Case Law Details
DCIT Vs Azalea Infrastructure Pvt. Ltd (ITAT Delhi)
The facts clearly shows that on October 20, 2010, India Bulls Power Ltd pursuant to the provisions of Section 192A of the Companies Act, 1956 made a preferential allotment of 42 crore as fully convertible warrants to 4 different companies which are the entities promoted by the promoters of Indiabulls real estate Ltd , which upon conversion would entitle them to acquire an equivalent number of equity shares of the company of the face value of ₹ 10 each to conversion price of ₹ 29 per equity shares. Consequent to that 15 crore warrants of the India bulls Power Ltd convertible into 15 crore equity shares of the India Bulls Power Ltd of face value of ₹ 10 each at the option of the warrant holder, assessee company, was allotted.
The warrants were issued and allotted to the assessee on payment of 25% of the warrant price that is Rs 108.75 crores. Thus, a balance amount of ₹ 326.25 crores was further payable by the assessee company for the full value of the warrant. Subsequently, as per the order of the Honourable High Court on 17/10/2011 u/s 391 – 394 of The Companies Act 1956 along with three other companies, one of them being the India bulls infrastructure and Power Ltd which invested in a company where from the money is rooted for investment in India bulls Power Ltd, sanction was granted by the Honourable High Court. The scheme was so framed by the companies that the warrant issued by India Bulls Power limited would be converted into partly paid shares of the company and the holder was liable to pay 1% of the balance amount within two days from the effective date of scheme i.e. by 27/11/11. Naturally, the promoters of India Bulls group promote all the companies who applied for the warrant of the assessee. Therefore, at the time of framing of the scheme, it was within their knowledge that the companies who have applied for warrant, has initially for payment of 25% of the warrant price has borrowed money from its holding company, which in turn borrowed from another company and that another company also borrowed fund from India bulls infrastructure and Power Ltd which is one of the company involved in the scheme. Therefore, it is apparent that the whole scheme was created for transferring a sum of ₹ 304.50 crores in the name of India bulls Power Ltd by transferring it from another company without any tax consequence. The assessee is one of the layers used by the Indiabulls group for doing this. However as the case of the assessee is concerned it has incurred that loss on forfeiture of the share warrant to the extent of 25% amounting to ₹ 108.75 crores which was never claimed by the assessee or set of against any other income. Therefore, the appellant company was created only for the reason of transferring money from the group concern to the assessee company and subsequently to another group company, booking loss in the assessee company. The assessee company is used as one of the layer for the above transaction. Therefore, the remedy for the whole transaction does not lie under The Income Tax Act but under some other law. The ground [1] stated by the learned assessing officer clearly shows the scheme of the things wherein a sum of ₹ 108.75 crores or originated from Indiabulls infrastructure and Power Ltd against issue of 15 crore warrants of Indiabulls Power Ltd, all group companies, forfeiting a sum of ₹ 304.50 crores by transferring through layers of conduit companies, clearly shows the scheme of things. During the course of hearing, on looking at the strange set of facts, the information was called from the assessee with respect to the corporate restructuring and business justification for layering of the funds. Assessee merely submitted that the issue is squarely covered in favour of the assessee by several decisions and once again relying on the decision of the learned CIT – A. As far as the scheme of things goes, it is evident for everybody. Nothing is further required to be mentioned that who is the beneficiary and who is the conduit. Further, it is not the assessee who is to be taxed in its hands, as the real beneficiary is India bulls Power Ltd, which further went into restructuring and scheme of amalgamations.
the issue as to whether the forfeiture of the convertible warrant amount to a transfer within the meaning of Section 2 (47) of the said act has now been made clear by the Supreme Court in the case of Grace Collis (supra) as also by the Karnataka High Court in BPLSanyo finance Ltd (supra) and the honourable High Court also followed the same. In paragraph number 14 the honourable High Court held that forfeiture of the convertible warrant has resulted in extinguishment of the right of the assessee to obtain a share in the issuer company.
FULL TEXT OF THE ORDER OF ITAT DELHI
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