Sr.

No.

Observations          stated         in

Paragraph 2 of the RD Report

Response of the Petitioner

Companies

(a) (i)

That  the  ROC   Pune  in  his

report dated 22.09.2023 has also stated    that     No      Inquiry,

The Petitioner Company states

that the said para does not contain         any                 observation,

Inspection,          Investigation, Prosecution, Technical Scrutiny and Complaints under Companies Act, 2013 are pending against the Petitioner / Transferor   Company   and

Transferee Company.

instead, it merely states factual information / comments which are positive in nature and does not call for any reply.

ii)

a) Neither the Petitioner / Transferor Company nor Transferee Company has filed the e-form BEN-2 relating to declaration of significant            beneficial ownership as per the provision of the Companies Act, 2013.

The Petitioner Companies state that the Petitioner Companies does not have / had any “Significant Beneficial Owner” as there is no individual who:

• Holds 10% shares or 10% of voting rights in the shares of Petitioner Company; or
• Has right to receive or participate in a financial year in at least 10% of total distributable dividend, or of any other distribution by

the Petitioner Company; or

• Either through indirect holding or together with direct holding has right to exercise or the actual exercise of “significant influence” or “Control” over the Petitioner Company.

In view of the above, it is submitted that the requirement to comply with Section 90 of Companies Act, 2013 (issue of notice in form BEN-4 and filing of form BEN-2 in respect of “Significant Beneficial Owner”) did not arise. Nonetheless, the Petitioner Companies undertakes to comply with the requirements

/  consequences,  if  any,  of

Section 90 of the Companies

Act,   2013  in   the   event  is

applicable / crystallized.

b) As   per   the             Enforcement

The     Transferor    Company

Module of the MCA portal

states that there are no such

there         are         multiple

complaints,                             prosecution,

complaints,      prosecution,

inspection, investigation etc.

technical                scrutiny,

were    pending   against   the

inspection,      investigation

Transferor    Company     and

relating   to    shares,   fixed

enforcement actions  entered

deposits,        fraud,         &

against       the                   Transferor

miscellaneous SRNs shown

Company seems to be due to

as    pending   against   the

technical  problems.  In   any

transferor company  (PCA

case, the Petitioner Companies

MOTORS            PRIVATE

undertakes  to                     appropriately

LIMITED) and in details of

deal with the complaints, if

the    enforcement   Module

any as and when decided by

SRNs     names    of     some

the ROC / MCA.

other companies / LLPs are

mentioned    which  is  not

clear as such and this may be

due to technical problem.

The list of the enforcement

actions entered against the Company is annexed with this report as (Annexure-1). Accordingly,   appropriate affidavit   /    indemnity   / clarification may be taken from    promoters/          directors

before allowing the scheme

c) As per MCA records it is seen that the company's registered office was situated in the state of Tamil Nadu for the period from 31.01.2019  to 02.12.2022.

Accordingly, if deemed fit, a letter may also be written to ROC, Chennai to confirm if any enforcement action is on-going/ pending against the Petitioner / Transferor

Company.

The Petitioner Companies states that there is no enforcement action that is on- going/pending against the Transferor Company as on date. In any case, the Petitioner                         Companies undertakes to appropriately deal              with                       any complaints/action pending against the company, as and when required.

d) Interest  of    the   Creditors should be protected.

The Petitioner Company states that pursuant to the Hon’ble NCLT Order dated 21^st July 2023                     passed            in C.A.(CAA)/143/MB/2023,

there are no Secured Creditors in both the Petitioner Companies as stated in the order and considering the same, convening and holding such meeting was not required. Further, by the said Order in the above matter, the meeting of the Unsecured Creditors of both the Petitioner Companies has been dispensed with by the Hon’ble NCLT in view of the undertaking given by the Petitioner Companies to issue notices to all the Unsecured

Creditors and the Petitioner

Companies have duly complied with the said direction. The Affidavit of Service dated 9th August, 2023 in respect of the said compliances was filed with the Hon’ble NCLT. The Petitioner Companies are not in receipt of any response from any of the Unsecured Creditors till date. In any case, the Petitioner Companies undertakes that the interest of all the Creditors will be protected    and    remain

unaffected by the scheme.

