the (I-T) Act on account of money transferred by M/S Universal Studio International BV which was routed to the coffers of the assessee by entering into series of mergers and liquidation by payment of dividend, loans without any obligation for repayment. Hence, we do not find any infirmity in order of Assessing Officer as well as DRP and hence the addition of Rs 642.54 crore in hands of the assessee (NDTV) under section 69A is confirmed.”

NDTV in its statement said, “We have been advised that Section 69A of the Act is applicable only when money is found in possession of a taxpayer but not accounted for in the books of accounts. However, the said section has no application in the present case since admittedly, investment made by NBC Universal through its subsidiary, Universal Studios International BV, was duly recorded in the books of accounts of the company’s subsidiary, viz, NDTV Networks International Holdings BV.”

In its order, the ITAT also held that NDTV had claimed an exemption for not making disclosure of financials of foreign subsidiary companies in April 2009 citing approval of Ministry of Corporate Affairs, though the approval for the same was granted only in July 2009. “To our utter surprise, the approval of the Ministry of Corporate Affairs was granted to assessee (NDTV) only on 3.7.2009 but in Directors’ Report dated 30.04.2009 Chairman of the company Dr Prannoy Roy has disclosed to all the regulatory authorities such as SEBI and stock exchanges that approval has already been granted by the Ministry of Corporate Affairs. In fact, the application for such approval was made only on 8.5.2009,” the ITAT order said.

It added, “it is unfortunate that before making an application for exemption the assesee has disclosed in its one of the most important statements i.e. the Directors’ report, the company has announced that it has been granted approval even when no application was made to the concerned authority.” NDTV Networks International Holdings BV (NNIH), a holding company of NDTV was formed in Netherland on April 10, 2008, wherein 68.6 per cent holding was of NDTV Network and 31.4 per cent holding was of Universal Studios International BV. On May 23, 2008, Universal Studios International BV (USBV), a wholly owned subsidiary of CA Holding CV of Netherland acquired 915,498 shares of NNIH, the holding company of NDTV, at Rs 7,015 per share resulting in total investment of Rs 642.54 crore. However, one and half years later in October 2009, the shares were repurchased by NDTV Network BV, at Rs 634.17 per share taking the total value in consideration to Rs 58 crores. At the time of repurchase of shares, NNIH was not in existence as it was merged with NDTV BV and therefore, the shares were repurchased by NDTV Network BV.

“This money trail stares so glaringly on the various complex structures created by the assessee (NDTV) that without proving any substance one cannot reach to any other conclusion but to the conclusion that series of the transaction entered into by the assessee were to transfer Rs 642 crores from the investor company or the owner of the investor importance to the assessees,” the ITAT said.

The ITAT also noted that the “whole structuring is an eyewash” with the only intention to bring $150 million to NDTV “without there being any liability to pay it back”. The ITAT also confirmed the I-T department’s findings that the total investment received from Universal Studios International was transferred to NDTV Network BV in the form of dividend.

“The entity (USBV) which has invested Rs 643 crore and acquired 31.4 per cent of the equity was not paid dividend of single rupee and from that investors sources of money the investee company paid dividend to the company (NDTV Network BV) which has just invested Rs 12 lakh was paid dividend of Rs 643.35 crore in the first year of its investment,” ITAT said in its order.

“It is apparent that anybody appointed from the side of investor USBV were just merely puppet directors, otherwise, they would not have allowed assessee’s group company to be paid dividend of such a magnitude of Rs 643 crores to a shareholder holding 68 per cent without getting a single penny for 31 per cent shareholder,” ITAT said.

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  1. V
    Vishal
    Aug 7, 2017 at 1:54 am
    ".. pany to be paid dividend of such a magnitude of Rs 643 crores to a shareholder holding 68 per cent without getting a single penny for 31 per cent shareholder..." "According to us, it is a clear cut case of abuse of organization form/legal form and without reasonable business purpose and therefore, no fault can be found with the order of the Assessing Officer/DRP in charging to tax Rs 642 crore" Why did no media house discuss this? Is it because they are all committing such fraud? I was surprised to see NDTV stock fell to 40s. A little bit of Googling gives this. I wonder what NDTV has to say about this now?
    Reply
    1. A
      at
      Jul 20, 2017 at 9:30 am
      Arrest Pranab Roy. He has been cheating the Govt for more than 20 years because of close nexus with Sonia and P Chidambaram. These people would have got tones of USD from Pranav Roy for helping this Pranab Roy. The whole NDTV people are corrupt and played a leading role in diverting huge sums of P Chidambaram's black money. This channel should be stopped immediately.?
      Reply
      1. R
        Ram
        Jul 19, 2017 at 7:16 pm
        Do chamchagiri of ruling party like timesnow, Zee and other channel. You will get million. Why sambit was thrown out from yoy channel. or wait till 2019
        Reply
        1. R
          romi
          Jul 19, 2017 at 9:23 pm
          stupid case related to year 2009 inq going on since long nidhi razdan is one frustrated lady who is just dragging herself in NDTV barkha was sensible to have left NDTV
          Reply
        2. S
          S ashok
          Jul 19, 2017 at 1:38 pm
          This whole game of sophisticated valuation is played globally by so called Tech Unicorns. Companies have Billion Dollar valuations with negative cash flows. By this logic there were reports that Reliance sold 1 Paytm shares purchased for INR 10 Crores but sold within months of Demonetization for 275 Crores. Obviously Paytm valuation must have been affected by the economic disruption caused. Chidambarm son might have also adopted the same mysterious deal structuring,perhaps not illegal, for his business deals. Financialization of the economy with structures which only a select elite corporates and investment banks understand and exploit the loopholes had to the led Global Financial Crisis of 2008-9 in the first place.
          Reply
          1. P
            Pannalal Chakraborty
            Jul 19, 2017 at 12:28 pm
            What happened ? Suddenly a section of media writing against NDTV ? Hot potatoes !!
            Reply
            1. R
              romi
              Jul 19, 2017 at 9:25 pm
              NDTV is sinking barkha left nidhi who is arrogant is no longer liked
              Reply
            2. S
              Sant Singh
              Jul 19, 2017 at 10:59 am
              Such fraud lent grimuckery alway done by ca to befool tax authority bribing them conniving with govt official if govt officials are honest ready to investigate they can laidbare their cooking stories of Eden eve to befool public
              Reply
              1. G
                gopal
                Jul 19, 2017 at 9:27 am
                Media would now go silent now that the truth has emerged. NDTV is a clear case of money laundering aided by a friendly UPA govt.
                Reply
                1. P
                  Pannalal Chakraborty
                  Jul 19, 2017 at 12:30 pm
                  NDTV was/is a part of 'Congress Ecosystem'. No doubt UPA helped NDTV to get over the financial crisis faced by them
                  Reply
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