The National Company Law Tribunal recently allowed the amalgamation of two Panasonic India entities despite objections by the income tax department over the chances of the anti-abuse provisions of the general anti-avoidance rule (GAAR) arising in the future. Panasonic had approached the NCLT for the amalgamation of a loss-making entity with a profit-making entity.
The tax department had said that the amalgamation scheme of merging loss-making Panasonic India with the profit-making Panasonic Life Solutions India was designed for tax avoidance.
“As regards the provisions of GAAR, the income tax department is at liberty to invoke the provisions if the assessing officer, during the course of assessment or reassessment proceedings, believes that GAAR should be invoked, but the case will have to be referred to the principal commissioner or commissioner of income tax, who in turn has to refer the matter to an approving panel in accordance with the provisions of Section 144BA of the Act,” the tax department said. In a ruling on May 19, the Chandigarh bench of NCLT said that the merger could go ahead but the tax department could use the GAAR in the future. Tax experts said that the ruling will have implications in the future, mainly because no specific tax demand was raised under GAAR.
“In normal course, NCLT reaches out to the tax department to figure out if there are pending dues. However, the bench decided to not entertain the GAAR as there’s no specific demand as yet,” said Tejveer Singh, partner, DMD Advocates.
The GAAR is an anti-abuse provision that was first introduced in 2012, but it was considered controversial and there was a demand that the government put in proper checks and balances.
The government has now specified a procedure for issuance of the GAAR notices. A tax officer must talk to a tax commissioner before sending out a notice. If the commissioner agrees, it will be sent to a panel, which will have to approve it before anything is done.
The tax department had said that the amalgamation would benefit the company from losses along with depreciation.
Source: Economic Times