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Monday, June 25, 2018

Taxman set to approach SC against Sesa-Sterlite merger

The High Court approved the merger on August 12, 2013, but is effective from February 2012 when the Group first announced the merger.

New Delhi | Published: January 25, 2014 3:15:12 am

Anil Agarwal’s troubles don’t seem to end. After the taxman did a ‘survey’ of  Cairn India’s books to see if any taxes were due from Cairn Energy Plc for its 2006 transfer of Indian assets, the tax department plans to approach the Supreme Court to contest critical aspects of the Sesa Goa-Sterlite merger.

The Central Board of Direct Taxes (CBDT) contends that the merger was designed and dated to claim a tax refund of Rs 1,500 crore from the central exchequer.

“The scheme of amalgamation was designed so that by seeking amalgamation with retrospective date, losses of loss-making companies could be set off against the profits of profit-making companies of the Group and the net result of the same would be to refund taxes already paid by the profit making companies which is about Rs 1,500 crore impacting much adversely the public revenue,” says a ministry of corporate affairs note quoting a CBDT letter.

Income Tax Department’s contention is that if the merger date is taken as the day the High Court cleared the merger, it will not have to refund the entity Rs 1,500 crore – but since the merger was done with retrospective effect, the amount will need to be refunded.
The High Court approved the merger on August 12, 2013, but is effective from February 2012 when the Group first announced the merger.

The Income Tax Department’s appeal a month later opposing the amalgamation was rejected by the single judge bench of Bombay High Court at Panaji on grounds that the since the merger issue was being handled by the ministry of corporate affairs (MCA), Income Tax had no locus standi.

It then moved the Division Bench which held that the intervention was non-maintainable as only the regional director of MCA was competent to deal with the matter. It then approached the Supreme Court which decided last November that an appeal would be heard only if the MCA files a special leave petition (SLP).

The department then moved the MCA which asked the law ministry if an SLP would still be tenable.

On January 15, law ministry’s legal adviser Ramayan Yadav supported filing an SLP in the apex court seeking a change in the effective date of the merger as the “stake of revenue involved in the matter is quite high”. It also suggested that the Solicitor General appear on behalf of the MCA.

Stung by the loss of face, the MCA that very day issued a circular saying that none of its regional directors could give a go-ahead for mergers without asking the Income Tax department. Besides, it said, the directors should also check if feedback from other sectoral regulators was required.

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