I-T Department To Follow NCLAT’s Reliance Jio Verdict

The Income Tax Department is no longer in favor of appealing against an order of the National Company Appellate Tribunal (NCLAT) which had approved the proposed demerger of Reliance Jio and hence it has written to the Union Law Ministry seeking its opinion on the matter.

It may be recalled that Reliance Jio had proposed hiving off its fiber and tower business into two separate units namely Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd.

As per the proposed scheme, Reliance Jio Infocom has sought to convert redeemable preference shares into loans.

On December 20, the Ahmedabad bench of the NCLT granted permission to the scheme of arrangement, through which two companies were proposed to be demerged.

However, the Income Tax Department voiced concerns against the demerger as it perceived that such a conversion of equity into debt would reduce profitability of the transferor company called Reliance Jio Infocomm, which could result into revenue loss to the Income Tax Department.

Later, the NCLAT dismissed the objections raised by the Income Tax Department against the demerger of Reliance Jio Infocom on December 24, 2019.

While dismissing the Income Tax Department’s claims, the NCLAT stated that mere reduction in tax liability was not a basis to question the validity of the demerger, citing the Vodafone-Essar tax avoidance case.