Case Law Details
Bennett Coleman & Co Ltd Vs DCIT (ITAT Mumbai)
What is being termed as a guarantee is the obligation of the assessee company, in terms of “agreement for the sale and purchase of entire equity share capital of Virgin Radion Holdings Ltd UK” dated 30thMay 2008, which has led to the actual crystallization of sale on 30th June 2008. The related agreement clause was, at the cost of repetition, ““In consideration of the seller entering into this agreement, …(the TIML-India), as primary obligor and not merely as surety, unconditionally and irrevocably guarantees to the seller the proper and punctual performance of the purchaser’s obligations under this agreement and the transaction documents, including, without limitation, due and punctual payment of any sum which the purchaser is liable to pay”. The first question that arises before us is whether it can be treated as a performance guarantee by the SPV. As we explore the answer to this question, we have to bear in mind the fact this agreement is also not a standalone agreement in the sense it is to be read in conjunction with several other preparatory documents, such as bid document, final offer, and emails exchanged concerning the terms, leading to the acquisition of the target entity.
In this background, we may refer to the final offer dated 19th March 2008, which specifically states, inter alia, that (i) 5- Identity of shareholders (with immediate and ultimate ownership); Bidco (an SPV formed specifically for the purpose of acquiring Virgin Radio) is 100% owned by TIML. The immediate and ultimate shareholder of TIML is Bennett Coleman & Co Ltd…..; (ii) 6- Financing: The transaction will be 100% equity-financed from the internal resources of TIML/BCCL. No further financing is required to be given the size of this transaction relative to the TIML/BCCL group; and (iii) 7- Internal approvals: (a) we confirm that all the relevant internal approvals from TIML/BCCL have been received. There are no other providers of equity finance. (b) Following on from point 6 above, the financing is unconditional (other than general conditions set out above) , and, therefore, bank commitment letters are not required to support this final proposal.
It was acceptance of this proposal, which was followed by exclusivity agreement dated 3rd April 2008, subsequent modifications thereto, agreement to purchase and sell dated 30th May 2008, eventually culminating in the acquisition of target company on 30th June 2008. Quite clearly, therefore, the financial obligation for financing the acquisition of the target company by the SPV was already assumed by the assessee company, and, for that reason, the clause in question in the agreement dated 30th May 2008 did not put any additional obligations on the assessee vis-à-vis seller of the target company.
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