(b)

Transferee company should undertake to comply with the provisions of section 232(3)(i) of the Companies Act, 2013 through appropriate affirmation

in respect of fees payable by

The Transferee Company undertake to comply with the provisions of Section 232(3)(i) of the Companies Act, 2013 in respect  of  fees  payable  by

Transferee   Company   for

Transferee Company for increase of share capital on account of merger of transfer of

companies.

increase of share capital on account of merger of Transferor Company.

(c)

In compliance of Accounting Standard-14 or IND-AS 103, as may be applicable, the resultant company shall pass such accounting entries which are necessary in connection with the scheme to comply with other applicable Accounting Standards including AS-5 or

IND AS-8 etc.

The Transferee Company undertakes that in compliance of IND-AS 103, the Transferee Company will pass such accounting entries which are necessary in connection with the scheme to comply with other applicable Accounting Standards such as IND AS-8,

etc.

(d)

The Hon’ble Tribunal may kindly direct the Petitioner / Transferor Company and Transferee Company to file an affidavit to the extent that the Scheme enclosed to the Company  Application   and

Company Petition are one and

The Petitioner Companies undertakes that the Scheme enclosed to the Company Application and the Company Petition are one and the same and there is no discrepancy, or no change is made.

same and there is no discrepancy, or no change is made.

(e)

The   Petitioner /    Transferor

The    Petitioner   Companies

Company     and     “transferee

states   that   the    Petitioner

Company under provisions of

Companies     have     already

section      230(5)     of       the

served   the   notices  to   the

Companies Act 2013 have to

concerned     authorities    as

serve   notices   to   concerned

required by Section 230(5) and

authorities which are likely to

filed proofs thereof with the

be        affected       by        the

NCLT, Mumbai vide Affidavit

Amalgamation or arrangement.

of Service dated 9th August

Further, the approval of the

2023. Further, the Petitioner

scheme    by     the     Hon’b1e

Companies  undertakes  that

Tribunal may not deter such

the approval of the Scheme by

authorities to deal with any of

this Tribunal will not deter

the issues arising after giving

such Authorities to deal with

effect   to   the   scheme.   The

any of the issues arising after

decision  of   such   authorities

giving effect to the scheme and

shall    be    binding   on    the

the      decision      of       such

Petitioner      /        Transferor

Authorities will be binding on

Company     and     Transferee

Company concerned.

the Petitioner Companies in

the course of applicable law.

(f)

As per definition of the Scheme,

“Appointed Date” for the purpose of this Scheme means 1 April 2022.

“Effective Date” shall mean the last of the dates on which conditions and matters referred to in Clause 22 hereof occur or have been fulfilled or waived;

“Record Date” means the date on which the list of shareholders shall be determined by the Board of the respective companies for issuance   of   shares   as

consideration    to    the

The Petitioner Companies states that the Appointed Date of the Scheme is 1^st April, 2022 and the Scheme will be effective from the said Appointed Date. Further, the Petitioner Companies have provided their justification for an appointed date which is more than a year from the date of filing. There is no detrimental effect on public interest by the selection of such appointed date. As such, the petitioner companies have met the requirements of the Circular No. 7/12/2019/CL-I dated 21.08.2019 issued by the Ministry of Corporate Affairs.

shareholders pursuant to this Scheme;

It is submitted that the Petitioners may be asked to comply with the requirements as clarified vide circular no. F. No. 7/12/2019/CL-I dated 21.08.2019  issued  by  the

Ministry of Corporate Affairs.

(g)

Petitioner / Transferor Company and Transferee Company shall undertake to comply with the directions of the Income Tax Department &

GST Department, if any.

The Petitioner Companies undertake to comply with the directions, if any, of the Income Tax Department and GST Department in the course

of applicable law.

(h)

Petitioner / Transferor Company and Transferee Company shall undertake to comply with the directions of the    concerned    sectoral

Regulatory, if any.

The Petitioner Companies states that they are not governed by any sectoral regulator. In any case, the Petitioner                             Companies

undertake to comply with the

directions of   the  concerned sectoral regulator, in the event

it becomes applicable.

(i)

As per the list of shareholders of Petitioner      /        Transferor Company     and     Transferee Company, they have foreign shareholders                                   hence Petitioner/Transferor Company     and     Transferee Company shall undertake to comply with guidelines of ITBI,

FEMA, FERA.

