Facts of the Case
Reliance Jio Infocom Limited (‘Reliance Jio’) is a Public Limited Company registered under Companies Act 2013. It is an Indian Telecommunication Company and a wholly-owned subsidiary of Reliance Industries, headquartered in Mumbai, Maharashtra, India. It operates a national LTE network with coverage across all 22 telecom circles.
Reliance Jio filed a Composite Scheme of Arrangement (‘Scheme’) before National Company Law Tribunal (‘NCLT’) Ahmedabad Bench for its approval. There were three different arrangement for which approval was sought through such Scheme, the same are as follows:
- Demerger of Optic Fibre undertaking of Reliance Jio into Jio Digital Fibre Private Limited (‘Jio Digital Fibre’).
- Slump Sale of Tower Infrastructure Undertaking of Reliance Jio to Reliance Jio Infratel Private Limited (‘Jio Infratel’)
- Arrangement with the shareholders of Demerged Company i.e. Reliance Jio for the conversion of Preference Shares including Security Premium (aggregating to INR 7,800 crores) into Loan.
Reliance Jio has issued 1,300 Preference Shares of INR 10 each at a premium of INR 40 each to its Holding Company i.e. Reliance Industries Limited (‘RIL’), aggregating to INR 65,000 crores. These funds were utilized for investment in Optics Fibre Business and Tower Infrastructure Undertakings.
Under the Composite Scheme, the Preference Share Capital and its corresponding Share Premium would be cancelled and converted into an equivalent amount of Loans from RIL to Reliance Jio (INR 7,822 crores), Jio Digital Fibre (INR 45,342 crores) and Jio Infratel (INR 11,836 crores).
The NCLT passed the order approving the Scheme on March 20, 2019, after refusing the Tax Department’s request for an adjournment with respect to its Tax Query on such Scheme.
Objections of the Tax Department
Aggrieved by the impugned order, the Tax Department preferred an appeal before the National Company Law Appellate Tribunal (‘NCLAT’) by raising objections on the motive of tax evasion & avoidance through such Scheme of Arrangement.
The contentions of the Tax Department are reproduced hereunder:
