Scheme of Merger of WoS with its Holding Company Approved - Despite of Objections from IT Department

Yuflow Engineering (Private Limited Petitioner Company 1/Transferor Company) filed scheme of amalgamation with Yuken India Limited (Petitioner Company 2 Transferee Company”) before the Hon'ble National Company Law Tribunal (NCLT) Bengaluru (Bangalore) Bench.

Facts of the case:-

1. Transferor Company is a wholly owned subsidiary (WoS) company of Transferee Company.

2. The Transferee Company is a profit-making company whereas the Transferor Company has been a loss-making company for the last two financial years.

3. The Income Tax Department filed its report for the Transferee Company stating that there is no objection for Merger subject to compliance of section 79 of Income Tax Act and continuation of proceedings against Transferee Company.

4. Transferee Company gave an undertaking that the company undertakes to comply with provisions of Section 79 of Income Tax Act and continuation of proceedings in the name of the Transferee Company.

Coming to the Transferor Company, The Income Tax Department Filed its report for the Yuflow Engineering Private Limited (Transferor Company) citing certain observations and raising objections to the scheme as follows:

Points from report by the Income Tax Department

lt is observed by the Income Tax Department that from the Financials submitted along with scheme documents that Transferor Company is loss making company and Transferee Company is a profit-making company.

It is also observed from the Income Tax return filed by the Transferor Company for AY: 2021-22 that it is having total loss to be carried forward to future years to the tune of Rs.8,09,04,600/(Business Loss Rs.6,69,94,054/-.. and unabsorbed depreciation of Rs.1,39,10,546/-).

Therefore, it is evident that the scheme is for avoiding payment of tax by merging loss making and profit-making companies.