The Petitioner Companies undertake to comply with the guidelines of RBI, FEMA, FERA, as applicable.

(j)

It is observed from financial statements of Petitioner / Transferor Company and Transferee Company has issued shares at Security

Premium and collected total premium as follows: -

Sr. No

.

Financial Year

Name     of     the Company

Total        Amount        of Securities        Premium

Collected

1.

31.03.2022

PCA MOTORS

PRIVATE

Rs. 4427.40 Lakhs

LIMITED

2.

31.12.2022

FCA      INDIA AUTOMOBIL ES    PRIVATE

LIMITED

Rs. 20,65,84,00,000/-

The company may clarify the status of filling of return of allotment. Further, the Petitioner/Transferor Company and Transferee Company shall also satisfy the Hon’ble Bench about assessment of share capital u/s. 68 of the Income Tax Act, 1961, for issue of shares at fair value in order to confirm compliance of Income Tax Laws or Hon’ble NCLT may seek the comments from Income Tax department, if any, on this issue.

Response of the Petitioner Companies :

The Petitioner Companies states that the Petitioner Companies have issued shares at Security Premium. The said Securities Premium was collected by the Petitioner Companies at various

stages of allotment. The Petitioner Companies have filed relevant

forms w.r.t. the same with MCA and the corresponding share capital which is reflecting on MCA website is only a consequence of filing of said forms which are also annexed as Annexure 1 and 2 to Affidavit in reply to RD observations.

The details of allotment of Shares at premium are as follows :

PCA Motors Pvt Ltd - First Petitioner Company :

Sr No.

FY

No. of Shares of Rs. 10/-

each

Securities Premium

Name of Allottees

1.

2019-

20

4,20,00,000

21,00,00,000

PSA

Automobiles SA       (Holding Company)

2.

2020-

21

12,571,800

62,859,000

PSA

Automobiles SA       (Holding

Company)

3.

2020-

21

4,247,035

169,881,400

PSA

Automobiles

SA      (Holding

Company)

Total

442,740,400

FCA India Automobiles Pvt Ltd – Second Petitioner Company

SN

F.Y.

No.        of

Securities

Name       of

Shares of

Premium

Allottees

Rs.10/-

each

1

31/12/2

012

42,00,000

16,80,00,000

2

31/12/2

70,00,000

28,00,00,000

012

3

31/12/2

013

7,68,00,0

00

3,07,20,00,000

Stellantis

Europe

4

31/12/2

013

57,80,000

23,12,00,000

5

31/12/2

014

1,00,00,0

00

40,00,00,000

S.p.A.

(Formerly

knowns as

6

31/12/2

014

3,62,00,0

00

1,44,80,00,000

7

31/12/2

014

3,90,00,0

00

1,56,00,00,000

FCA Italy S.p.A.)

8

31/12/2

015

1,80,00,0

00

72,00,00,000

9

31/12/2

015

1,10,00,0

00

44,00,00,000

(Holding Company)

10

31/12/2

015

6,00,00,0

00

2,40,00,00,000

11

31/12/2

016

9,00,00,0

00

3,60,00,00,000

12

31/12/2

016

6,00,00,0

00

2,40,00,00,000

13

31/12/2

017

6,40,00,0

00

2,56,00,00,000

14

31/12/2

019

2,00,00,0

00

80,00,00,000

15

31/12/2

019

1,44,80,0

00

57,92,00,000

TOTAL

20,65,84,00,000

The   aforesaid  Securities Premium  has  been  appropriately

considered  and   disclosed  in   the   duly   Audited  Financial

Statements and Income Tax Returns of the relevant Assessment

Years as required under the Income Tax Act, 1961 and rules

made thereunder and in compliance with all relevant laws.

Further, as far as Assessment of Share Capital u/s 68 or any other

relevant section of Income Tax Act, 1961 is concerned, the

Petitioner Companies  submits that  question  on   Securities

Premium collected by the Petitioner Companies was not raised in respect of any allotment of shares at Premium.

Further, Petitioner Companies submits that at Application stage, the Petitioner Companies have issued notices to the respective Jurisdictional Assessing Officer as well as nodal officer on 03/08/2023 and 04/08/2023 as directed by NCLT vide Order dated 21/07/2023. Also, pursuant to directions given by the Hon’ble Tribunal during Petition admission, the notice of Final Hearing has also been issued to respective Jurisdictional Assessing Officer as well as nodal officer on 15/12/2023. Nonetheless, the Petitioner Companies undertakes that the approval of the Scheme by the NCLT will not deter the rights of the Income Tax department to deal with any of the issues arising after giving effect to the scheme and the  Transferee  Company  shall  deal  in  the  proceedings

appropriately in the course of applicable law.

(k)

It   is   observed  from  financial  statements of      Petitioner/ Transferor Company and Transferee Company, details of

shareholding is as follows: -

Financial Year

Petitione r

Name        of the

%      of

shares held

Remark

Compan y

Shareholde r

31.03.202

3

PCA MOTOR S PRIVAT E LIMITE D

PSA AUTOMO BILES S.A FRANCE (FORMER LY KNOWN AS PEUGEUT AUTOMO BILES S.A)

99.99

%

No         form

BEN-2 has been filed by the Petitioner

/   Transferor Company and Transferee Company as per    records available   at

MCA    21

Portal.

Response of the Petitioner Companies :

The Petitioner Companies states that none of the Petitioner Company have / had any “Significant Beneficial Owner” as there is no individual who:

1. Holds 10% shares or 10% of voting rights in the shares of any of the Petitioner Companies; or
2. Has right to receive or participate in a financial year in at least 10% of total distributable dividend, or of any other

distribution by any of the Petitioner Companies; or

Para

No.

Observations

Response of the Petitioner

Companies

5

With reference to Clause no.

15.1 of the Scheme it is stated that such clause overrides the provision of Companies Act, 2013 namely section 232(3)(i) which inter-alia provides that, ‘if a company is dissolved the fee paid by such company on its Authorized Capital shall be set off against any fee payable by the transferee company on its Authorized                                 Capital. Accordingly, Clause no. 15.1 may be modified.

The Petitioner Companies states that the Transferee Company undertakes that the fee, if any, paid by the Transferor Company on its Authorized Capital will be set-off against any fees payable by the Transferee Company on its Authorized Capital subsequent to the Merger by Absorption in accordance with the provisions of section 232(3)(i) of Companies Act, 2013 and affirms that it will comply with the provisions of the section. Further, the Petitioner                            Companies undertakes that the Transferee Company will pay

the           balance/difference amount of the fees on its increasing Authorized share

capital, if any.

6

The Statutory Auditor in his

The   Petitioner  Companies

report    annexed    to     the

states the management of the

Financial  Statement as   at

Transferor   Company    has

31.03.2022   has    observed

taken adequate measures to

qualified opinion. The said

have      sufficient     internal

qualified        opinion        is

controls subsequent to year

reproduced as follows:

end    to    ensure   that   the

According to the information

research  and   development

and explanations given to us

expenses and revenue as on

and based on our audit, the

31st  March  2022  are  not

following                  material

materially   misstated.  The

weaknesses      have      been

said facts have already been

identified in  the                  operating

mentioned by the auditors in

effectiveness        of         the

their audit report for the F.Y.

Company's internal financial

2021-22    and     hence    the

controls  with  reference  to

auditors' observation is self

financial  statements as   at

explanatory.  Further,  as  a

March 31, 2022:

result        of        continuous

a) The Company's controls over review of estimates over research and development expenses were not operating effectively during the year, which could potentially result in the Company over/under-statement of research and development expenses                     and

consequently revenue in its financial statements. Management has taken adequate            measures subsequent to year-end to ensure that the research and development expenses and revenue as at March 31, 2022 are not materially

misstated.

improvement in internal financial control, the auditors' report of Transferor Company for the subsequent Financial Year 2022-2023 is not qualified. The said Auditor's report for the F.Y. 2022-2023 is enclosed as Annexure A in support to the Affidavit in reply to OL Observations.

A ‘Material weakness' is a

deficiency,         or          a

combination                 of deficiencies, in internal financial control with reference to financial statements, such that there is a reasonable possibility that   a                          material misstatement of the company's annual or interim               financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the effects of the material weaknesses described above on the achievement of the objectives of the

control   criteria,   the

Company has maintained, in all material respects, adequate internal financial controls with reference to these financial statements and such internal financial controls with reference to financial statements were operating effectively as of March 31, 2022, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note issued by the ICAI.”

b) The Company's controls over review of cut-off in relation to trading sales

were not operating effectively, which could potentially result into misstatement of trading revenue in the financial statements. Management has taken adequate steps subsequent to year end to ensure that the trading revenue for the year ended March  31,  2022  is  not

materially misstated.

Para

No.

Observations

Response     of     the     Petitioner

Companies

10

It appears that the rationale behind the scheme is to transfer the losses of the transferee company into the books of transferor Company. The main objective of the scheme is to transfer the accumulate losses from the books of the transferee company to the transferor Company, which will be eligible for set off in future periods and result in huge tax losses. The scheme of merger by absorption is only a vehicle to achieve the tax benefit in form of transfer of accumulated losses of transferee company to transferor company. The transferor company is regularly paying its due taxes in spite of huge claim of deduction u/s. 10AA in respect of its unit situated at

Apart from / in line with detailed rationale of merger mentioned in the Scheme, following are various material reasons for the merger of PCA Motors with FCA India :

• Italian–American conglomerate Fiat   Chrysler Automobiles (FCA) and the French    PSA               Group  got merged in early 2020. The merged company      is                     called "Stellantis".    This                    merger marked                  a           significant development         in                        the automotive                                 industry worldwide,     as      Stellantis emerged as the fourth-largest automotive                                  original equipment        manufacturer globally   in   terms  of   sales

volume.

special economic zone, Chennai and if the scheme of merger by absorption is approved with effect from appointed date of 01.04.2022, the regular income of transferor company as per return of income filed by M/s. PCA Motors Pvt Limited for AY 2023-24 to the tune of Rs. 13,94,83,913/- and tax thereon to the tune of Rs. 2,00,93,089/ will be set off from the loss of the transferee company and the tax payable will become nil. Similarly, the income of the future years of the transferor company will be set off from the carry forward losses of the transferee company. The transferee company having huge accumulated losses and

• The formation of Stellantis was driven by the strategic goal of leveraging investment efficiency on a larger scale in other countries where the groups have presence. This approach allowed the groups to pool resources and expertise to develop innovative mobility solutions and     cutting-edge technologies. Stellantis was conceptualised to push the boundaries in areas such as new energy vehicles, autonomous driving, and connectivity.                                  This collaborative effort positions Stellantis as a major player in the ever-evolving automotive landscape, with a focus on delivering  advanced  and

unabsorbed           depreciation whereas the transferor company is a profitmaking company and regularly paying due taxes. The merger by absorption of M/s. PCA Motors Pvt Ltd by M/s. FCA automobiles India Pvt Ltd of will result into lesser tax liability  on  the  resultant

company.

sustainable transportation solutions for the future.

• Stellantis, as a result of the merger between Fiat Group and PSA Group, has embarked on an extensive integration process aligned with its global market and brand positioning, that involves merging operations of both the groups across the globe including in India. This integration effort includes a carefully planned timeline for the implementation of various global projects following the merger.
• The group has also internally undertaken the critical task of system integration, ensuring that  various  systems  and

processes  are  seamlessly

11

It is quite evident that the scheme of merger is a tax planning in the nature of colorable device aimed at tax avoidance. In this regard, the rationale of judgement of Hon’ble Supreme Court is relied in the case of McDowell and Company Limited v. Commercial Tax officer [154 ITR 148] wherein it was held

that "Colorable Devices cannot

be    part   of    tax    planning.

combined worldwide. These

Therefore, it is requested that

systems operate under time-

such colorable device should

bound licenses and contracts

not be allowed.

with        vendors,        which

necessitate                     their

12

In view of the above, objection

of   department in   respect  of

implementation          within

proposed merger by absorption

specified   timeframes.   The

of M/s. PCA Motors Pvt Ltd in

group is fully committed to

M/s. FCA India Automobiles

adhering to these deadlines to

Pvt Ltd may kindly be taken

ensure a smooth and efficient

into the consideration.

integration                process.

