DY CIT CC-1(4), MUMBAI V. M/S GRASIM INDUSTRIES LTD., MUMBAI

ITA 41/MUM/2021

AI Insights

The case involves a dispute between Grasim Industries Ltd. and the DCIT regarding the tax implications of a demerger of the financial services business from Grasim Industries to Aditya Birla Capital Ltd. The primary legal issues revolved around whether the demerger constituted a tax-compliant demerger under Section 2(19AA) of the Income Tax Act, and whether the provisions of Section 2(22)(a) concerning deemed dividends were applicable. The Tribunal examined the arguments and evidence presented by both parties, including the approval of the scheme by the NCLT and the absence of objections from the Income Tax Department at the time of the scheme's approval.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 113401 (ITAT-MUMBAI)
• Duration Of Justice: 1879 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 04-09-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 18-03-0143
• Other Referred Cases: CIT vs. Salora International Ltd., Indo Rama Textile Ltd vs. CIT, Vodafone Essar Gujarat Ltd vs. CIT, Dalmia Power Ltd vs. ACIT, Electrocast Sales India Ltd vs. DCIT, Ajai Choudhary vs. DCIT, Sadananda Varde vs. State of Maharashtra, Fiber Board P. Ltd. vs. CIT, Shree Cement Ltd vs. ACIT, KBD Sugars & Distilleries Ltd vs. ACIT, M/s. KBD Sugars & Distilleries Ltd vs. ACIT, Cosmos Industries Ltd vs. DCIT, State of UP and Others vs. Renusagar Power Co. and Others, Sanofi Pasteur Holding S.A. vs. DOR, CIT vs. Khimji Nanshy, CIT vs. Urmila Ramesh, CIT vs. Madurai Mills Co. Ltd., CIT vs. Central India Industries Ltd., CIT vs. Bharat Bijlee Ltd., CIT vs. CIT vs. Salora International Ltd., CIT vs. Indo Rama Textile Ltd., CIT vs. Vodafone Essar Gujarat Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RESPONDENTS NOS.; RESPONDENTS; ANIL SI NGH; LONG DRAWN; FOLLOWING THIS LONG SCHEME
• Assessee Lawyers: J.D MI STRY; WAY OF APPEAL; PLACING
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Search and seizure; Double taxation relief; Principle of natural justice; Question of law; Cost of acquisition; Fair market value; Deemed dividend; Scheme of amalgamation; Commercial expediency; Revised return; Unabsorbed depreciation; Set aside; Liquidation; Capital Gains
• Section: 263; 143(3); 2(22)(e); 195; 250; 144C; 207; 208; 264; 192; 246A; 64; 113; 43; 48; 73; 72; 13; 153; 119; 22

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL ―G‖ BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA N o. 1935/MU M/2020& SA N O 135/M/2021 (Assessment Year 2018-19) Grasim I ndustries L td. A-Wi ng, 2 nd Fl oor, Adi tya Birl a Centre, S. K. Ahire Marg, Worli, Mumbai-400 030 Vs. DCIT, Central Circl e-1( 4) Room N o. 902, 9 th Fl oor, Ol d CG O Buil di ng Annex, Prati shtha Bhavan, M.K. Road, Mumbai- 400 020 (Appellant) (Respondent) ITA N o. 41/MUM/2021 DCIT, Central Circl e-1( 4) Room N o. 902, 9 th Fl oor, Ol d CG O Buil di ng Annex, Prati shtha Bhavan, M.K. Road, Mumbai- 400 020 Vs. Grasim I ndustries L td. Adi tya Birl a Centre, A-Wi ng, 4 th Floor, S. K. Ahire Marg, Worli, Mumbai-400 030 (Appellant) (Respondent) PAN No. AAACG4464B Assessee by : Shri. J.D Mi stry, Sr. Adv. Shri Madhur Agrawal, Adv. Shri Fenil Bhatt, Shri. Hemant Kadel, Shri. Sushil Chopra, Shri. Jayesh G anatra, Shri. Chai tanya Joshi Revenue by : Shri Anil Si ngh, Addi ti onal Solicitor general Shri. Akhileshwar Sharma, (Speci al Counsel) Date of hearing: Last heard on 05.09. 2022 (Refer Para 22 and 23 of the order forhi story ofheari ng) Date of pronouncement: 30,N ovember 2022 O R D E R PER PRASHANT MAHARISHI, AM: Page | 2 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 1. These are the cross appeal s for assessment year 2018 – 19 filed by Grasim I ndustri es Limited (The Assessee/Appellant) and the l earned Deputy Commi ssioner Of I nc ome Tax, Central Circle – 1 (4), Mumbai (The L earned AO) agai nst appellate order passed by the Commissi oner of i nc ome tax (appeals) – 47, Mumbai ( the l earned CIT – A) dated 24/09/2020 wherei n chall enge of assessee by way of appeal to the order passed u/s 115Q read with Secti on 115O of the inc ome tax ac t, 1961 (The ACT) dated 14/3/2019was partl y all owed. The l earned CI T – A c onfirmed applic ability of provisi ons of Section 2 ( 22) ( a) of The Ac t hol di ng that demerger of the assessee is not in acc ordanc e wi th provisi on of sec ti on 2 ( 19AA) of the ACT and therefore there is a di stri buti on by assessee c ompany of its acc umul ated profits, whic h entails the rel ease by the c ompany to its sharehol ders of all or any part of the assets of the company, so i t has di stri buted divi dend to its sharehol der. H owever, the amount of di vidend determined by the learned AO amounting to ₹ 48,93,44,40, 253/– was reduc ed to Rs. 13, 380. 68 crores for the purpose of c harging divi dend di stri bution tax. Therefore, both the parties are aggri eved wi th the appellate order and are i n appeal before us. 2. The assessee is appellant i n ITA N o. 1935/MU M/2020 raising foll owi ng grounds of appeal: - “GROUND NO. 1: 1.1 On the facts and in the circumstances of the case and in law, the id. CIT(A) erred in party confirming the order dated 14.03.2019 passed by the learned Assessing Officer u/s 115Q r.w.s 115-O of the Act for the financial year 2017-18 and holding that dividend Page | 3 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 distribution tax of Rs 2723,99,21,942/- was payable by the Appellant. 1.2 The Appellant prays that the impugned order passed us 1150ws 115-0 of the Act be held as bad in law and therefore be quashed. GROUND NO. 2: DEMERGED „FINANCIAL SERVICES BUSINESS‟ CONSTITUTES AN „UNDERTAKING‟ AS PER SECTION 2(19AA) OF THE ACT AND DEMERGER FULFILLS THE CONDITIONS LAID DOWN IN SECTION 2(19AA) OF THE ACT: 2.1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the order of the Id AO holding that the demerger of the "financial services business" ("FSB") by the Appellant to the resulting company is not a tax compliant demerger falling under and complying with the provisions of section 2(19AA) of the Act. 2.2 On the facts and in the circumstances of the case and in law, the Id. CIT(A) further erred in confirming the order of the id AD holding that the Appellant was never engaged in the FSB and the demerged FSB did not constitute an „undertaking‟ as defined in Explanation 1 to section 2(19AA) of the Act. 2.3 On the facts and in the circumstances of the case and in law, the id. CIT(A) when concluding that FSB did not constitute an „undertaking,‟ did not properly consider and failed to appreciate the factual material and detailed submissions filed by the Appellant. The Appellant submits that considering the same, the Ld. CIT(A) ought to have held that the Appellant was engaged in the FSB and that the Page | 4 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 demerger falls within and complies falls within and complies with the provisions of section 2(19AA) of the Act. 2.4 The finding by the Id. AO/ld. CIT(A) that FSB does not constitute an „undertaking‟ is bad in law and liable to be quashed as no person reasonable instructed could come to such conclusion on the facts of the present case. 2.5. The Appellant prays that it be held that the demerger of FSB was a tax compliant demerger under section 2(19AA) of the Act. GROUND NO. 3: GOING BEHIND AND ALLEGING DOUBT ON THE GENUINENESS OF THE SCHEME OF ARRANGEMENT APPROVED BY THE HON'BLE NATIONAL COMPANY LAW TRIBUNAL (“NCLT”): 3.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the order of the Id. AO alleging that the scheme of arrangement entered by the Appellant for demerger of FSB to the resulting company as approved by the Hon'ble NCLT was not genuine. The Id. CIT(A) in coming to the aforesaid conclusion, erred in disregarding the settled judicial precedents cited by the Appellant and the submissions made by the Appellant. 3.2 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the order of the Id. AO of going behind and doubting the entire basis of the scheme of arrangement approved by the Hon'ble NCLT and alleging that the issuance of the Page | 5 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 shares by the resulting company to the shareholders of the Appellant is an indirect exercise by the Appellant of distributing the proceeds of the transferred undertaking to the of the Appellant. 3.3 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in upholding the action of the Id. AO in imputing illegality to the action of the Appellant under section 123 of the Companies Act, 2013. 3.4 Without prejudice, the Appellant submits that once the Revenue had not availed of the opportunity provided to it by law to object to the scheme of the arrangement on the notice dated 03.03.2017 served to the learned Assessing Officer prior to the approval granted by the Hon‟ble NCLT, thereafter, it is not open to the learned .AO to challenge the object, rationale, basis or genuineness of the said scheme. 3.5 The Id. CIT(A) ought to have held that the Id. AO cannot assume motives, objects envisage situations, and reach conclusions which are not in accordance with the basis, stated objects, rationale and fundamentals of the Scheme of Arrangement approved by the Hon'ble NCLT. 3.6 On the facts and in the circumstance of the case and in law, the conclusion reached by the ld. AO and the Id CIT(A) amounts to rewriting the scheme of arrangement as approved by the NCLT, which is not permissible, contrary to law and beyond the jurisdiction of the Income-tax Authorities. Page | 6 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 3.7 The Appellant therefore prays that it be held that the scheme of arrangement approved by the Hon‟ble NCLT is genuine and that the order of the Id. AO attempting to apply the provisions of the Act to the scheme approved by the Hon‟ble NCLT in the manner done, is bad in law and the therefore the same be quashed. WITHOUT PREJUDICE TO GROUND NO 1 TO 3: GROUND NO. 4: PROVISIONS OF SECTION 2(22) (a) OF THE ACT ARE NOTAPPLICABLE: 4.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the order of the Id. AO holding that provisions of section 2(22)(a) of the Act were applicable to the transaction of transfer of FSB by the Appellant to the resulting company and the issue of shares of the resulting company by the resulting company to the shareholders of the Appellant under the scheme of arrangement approved by the NCLT. 4.2 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in concluding that the provision of section 2(22)(a) of the Act is applicable to the present case and failed to consider the irrefutable and apparent interpretation of the provisions of section 2(22)(a) which were pointed out to him. 4.3 The Appellant prays that the provision of section 2(22)(a) of the Act are not applicable to the case of the Appellant and the impugned order of the ld. AO be quashed being bad in law. Page | 7 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 WITHOUT PREJUDICE TO GROUND NO. 1 TO 4: GROUND NO. 5: QUANTUM OF ALLEGED DIVIDEND DISTRIBUTED: 5.1 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing the Id. AO to adopt value of the shares of the resulting company at Rs.145.40 per share for the purpose computing deemed dividend u/s 2(22)(a) of the Act. 5.2 Without prejudice to the above, the Id CIT(A) failed to appreciate that if at all deemed dividend is to be computed u/s 2(22)(a) of the Act, then the liability of DDT payable in respect of Appellant's non-resident shareholders is to be computed having regard to provisions of the respective Double Taxation Avoidance Agreement. 5.3 The Appellant submits that the valuation adopted by the Id. CIT(A) for computing the amount of DDT is not sustainable in law. GROUND NO. 6. ORDERS PASSED BY THE AO AND THE CIT(A) CONTRARY TO THE PRINCIPAL OF NATURAL JUSTICE: 6.1 On the facts and in the circumstances of the case and in law, the orders passed by the Id. AO and the Id. CIT(A) are bad in law and liable to be quashed being contrary to the principals of natural justice. GROUND NO. 7: LEVY OF INTEREST UNDER SECTION 115P OF THE ACT: Page | 8 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 7.1 On the facts and in the circumstances of the case and in law, the Id. AO, and the Id. CIT(A) erred in levying interest under section 115P of the Act. 7.2. The Appellant prays that the interest levied under section 115P of the Act be deleted.” 3. The learned AO is aggrieved and is in appeal before us in ITA No. 41/MUM/2021 rai sing followi ng grounds of appeal: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in determining value of the shares of ABCL at ₹ 145.40 per share instead of ₹ 261.20 adopted by AO ignoring the fact that it was most proximate market value of shares. 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in holding the fair market value of shares on the basis of a valuation adopted for allotment of shares on private placement basis, ignoring the fact that the shares allotted on private placement was in a limited manner to a single person which would not unlock the true and correct fair market value of shares. 3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) failed to consider the market value of shares on the most proximate date which should be considered for the purpose of correct valuation of shares ignoring the judgment of Hon’ble Apex Court in the case of CIT Vs. Central India Industries Ltd. 82 ITR 555 (SC).” Page | 9 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that deemed dividend cannot exceed the general reserves of company considering the fact that the profit/surplus was distributed by Grasim Industries Limited directly to its shareholders and same was not routed though books. 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that deemed dividend cannot exceed the general reserves of company considering the fact that reserve and surplus of Grasim Industries Limited would have increased had Grasim Industries Limited Hold these assets first and then distributed the profit to shareholders.” Brief background of the case 4. Brief facts of the case shows that Assessee is a company, its shares are listed on recognized stock exchange in India. It is engaged in the business of manufacturing of viscose staple fiber, chemicals, textiles etc. 5. Corporate structure of the group shows as claimed by the assessee that Aditya Birla Nuvo Ltd is a company which is engaged in financial services business and it acquired financial services business of Birla global finance Ltd, a nonbanking finance company by amalgamation with effect from 1 September 2005. In the explanatory statement in relation to amalgamation of Indian rayon and industries Ltd which is letter known as Aditya Birla Nuvo limited and Birla global finance Ltd the reason behind amalgamation mentioned that Aditya Birla Nuvo Ltd Page | 10 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 and Birla global finance Ltd belonged to the same group and amalgamation would further overall objective of the group to consolidate financial service business within Aditya Birla Nuvo limited. Birla global finance Ltd was a nonbanking financial company engaged into the business of retail asset financing, capital market, corporate finance, investment and as financial intermediary. 6. Prior to merger Aditya Birla Nuvolimited [ABNL] hasa wholly owned subsidiary in the name of Aditya Birla financial services limited [ABFSL]. Aditya Birla financial services limited [ ABFSL] holds 90.23% equity shares in another company i.e. Aditya Birla finance limited [ ABFL] , further balance 9.77% in Aditya Birla finance limited is held by Aditya Birla Nuvo limited. 7. Board of directors of the assessee on 11 August 2016 approved a composite scheme of arrangement between the assessee [ Grasim Industries Limited / GIL] , Aditya Birla Nuvo limited (ABNL) and Aditya Birla financial services Ltd [ ABFSL] (which was later renamed as Aditya Birla capital limited (ABCL) for merger of ABNL with the assessee appellant company with effect from 1 July 2017 and subsequent demerger of ̳financial services business‘ of the assessee into Aditya Birla capital limited i.e. ABCL with effect from 4 July 2017. The above scheme of merger and later on demerger was approved by the National Company Law Tribunal [NCLT] vide order dated 1 June 2017. Thus the composite scheme of arrangement of merger and demerger was approved. 8. As per composite scheme of merger &demerger, as the first step of merger, with effect from 1 July 2017, Aditya Birla Nuvo Limited [ABNL] merged with Grasim Industries Limited. [GIL]. Grasim industries Limited [Assessee] [GIL] issued 19,04,62,665 equity shares of the assessee to the shareholders of the Aditya Birla Nuvo limited i.e. ABNL.Subsequently as the second step,with effect from 4 July 2017, Assessee demerged its ̳financial services businesses of the assessee to Aditya Birla capital limited i.e. ABCL. Therefore, Aditya Birla capital limited i.e. ABCL issued 92,02,66,951 equity shares to the shareholders Page | 11 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 of the assessee company. Thus, financial services business of assessee was transferred by the assessee. This business was stated to be carried on by the Aditya Birla Nuvo limited earlier for number of years. 9. As per the scheme of arrangement, the demerged undertaking has been defined ̳to mean the financial services business engaged in the activity of fund-based lending, making, holding and nurturing investment in financial services sector together with all its undertakings, assets, properties, investments and liabilities of whatsoever nature and kind, and wheresoever situated, of the demerged company, in relation to an pertaining to the financial services business.‖ 10. The assessee accordingly demerged the financial services business to Aditya Birla capital limited having the value of net assets of ₹ 1721.61 crores. Assessee also transferred all the assets, employees, officers pertaining to the financial services business along with the liabilities, employees‘ obligations, and litigations of that business to the Aditya Birla capital limited.In terms of the demerger scheme, Aditya Birla capital limited issued 92,02,66,951 equity shares to the shareholders of the assessee company. 11. Thus, the corporate structure existing i. Prior to 30 June 2017 it shows that Grasim industries limited is an independent company. Aditya Birla Nuvo limited has 100 % wholly owned subsidiary by the name of Aditya Birla financial services limited. ii. There is one more entity by the name of Aditya Birla finance limited whose 90.23% equity is held by Aditya Birla financial services limited and 9.77% of the equity is held by Aditya Birla Nuvo limited. iii. On 30 June 2017, Aditya Birla Nuvo limited, out of its 100 % holding of Aditya Birla financial services limited, offloaded 3.93% of its stake to one investor, i.e. PI opportunity fund. Therefore now, in Aditya Birla financial services limited, it holds 96.07% equity and PI opportunity fund holds 3.93% equity. Page | 12 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 iv. On 1/7/2017 amalgamation took place between Grasim industries limited and Aditya Birla Nuvo limited. Thus, Aditya Birla Nuvo limited merged with Grasim industries limited. Therefore now the merged entity owns 9.77% equity of Aditya Birla finance limited and 96.07% equity of Aditya Birla financial services limited (which were earlier held by Aditya Birla Nuvo limited). v. On 4/7/2017, demerger takes place whereby financial services business undertaking is transferred from the merged entity (Grasim industries limited+ Aditya Birla Nuvo limited)[ Demerged company] to Aditya Birla financial services limited [ Resulting company] where the net assets of Rs. 1721.68 crores are transferred. The above sum included the 9.77% equity shares held by merged entity (which was earlier held by Aditya Birla Nuvo limited prior to merger) in Aditya Birla finance limited over and above other assets and liabilities. vi. Thus the consequent change was that Aditya Birla finance limited became 100 % subsidiary of the Aditya Birla financial services limited[ResultingCompany] as it was already holding 90.23% on its own and further 9.77% was transferred to it as a part of undertaking. vii. Therefore now post demerger, 96.07% equity of Aditya Birla financial services limited was held by assessee (Grasim industries limited+ Aditya Birla Nuvo limited) and 3.93% of equity of that company was held by PI opportunity fund. Proceedings u/s 115O before LD Assessing officer 12. As the above scheme was in public domain, the learned AO issued notice on 30 January 2019 u/s 133 (6) of the act asking the assessee to submit the details with respect to the composite scheme of merger and demerger. The learned AO in the notice stated that the financial Page | 13 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 service business does not fulfill the requirement of an ̳undertaking‘ as per explanation – 1 to Section 2 (19 AA) of the act for the reason that assessee has merely transferred combination of some assets and liabilities to Aditya Birla capital limited and in consideration for such transfer, Aditya Birla capital limited issued its equity shares to the shareholders of the assessee company. 13. The AO was of the view that total assets transferred to Aditya Birla capital limited of ₹ 1876.38 crores, substantial part of it was represented by 9.77% of equity stake held by the assessee in Aditya Birla Finance Limited (ABFL). Accordingly learned AO was of the view that the demerger is not in compliance with Section 2 (19 AA) of the act and consequently the allotment of shares of ABC Ltd by ABC Ltd to the shareholders of the assessee company is deemed dividend paid by the assessee in terms of provisions of Section 2 (22) (a) of the act. This notice was replied by assessee on 5 February 2019. Subsequently a show cause notice was issued on 11 February 2019 asking as to why the provisions of Section 115O of the act should not be applied to the deemed dividend of ₹ 13,380.68 crores (being the value of 92,02,66,951 equity shares of ABC Ltd at the rate of ₹ 145.40 per share i.e. at this price another investor i.e. PI opportunity fund acquired the shares of ABC Ltd on 30 June 2017) paid by the assessee to the shareholders of the assessee and why the assessee should not be deemed to be a ―assessee in default‘ within the meaning of Section 115 Q of the act for non-payment of dividend distribution tax at the rate of 15% amounting to ₹ 2007.10 crores. Assessee requested for time, which was rejected and subsequently assessee was directed to file reply on or before 25 February 2019 which was replied by the assessee on the date. 14. Assessee submitted that demerger is tax neutral and is following the provisions of Section 2 (19AA) of the act. It was stated that i. Aditya Birla Nuvo limited was engaged in the financial services business merged into the assessee and Page | 14 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ii. Subsequently financial service business was demerged undertaking transferred from the merged entity of the assessee as well as ABNL to another company to Aditya Birla capital limited. iii. The scheme is approved by the shareholders of all the companies and the national company law tribunal. iv. Assessee also submitted that what is the financial services business undertaking which has been transferred giving the details of the assets and liabilities are embodied therein. v. It also stated that how Aditya Birla Nuvo limited came into the business of financial services since 2005 with the merger of another entity i.e., Birla global finance Ltd with Aditya Birla Nuvo limited. vi. It also submitted various minutes of the meetings, also contended that it is a going concern that has been transferred and vii. Therefore assessee transferred an undertaking which is tax compliant of Section 2 (19 AA) of the act. viii. In any event provisions of the deemed dividend cannot be applied as there is no release of any assets by the assessee to its shareholders as assessee has transferred its ―undertaking‖ to Aditya Birla capital limited and Aditya Birla capital limited has issued equity shares of Aditya Birla capital limited to the shareholders of the assessee company. ix. Therefore the provisions of deemed dividend as envisaged u/s 2 (22) (a) of the act does not trigger at all. x. there is no distribution by the assessee of its accumulated profit and xi. Even otherwise as per circular 5 – P dated 9 October 1967 clearly provides that issue of shares on business reorganization does not come within the ambit of deemed dividend u/s 2 (22) (a) of the act. xii. It also cited many judicial precedents on all the above issues. Page | 15 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 15. Subsequently, another show cause notice was issued on 1 March 2019 stating that i. Aditya Birla Nuvo limited in assessment year 2015 – 16 has stated while contesting disallowance u/s 14 A of the act that the investment in equity shares are purely long-term investment and not in the nature of business income, ii. annual report of Aditya Birla Nuvo limited shows that the shares in Aditya Birla financial services limited and Aditya Birla financial Ltd are shown as investment in subsidiary Under the head non-current investment and iii. conditions of undertaking as well as of going concern is not fulfilled and iv. accordingly the assessee is subject to dividend distribution tax as the allotment of 92,02,66,951 equity shares of ABC allotted to the shareholders of the assessee are the new shares and the value of the shares is to be taken at the fair market value of ₹ 261.20 per share (this was the price at which the shares were listed on 1/9/2017 on Bombay stock exchange) v. Accordingly the dividend of ₹ 24037,37,27,600 is deemed dividend chargeable to dividend distribution tax u/s 2 (22) (a) of the act. vi. The show cause notice was based on the annual accounts of the assessee, Aditya Birla Nuvo limited and other information available on the website of these companies and return of income as well as assessment proceedings in case of those companies. 16. This notice was further applied by assessee on 11 March 2019 mostly reiterating submissions already made. Assessee further stated that i. Aditya Birla Nuvo limited was carrying on financial services business from assessment year 2005 onwards and stated that the quantum of investment in that business grew from ₹ 364 crore to ₹ 5589 crore and therefore it cannot be stated that Aditya Birla Nuvo limited was not carrying on any financial services activity. Page | 16 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ii. Assessee relied on the management discussion and analysis for all those years wherein the financial services business of Aditya Birla Nuvo limited was discussed. iii. It was further stated that in the return of income only main 3 activities are required to be disclosed and as the main activity of the assessee was not the financial services it was not disclosed but in the tax audit report complete details were available. iv. It was also contested that the learned assessing officer in the earlier years assessment orders have categorically mentioned that financial services business is carried out as one of the businesses of the assessee. v. Assessee also refuted claim of the learned AO about the disallowance u/s 14 A as well as disclosure of the investment not as stock in trade but as capital investment stating that even the systematic and organized activity of holding investment can itself constitute e a business as held by the Honourable Supreme Court. vi. It also refuted that that activity carried on through or by the subsidiaries cannot be regarded as business activity of Aditya Birla Nuvo limited stating that Aditya Birla no limited is actively participating in the business of those companies through representatives on board of all such subsidiaries and vii. Further referred to the credit rating issued by ICRA and IRR which shows that assessee is involved in carrying on of the financial services business. viii. It also mentioned several other facts to support its view that other current assets transferred under the undertaking including the investment in mutual fund and liabilities including the deferred tax liability constitute an undertaking and it cannot be said that the assessee has picked and chosen the assets and liabilities without constituting an undertaking. Page | 17 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ix. By this communication the assessee also strongly objected the approach of the AO stating that it tantamount to rewriting the scheme which is approved by NCLT and same is not permissible. Reasons in Order of the ld. AO passed u/s 115O RWS 115 Q of The Act dated 17. The learned AO after examination of details submitted by the assessee rejected the contentions of the assessee and passed an order on 14 March 2019 u/s 115Q read with Section 115O of the act determining the deemed distribution of dividend u/s 2 (22) (a) of the act amounting to rupees 24037,37,18,198 being the value of 92,02,66,915 shares at the rate of ₹ 261.20 per share determining the dividend distribution tax payable of ₹ 48,934,440,243 and interest thereon amounting to ₹ 9,786,888,044 4 the financial year 2017 – 18. The main reasons for which the assessee was held to be an assessee in default by the learned AO are: - i. the following are the assets and liabilities of the transferred Financial services business : - particulars Rs. in crores Assets Tangible assets 16.67 Non-current investment (a minority stake in Aditya Birla finance Ltd, a subsidiary) 1728.93 Current investments 117.13 Loans and advances 13.43 Other current assets 0.21 Total assets (A) 1876.37 Liabilities Deferred tax liability 103.26 Page | 18 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Short term borrowings 51.27 Employee liability 0.22 Total liability (B) 154.75 Net assets acquired © = (A)-(B) 1721.62 Consideration paid by issue of 92,02,66,951 equity shares of face value of ₹ 10/– each by Aditya Birla capital limited to the shareholders of Grasim industries limited (D) 920.27 Capital reserve recognized by the company (E) = (c) –(D) 801.35 ii. The financial service business which is demerged by the assessee to Aditya Birla capital limited does not constitute an ̳undertaking‘ as defined in explanation 1 to Section 2 (19 AA) of the act for the reason that Aditya Birla Nuvo limited was not carrying on business in the nature of financial services on itsown inferred from the annual accounts and income tax returns for the reason that:- a. Aditya Birla Nuvo limited source of income in the profit and loss account are Under various heads other than financial services b. Aditya Birla Nuvo limited shows interest income from lending Under the head income from other sources c. the primary source of income is shown as sale of products/sale of services d. the Aditya Birla Nuvo limited has shown all the activities in the subsidiary financial accounts and therefore the argument that standalone financial of Aditya Birla Nuvo limited has shown separate segment for financial service business is incorrect Page | 19 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 e. the interest income is shown as other income f. the loans and advances are non-current assets therefore they are not lent as a normal business activity g. assessee has not shown income from financial activities in profit and loss account for earlier financial years h. in return nature of business of financial services are not disclosed iii. out of the total assets transferred of ₹ 1876.37 crores, ₹ 1728.93 crores are only equity shares of Aditya Birla finance limited which is a subsidiary company of Aditya Birla capital limited, thus the assets and liability transferred from the assessee mainly and substantially constituted equity shares which is not capable of being run as a financial service business on its own as a going concern business. iv. The reason for doing merger and consequent demerger is the enrichment of shareholders of the appellant by long drawn route. v. It is merely a case of transfer of few assets and liabilities and therefore it is not a transfer of an ̳undertaking‘ which is capable of being run as ̳financial businesses on its own and an independent manner vi. the argument of the assessee is rejected that learned AO is rewriting the scheme approved by the NCLT, it was held that the AO is merely applying the provisions of the law to the return of income filed by the assessee vii. justifying the applicability of provisions of Section 2 (22) (a) of the act stating that there is a release of the assets by the assessee to Aditya Birla capital limited and in turn Aditya Birla capital limited issued the shares to the shareholders of the assessee company in the guise of demerger by allotment of 92.02 crores equity shares having the fair market value of 24,037.37 crores. Therefore there is a transfer of assets by the assessee company to its shareholders through Aditya Birla Page | 20 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 capital limited and therefore the transaction falls into the category of deemed dividend u/s 2 (22) (a) of the act. viii. For the purpose of deriving at the amount of deemed dividend, the learned assessing officer noted that the shares of Aditya Birla capital limited were listed on stock exchange on 1 September 2017, which derived the market value i.e. the fair market value of the shares through exchange on that date. As there is no other evidences were available to derive at the fair market value of those shares, the listed price of ₹ 261.20 per share was adopted to derive at the value of Rs 24,037.37 of the deemed dividend. 18. In the assessment order it was mentioned by the learned assessing officer that if the assessee is aggrieved with the order it can file an application u/s 264 before the principal Commissioner of income tax, Central – 1, Mumbai. Thus the only remedy available with the assessee was to approach the respective authority u/s 264 of the act. Apparently no appeal is provided under the law u/s 246A of the act before the learned CIT – A. Writ petition before Honourable Bombay high court by Assessee in and consequent orderdated 14 August 2019 19. Peculiar facts of the case shows that the learned AO directed the assessee to deposit the tax demanded approximately of ₹ 5872.13 crores forthwith i.e. not allowing even 30 days‘ time for payment of taxes, remedy of stay etc. Assessee approached the Honourable Bombay High Court by way of a writ petition number 945 of 2019 wherein assessee contended that there is no efficacious alternative remedy of statutory appeal available Under the act against the order passed by the learned AO hence assessee invoked extraordinary jurisdiction of the Honourable High Court challenging the impugned Page | 21 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 demand along with the order. The learned additional Solicitor general referred to the affidavit in reply wherein it was stated that appellate remedy u/s 246A of the act to the Commissioner (Appeals) against the impugned order would be available to the petitioner. Therefore Honourable High Court vide order dated 14 August 2019 as per paragraph number 4 directed the assessee to file an appeal to the Commissioner of income tax (Appeals) within a period of 3 weeks from the date of the order. It was also held that in case the CIT (A) holds that the appeal from the impugned order dated 14 March 2019 passed u/s 115O of the act is available and the appeal is filed is maintainable then the impugned petition before the Honourable High Court would be withdrawn. This was the effective alternative remedy shown to the assessee. 20. It is apparent that, no appeal lies before the learned CIT – A u/s 246A of the act against the impugned order but by the direction of the Honourable High Court. Therefore appeal was filed by the assessee before the learned CIT – A – 47, Mumbai on 30 August 2019 challenging the impugned order. Reasons in Appellate Order Passed by the LD CIT (A) 21. The learned CIT – A perused written submissions made by the assessee, obtained the remand report of the learned assessing officer, rejoinder of the assessee on 21/2/2020 decided the issue holding that: - i. so far as the affairs of assessee are concerned, it did not have a standalone financial business unit and whatever of it‘s in the form of shares of Aditya Birla finance limited which have been transferred to Aditya Birla capital limited could not qualify to be an undertaking, capable of being run independently as a business unit as envisaged u/s 2 (19 AA) of the act. ii. Assets and liabilities transferred by the assessee could not constitute an independently running business and further the businesses of subsidiary companies of Aditya Birla financial Page | 22 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 services limited and not of the appellant company and therefore there is just no question of own independent business of financial services of Assessee. iii. Merely some assets in the nature of shares of Aditya Birla financial services limited to the tune of ₹ 1721.62 crores along with some minor other assets are transferred along with a very few liabilities which shows that it is not capable of being run as an independent business of financial services on a going concern basis and therefore do not qualify to be an undertaking as envisaged u/s 2 (19 AA) of the act. iv. In fact, the scheme itself is like transfer of some shares held by the Grasim industries limited to Aditya Birla capital limited which may result in to capital gains. Thus whatever the assessee has transferred is nothing but a few shares but not an independent undertaking and the same does not qualify to be a demerger as per the income tax act v. no business activities in the nature of financial services was being carried out either in Aditya Birla Nuvo limited or Grasim industries limited vi. Mere examination of tax implication of a particular scheme does not amount to rewriting the scheme approved by the national company law tribunal and therefore the argument of the assessee was rejected that learned AO has rewritten the scheme approved by NCLT. vii. The distribution of accumulated profits not necessarily in the form of cash, could also be in kind chargeable to tax u/s 2 (22) (a) of the act viii. if and only if the arrangement could be termed as a demerger u/s 2 (19 AA) of the act then only the appellant would be entitled to exemption from application of provisions of Section 2 (22) (a) of the act. Assessee fails to prove so and therefore deemed dividend is chargeable to tax. Page | 23 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ix. The deeming provisions of Section 2 (22) (a) of the act has not been applied by the learned assessing officer only based onassumption or presumption or suspicion but is on the basis of hard facts and the position of law. x. Transfer of shares of Aditya Birla finance limited to Aditya Birla capital limited and subsequent allotment of shares by Aditya Birla capital limited to the shareholders of the Grasim industries limited both together is nothing but release of assets to the shareholders, therefore, merely because the physical payment has not been made by the appellant company, it cannot be said that there was no distribution made by the company to the shareholders. xi. Circular 5P dated 5/10/1967 is applicable in case of amalgamation only and not issues arising out of demerger. xii. The accumulated profits as on 31/3/2017 was only ₹ 16,138 crores being accumulated profits of general reserve of Grasim industries limited on standalone basis and not ₹ 31,293 crores as taken by the AO of consolidated general reserve after adding the reserve of subsidiaries, therefore, the profit can be distributed only to the extent of ₹ 16,138 crores, contention of the assessee was accepted xiii. with respect to the valuation of equity shares of Aditya Birla capital limited taken by the learned assessing officer at ₹ 261.20 per share on the basis of listing of Aditya Birla capital limited shares at Bombay stock exchange on 1/9/2017, the learned CIT – A rejected the report Under rule 11 UA of the income tax rules produced by the assessee deriving the value of each share at ₹ 39.51 per share, and also rejected the valuation by the assessing officer, he took valuation of shares allotted to PI opportunity fund by the assessee on 30/6/2017 on private placement basis which was invested on the basis of valuation report dated 29/6/2017 at ₹ 145.40 per share. Page | 24 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 xiv. Rejected the argument of the assessee made by letter dated 25/8/2020 that liability of dividend distribution tax payable in respect of foreign shareholders is required to be computed on the basis of the provisions of Double Taxation Avoidance Agreements with respective countries holding that dividend distribution tax liability is only a function of dividend declared and it has nothing to do with the tax residency of the shareholders as it is a primarily the liability of the company and in the hands of residents the dividend income is exempted from tax. Accordingly, the learned CIT – A held that the theory of merger and demerger of the assessee group has failed to pass the test of Section 2 (19 AA) of the act and consequently rejection of the claim of the assessee of transferof financial services undertaking was upheld. Accordingly, the action of the learned assessing officer holding the deemed dividend u/s 2 (22) (a) of the act was upheld. To the extent of computation, the price adopted by the learned assessing officer of ₹ 261.20 per share was rejected and ₹ 145.40 per share was adopted. The appellate order was passed on 24/9/2020. Assessee as well as the learned AO both are aggrieved with appellate order and are in appeal before us. History of earlier hearing of the appeals of the parties before ITAT 22. It is necessary to mention here that these appeals have been heard by different benches on earlier two occasions, but orders could not be passed . Thereafter, from 16 March 2022 onwards, before this bench extensive hearings took place on almost 15 dates and finally concluded on 5/09/2022. 23. Due to the above circumstances, both the parties have put extensive written submissions and filed comprehensive paper books before the earlier benches. Before us, except some material which emerged because of the changes in the subsequent assessment proceedings of Page | 25 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the assessee or arising out of the questions raised by the bench, where the parties filed new submissions, they read out, relied upon, and reconfirmed their original submissions made. Because of this, these submissions are referred herein after are pertaining to dates not falling into the hearing scheduled before this bench. We have considered them completely in disposing of these appeals. Submissionson behalf of assessee 24. Coming to the appeal of the assessee, the learned senior advocate during the course of hearing placed on record 3 written submissions. In submission no 2 and 3 all the issues are covered. However submission no 1 dated 19-4-2021 is referred but not reproduced here. 25. The 2 nd submission made by the learned senior advocate was as Under: Pursuant to conclusion of the hearing on April 21, 2021 on the primary issue of existence of the undertaking for the purpose of demerger, as desired by the Hon‟ble Bench herein below are the synopsis of arguments in two parts – „PART A – Submissions on issues argued during the course of the hearing‟ and „PART B – Submissions on balance issues yet to be argued‟: PART A – Submissions on issues argued during the course of the hearing 1. The Appellant is a widely held public listed company and its shares are listed on recognized stock exchanges. On August 11, 2016, the Board of Directors of the Appellant approved a „composite scheme of arrangement‟ („the scheme‟) between the Appellant („GIL‟), Aditya Birla Nuvo Limited („ABNL‟) (also a widely held public listed company) and Aditya Birla Capital Limited („ABCL‟) [which was earlier known as Aditya Birla Financial Services Limited („ABFSL‟)] and their respective shareholders and creditors under section 391 to 394 of the Companies Act, 1956 and other applicable provisions of the Companies Act, 1956 and the Companies Act, 2013 for merger of ABNL with the Appellant and subsequent demerger of the „Financial Services Business‟ („FSB‟)by the Appellant into ABCL. (Scheme is at Pg. No. 25 – 68 Vol I Factual Paper Book (“FPB”). Page | 26 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 2. The Hon‟ble National Company Law Tribunal („NCLT‟), Ahmedabad Bench, vide its order dated 1 st June 2017 approved the said composite scheme of arrangement (Pg. No. 7 – 24 Vol I FPB). As per the said scheme, the merger was effective from 1 st July 2017 and the demerger of „FSB‟ into ABCL was effective from 4 th July 2017. 3. Background facts on evolution of FSB:  Birla Global Finance Ltd. – the first venture of the ABG in the year 1991 Birla Growth Fund Limited, a NBFC registered with RBI, entered financial services business in 1991, when liberalization started in India. In year 1994, it was renamed as Birla Global Finance Limited (“BGFL”).  Entry of ABNL in FSB in the year 2000 In 2000, insurance sector was opened for private sector. ABNL along with BGFL, in collaboration with Sun Life of Canada, executed a joint venture agreement on 21.09.2000 to enter life insurance business. On 26.12.2000, IRDA granted registration under the Insurance Act to Birla Sun Life Insurance Company Limited, jointly promoted by ABNL, BGFL and Sun Life of Canada.  Consolidation of Financial Services Business (“FSB”) in ABNL in 2005 Looking at the larger opportunities in financial services sector and limited capacity of BGFL to raise funds, BGFL merged with ABNL w.e.f. 1 st September 2005. With this merger, ABNL became full-fledged financial services company engaged in retail asset finance, corporate finance, capital market, investment, life insurance, asset financing, asset management, insurance distribution, general insurance broking and other ancillary businesses. ABNL carried out financial services business directly as a separate Division / business activity as well as through subsidiaries and JVs.  Growth of the Financial Services Division of ABNL FSB of ABNL, was engaged in the activity of fund-based lending, making, holding and nurturing investments in the financial services sector i.e. FSB of ABNL consisted of direct business of financial service as well as holding and nurturing investments in companies carrying on financial service Page | 27 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 business. Under patronage of ABNL, the financial services business attained significant growth. ABNL‟s strong financial strength, reputation and credit rating, provided capital and support to the financial services business to raise further capital from market. ABNL was also actively involved in the decision making, drawing up strategies, preparing operating plans, preparing risk reward matrix, performing risk management function, periodic performance review, fund raising and treasury function of these subsidiaries/JVs, which were engaged in the financial services business. ABNL‟s investment in financial services business grew from Rs.341.90 crores (before acquiring BGFL in 2005) to Rs. 5,588.88 crore (before merging with the Appellant) which simply reflects the extent to which ABNL participated in the FS business. Following chart depicts the picture aptly, ABNL under its umbrella, through itself, its Subsidiaries, JVs, and Sub-Subsidiaries, had the FSB. The FSB of ABNL was an undertaking and independent business activity and would in any case, tantamount to part of an Undertaking which can function independently as a going concern, if not the entire Undertaking. This establishes that the Appellant is carrying out organized and systematic activity of business. 4. Treatment in Tax Records  Recognition in the Assessment Orders In the assessment orders of ABNL for various assessment years, the AO has clearly mentioned „financial services business‟ as one of the businesses of ABNL. [Pg. 248 – 272 Vol I FPB, @ page 250 mentioned in list of main items (AY 341.90 590.46 1066.68 1,887.93 2,473.22 1,924.14 1,924.14 1,924.14 2,468.25 2,868.24 5,173.49 5,589.48 5,588.88 TOTA L I N V E S T M E N T ( I N C R . ) Page | 28 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 06-07), @ page 254 (07-08), @ page 257 (08-09) and page 261 (09-10) of FPB - Vol. I].  Interest income always taxed under the head “Profits and Gains of business or profession”: Interest income earned on inter corporate deposits given by the Appellant has all along been offered for tax by the Appellant under the head “Profits and gains of business or profession” and the same has always been taxed by the Department under the head “Profits and gains of business or profession”. (Extract of return and assessment order for AY 13-14 and AY 15-16 on Pg. 1312 to 1330 of FPB 2.)  Disclosure in Tax Audit Reports In the tax audit report (Form 3CD), column 10(a) requires disclosure of „nature of business or profession‟ carried out by the assessee. The Tax Auditor, being independent expert, has specifically stated „Financial Services Sector‟ as one of the businesses every year. Please refer tax audit of ABNL for last five years i.e. AY 2013-14 to AY 2017-18 [Pg. No. 600-615, @ 601 (AY 13-14), @ 605 (AY 14-15), @ 609 (AY 15-16), @ 612 (AY 16-17) and @ 615 (AY 17-18 of FPB, Vol. II)]. Details of Merger of ABNL with the Appellant and subsequent demerger of FSB by the Appellant to ABCL: 5. As stated above, ABNL merged with the Appellant. Thereafter, the FSB business, which was earlier carried out by ABNL, upon merger came to the Appellant and through the same Scheme was demerged to ABCL. The relevant clauses of the Scheme of arrangement are as under: 5.1. The relevant extract of the Preamble of the Scheme (Pg. No. 26 of Vol I FPB)is as under: “(a) Amalgamation of Aditya Birla Nuvo Limited pursuant to the provisions of Sections 391 to 394 Companies at, 1956 and other applicable provisions of the Companies Act, 1956 and/or the Companies act, 2013 to the extent notified in applicable; and Page | 29 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 (b) subject to satisfactory fulfilment of (i) above i.e., upon amalgamation of Aditya Birla Nuvo Limited with Grasim industries Limited becoming effective, demerger of the financial services business of Grasim industries Ltd, the Demerged Undertaking (as defined hereinafter), and transfer of the same Aditya Birla Financial Services Limited pursuant to the provisions of Section 391 to 394 of the Companies Act, 1956 add other applicable provisions of the Companies Act, 1956 and/or the Companies Act, 2013 to the extent notified applicable.” (Emphasis supplied) 5.2 Clause 1.1 (Pg. No. 29 – 30 Vol I FPB) of Part I, defines “Demerged Undertaking”,inter alia, as under: “Demerger Undertaking” shall mean the financial services business engaged in the activity of finder based on lending, making, holding and nurturing investments in financial services sector together with all its undertakings, assets, properties, investments, and liabilities of whatsoever nature and kind, and where server situated, of the demerged undertaking, in relation to hand pertaining to the financial services business, as the effective date as defined hereinafter and shall include without limitation:...” From the above, it is evident that the Scheme is based on the fundamental aspect that there is a Financial Service Undertaking which is demerged by the Appellant to ABCL. 5.3 Clause B(Pg. No. 26 - 27 of Vol I FPB), inter alia, provides description of the Transferor Company and Demerged Company and the relevant business carried out by them including FSB carried out by ABNL, relevant extract is reproduced herewith for ready reference: “Aditya BirlaNuvoLimited is a public company, limited by shares, incorporated under the provisions of the Companies Act, 1956, under Corporate Identity No.L17199GJ1956GPLC0011 07, and having its registered office at Indian Rayon Compound, Veraval, Gujarat - 362266 [“Transferor Company”]. Transfer Company is a diversified conglomerate with various business interests including manufacturing of fertilizers, viscose, filament yarn, chemicals, insulators, textiles, etc., financial services and telecom. The equity shares of the transferor company are listed on BSE Limited add the