NCLAT Dismisses Income Tax Department’s Petition Against Reliance Jio Infocomm’s Demerger Of Tower And Fiber Units
[ By Bobby Anthony ]A petition filed by the Income Tax Department, which had raised objections about the approval granted to Reliance Jio Infocomm’s scheme to hive off its fiber and tower business into two separate units, has been dismissed by the National Company Law Appellate Tribunal (NCLAT).It may be recalled that earlier in 2019, the Ahmedabad-bench of National Company Law Tribunal...
A petition filed by the Income Tax Department, which had raised objections about the approval granted to Reliance Jio Infocomm’s scheme to hive off its fiber and tower business into two separate units, has been dismissed by the National Company Law Appellate Tribunal (NCLAT).
It may be recalled that earlier in 2019, the Ahmedabad-bench of National Company Law Tribunal (NCLT) had granted permission to the composite scheme of arrangement, through which two companies were proposed to be demerged—Jio Digital Fibre Pvt. Ltd. and Reliance Jio Infratel Pvt. Ltd.
The Income Tax Department had opposed this demerger by challenging it before the NCLAT, contending that by such an arrangement, the transferor company Reliance Jio Infocomm has sought to convert redeemable preference shares into loans.
The Income Tax Department contended that conversion of equity into debt is not only contrary to well-settled principles of Company Law but also reduced profitability or the net total income of the transferor company, causing a huge loss of revenue to the Income Tax Department.
However, the NCLAT dismissed the Income Tax Department’s plea stating that the NCLT has already looked into the issue.
Reliance Jio Infocomm submitted that it previously had separate units housing its optic fiber and tower infrastructure undertakings. Each of these units had distinct assets and liabilities and were involved in a separate business.
On April 2, Reliance Jio stated that it has transferred control of its fiber and mobile tower units to two infrastructure investment trusts set up by Reliance Industrial Investments and Holdings Ltd.
The optical fibre cable infrastructure unit, Jio Digital Fibre Private Ltd has allocated shares worth Rs 500 crore to Reliance Jio Infocomm Ltd. on March 31, 2019, according to a regulatory filing.
Also, mobile tower unit Reliance Jio Infratel Pvt. Ltd. has allocated shares worth Rs 200 crore to Reliance Jio Infocomm, it added.
Both trusts have been set up by Reliance Industrial Investments and Holdings, a wholly-owned subsidiary of RIL as sponsor, and have been granted certificate of registration as Infrastructure Investment Trust by capital market watchdog Securities and Exchange Board of India (SEBI).