Additionally, there is a well-

structured   plan    for     the

decommissioning of   certain

systems.                          This

decommissioning process was

initially    expected    to     be

completed   by    2023.   The

group   is   actively   working

towards     this     target    to

streamline its operations and

maximize efficiency.

• Both FCA India and PCA Motors are under common management globally due to the merger of PSA group and FCA group as Stellantis. Before merger both companies are undertaking export business under different zones, jurisdictions. It has become challenging to conduct business under different names for logistical operations. In order to achieve operational synergies and better performance management of export business, there is a business need to merge both the entities. The flow of exports is designed for the future considering the merger and

combination of the legal entities.

• Since, both companies are under common control globally, it makes strategic, business and operational sense to reduce the number of legal entities operating in India. This brings efficiencies in day to day compliances and other financial activities especially considering the all important            business requirements of liquidity and capital. The management believes to achieve cost savings through consolidation in various departments namely IT infrastructure, Human Resource, Finance, Logistics and supply chain.

• In view of the above, there is a need for merger to avoid any impact on business systems / software, contracts, flows, supply chain and operations and avoid risk of global production halt and business continuity resulting in loss to group.

It is further submitted that,

1. The scheme of merger is purely due to commercial considerations as discussed above. The tax benefit arising pursuant to the merger is consequential, specifically granted under the provisions of the law and hence cannot be equated with tax avoidance. Thus,   the   tax   officer’s

allegation that there is a case

of tax avoidance is factually not correct.

2. Further we would like to highlight that both the companies have been profitable on a standalone basis for the last 4-5 years. The brought forwarded business losses would be available for set off for only next four years. After that, the FCA India would not be able to get set off of brought forward business losses.

3. Furthermore, both companies are tax compliant as per the provisions of the Income Tax Act, 1961.
4. Further also, we would like to highlight  that  post-merger

PCA Motors has to forego the SEZ deduction u/s 10AA of the Income Tax Act, 1961 as the transferee company FCA India has opted for the concessional tax rate u/s 115BAA of the Income Tax Act, 1961. Thus, it cannot be said that the arrangement is being done for tax avoidance only.

5. Further, in the following judicial precedents it has been held that even if a scheme leads to tax savings that does not evidence that the sole purpose of the scheme is tax avoidance:

a. In the case of Vodafone

International Holdings B.V.

v. Union of India [2012] 341

ITR 1 (SC) it has been observed that in case more than one option is available to a tax payer to structure its transactions it shall be free to choose that option which is more beneficial and tax efficient and that where tax planning is legitimate and permitted it cannot be looked into with suspicion as a tax evasion. The Petitioner companies are proposing a merger well recognised as an approved process for integration of companies.

b. Supreme Court delivered a landmark judgment in the case of Union of India v/s Azadi  Bachao  Andolan

([2003]  263  ITR  706)

diluting the principle as understood                 from McDowell’s case. In this case, the Supreme Court has clarified that what has been   decided         in McDowell’s case is tax planning for avoidance of tax which has doubtful or questionable character as to its bona fides and righteousness. Not all legitimate acts of a taxpayer which, in the ordinary course of conducting his affairs a person does and under law he is entitled to do, can be branded as of questionable character. The Supreme Court has also clarified that the decision in McDowell’s case does not

mean that any act of an assessee which results in reduction of his tax liability or in expectation of tax benefit in future, amounts to colourable device, a dubious method or a subterfuge to avoid tax and can be ignored if the acts are unambiguous and bona fide. It was further observed that while the planning adopted as a device to avoid tax has to be deprecated, the principle cannot be read as laying down the law that a person should arrange his affairs so as to attract maximum tax liability, and every act which results in tax reduction, exemption of tax or not attracting tax

authorized by law is to be treated as a device of tax avoidance. Supreme Court in the case of Walfort Share and Stock Brokers Pvt Ltd ([2010] 326 ITR 1) after

referring to the case of McDowell and Azadi Bachao Andolan, held that a citizen is free to carry on his business within the four corners of the law; that, mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by its judgment in McDowell’s case. The Petitioner companies are seeking an approval to undertake a commercially           driven

merger transaction that is

well recognised under the law.

c. The Gujarat High Court in Vodafone Essar Gujarat Ltd.    v.    DIT 35

taxmann.com 397 [affirmed by the Supreme Court in 66 taxmann.com 374], has held that if in its commercial wisdom, a company has decided to have         a          particular arrangement by which there may be even benefit of saving Income-tax or other taxes, that itself cannot be a ground for coming to the conclusion that the sole object of framing the scheme is to defraud the Income tax Department or

other  taxing  authorities.

The High Court sanctioned the scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956 while protecting the right of the Income-tax Department to recover the dues in accordance with law irrespective of the sanction of the Scheme. The NCLT also observed that the petitioner has to comply with all applicable laws. The Act itself provides specific                           conditions fulfilment of which will make a taxpayer eligible for tax neutrality in case of amalgamation.                                   The Petitioner companies are seeking an approval to undertake a commercially

driven merger transaction that is well recognised under the law.

d. In the case of NIIT Technologies                              Limited [Order of NCLT new Delhi bench-III of company petition    CAA-

284/ND/2017              and Company Petition CAA- 385/ND/ 2017], the NCLT

sanctioned the Scheme, by rejecting the objections of the tax authorities, on the basis that when the tax authority objects to the NCLT sanctioning any scheme, the onus is on the tax    authority         to demonstrate that the sole purpose of the scheme is tax

avoidance.   The   key

question that needs to be decided in such situations is whether the scheme is designed solely for avoiding tax or merely adopts a tax efficient way of undertaking the desired transaction. In this context, number of judgements    in    tax

jurisprudence                                    have distinguished between tax avoidance/evasion (which is not permissible) and tax mitigation/saving (which is permissible). Based on past judgements, the position in law that has emerged is that a taxpayer can arrange his affairs to reduce his tax burden in a lawful manner.

e. In the case of Cosmo Films Limited (ITA 1404/2008),

the Delhi High Court reiterated the position of law laid down in the case of Azadi Bachao Andolan that merely because an assessee gets a commercial advantage because of the factoring in of a tax benefit, it cannot be said that the transaction is not genuine. It also held that observations made in the case of McDowell is not good law in view of the case of Azadi Bachao Andolan where it was held that “tax planning may be legitimate provided it is within the framework of law”

6. Reliance can also be placed on question no. 3 of the CBDT Circular  No.  7/2017 dated

27 January 2017 issued in connection with GAAR, wherein it was stated that –

“GAAR will not interplay with the right of the taxpayer to select or choose the method of implementing a transaction.”

7. In view of the above judgements, the mere fact that the transaction results in tax benefit does not imply that scheme of merger is a tax planning in the nature of colorable device aimed at tax avoidance.

8. The Scheme complies with the conditions relating to Amalgamation as specified under section 2(1B) of the Act.

Hence, if the conditions for

tax neutrality provided in the Act are fulfilled, then the tax authorities cannot argue that the Scheme will be prejudicial to interest of the tax department.

In view of the above it is evidently clear that:

5. Amalgamation is a recognised procedure under the Income-tax Act for combining two or more companies.

5. The Amalgamation of PCA Motors into FCA India, is therefore under the recognised procedure of the Income-tax Act commonly adopted in situations where

group   companies   are

intended to be integrated.

5. The amalgamation of PCA Motors into FCA India is undertaken due to the global merger of Italian– American conglomerate Fiat Chrysler Automobiles (FCA) and the French PSA Group, which is called as ‘Stellantis’ and is evidently undertaken with a view to align international group structure to achieve operational efficiencies at the India level.

5. As a recognised procedure for the integration PCA Motors and FCA India management independently

decided to integrate to their

business operations as a prudent business decision which is an established right available to the two companies to undertake their affairs as per their independent  judgements.

5. The Synergies resulting from the amalgamation are the principal driver for the amalgamation and the consequential tax benefit enabled to be provided under the specific provisions of the law cannot be considered to assert that the amalgamation is being undertaken as colourable device.

Assuming without admitting, and pursuant to sanctioning of the Scheme, even if the relevant authority or such other appellate forum/Court is of the view that the contention of the IT Department is correct, then in terms of the Scheme, the Transferee Company will be liable to deal with the same, as per law and in the ordinary course.

Nonetheless, the Petitioner Companies undertake that the rights of the Income Tax Department will not be impacted to ascertain / assess correct income in correct hands as per the provisions of the Act.