National Stock Exchange of India Limited. The financial service business is a division of the Transferor Company which is engaged Page | 30 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 in the activity of fund based lending, making, holding and nurturing investments in financial service sector [“financial service business”]. Aditya Birla Financial Services Limited is a public company, limited by shares, incorporated under the provisions of the Companies Act, 1956, under Corporate Identity No. U67120GJ2007 PLC058890 and having its registered office at Indian Rayon Compound, Veraval, Gujarat -362266 [“Resulting Company”]. The Resulting Company is a systematically important non-deposit taking core investment company registered with the Reserve Bank of India and has business interests including that of non-banking financial institution, housing finance, asset management, brokerage, wealth advisory and health insurance. The entire share capital of the resulting company is directly and indirectly held by the Transferor Company.” (Emphasis supplied) 5.4 Clause C of the Scheme (Pg. No. 27 of Vol I FPB) explains the Rationale behind the Arrangement. The same is reproduced hereunder: “(a) the proposed restructuring will create a large and well diversified company, having a portfolio of leading manufacturing and services businesses within the society cash flows and long-term growth opportunities. (b) The Demerged Company will be participating in high growth financial services business and tap opportunities available in low penetrated market with support from its strong balance sheet. (c) the proposed demerger of the financial services business to the Resulting Company will unlock for the shareholders, attract investors, and provide greater flexibility in accessing capital. (d) it is believed that the scheme will create enhance the value for shareholders and allow a focused strategy which will be in the best interest of all the stakeholders the restructuring proposed by the scheme will also provide flexibility to the investors to select investments which best suit their investment strategies and risk profile.” (Emphasis supplied) 5.5 Clause F (Pg. No. 28 of Vol I FPB) of Scheme states that provisions of section 2(1B) and section 2(19AA) of the Act are satisfied. The same is reproduced here with for ready reference: Page | 31 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 “F. The arrangement under this Scheme will be effected under the provisions of section 391 to 394 of the Companies Act, 1956 and other applicable provisions of the Companies Act, 1956 and / or the Companies Act, 2013 (to the extent notified and applicable). The amalgamation of the Transferor Company with the Transferee Company / Demerger Company and demerger o the Demerged Undertaking shall be in compliance with the provisions of Section 2(1B) and Section 2(19AA) of the Income-tax Act, 1961, respectively. 5.6 Clause 15 of Part III (Pg. No. 51 – 56 of Vol I FPB) deals with transfer of assets and liabilities of the Demerged Undertaking and provides that the same is done in accordance with the provisions of section 2(19AA) of the Act as well as the fact that the transfer of the undertaking is on a „going concern‟ basis. The relevant extract is as under: “15.1.Subject to implementation of Part II of this Scheme and with effect from the Effective Date 2, and subject to the provisions of this Scheme in relation to the mode of transfer and vesting of the Demerged Undertaking shall, without any further act, instrument or deed, be and stand transferred to and vested in, and / or be deemed to have been and stand transferred to and vested in the Resulting Company on going concern, basis, so as to become on and from the Effective Date 2, the estate, assets, rights, title, Interest and authorities of the Resulting Company, pursuant to Section 394(2) of the Act and all other applicable provisions, if any, of the Act and in accordance with the provisions of Section 2(19AA) of the Income tax Act, 1961.” 15.2 Without prejudice to the generality of clause 15.1 above, on and from the Effective Date 2: 15.2.1 The Demerged Undertaking including all its assets, properties, Investments, shareholding interest in other companies, claims, title, interest, assets of whatsoever nature such as licenses and all other rights, title, interest, contracts or powers of every kind, nature and description of whatsoever nature and wheresoever situated shall, pursuant to the provisions of section 394 and other applicable provisions, if any, of the Act, and pursuant to the order of the High Court sanctioning this scheme and without further act or deed or instrument, but subject to the charges affecting the same as on Page | 32 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the Effective Date 2, be and stand transferred to and vested in the Resulting Company as a going concern.” (Emphasis supplied) 5.7 Clause16 &17 of Part III of the Scheme deals with Transfer of permits and licenses and Employees, respectively under the Scheme (Pg. No. 56 – 58 of Vol I FPB) and Clause 19 of Part III – Transfer of Litigation Proceedings (Pg. No. 59 of Vol I FPB), 5.8 Clause20.1 of Part III of the Scheme provides for Consideration for Vesting of Demerged Undertaking (Pg. No. 59 of Vol I of FPB). The said Clause provides that under the Scheme no consideration was payable to the Demerged Company(the Appellant). The relevant extract is produced as under: “Upon the effectiveness of Part III of this Scheme and in consideration of the transfer and vesting of the Demerged Undertaking into the Resulting Company pursuant to provisions of this Scheme, the Resulting Company shall, without any further act or deed, issue and allot to each Shareholder of the Demerged Company, whose name is recorded in the register of members and records of the depository as members of the Demerged Company, on the Record Date 2, 7(seven) equity shares of Rs. 10(Indian Rupees Ten) each of Resulting Company credited as fully paid up for every 5(five) equity shares of Rs. 2(Indian Rupees Two) each held by such shareholders in the Demerged Company (“Resulting Company New Equity Shares”). The ratio in which equity shares of the Resulting Company are to be issued and allotted to the shareholders of the Demerged Company is referred to as the “Share Entitlement Ration (Demerger)”. It is clarified that no cash consideration shall be paid by the Resulting Company to the Demerged Company or its shareholders.” (Emphasis supplied) It is evident from the above extract that under the Scheme no consideration was due to the Appellant, only the Shareholders were entitled to receive the shares of the Resulting Company directly from the Resulting Company. 5.9 An Intimation/ Letter dated March 3, 2017 was sent to the Ld. AO, intimating about the scheme of arrangement and calling for objections, if any, as mandated by Section 230(5) of the Companies Act, 2013 (Page No. 292 to 294 of Vol I FPB). Page | 33 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 6. The Revenue did not file any objection to the said scheme of arrangement. 7. Pursuant to above, the Hon‟ble NCLT vide order dated June 1, 2017, approved the Scheme (Pg. No. 7 – 24 Vol I FPB). The Scheme was sanctioned with following observation at Paragraph 36 (Pg. No. 23 of Vol I FPB): “Considering the entire facts and circumstances of the case and on perusal of the Scheme and the proceedings, it appears that the requirements of the provisions of sections 230-232 of the Companies Act, 2013 are satisfied. The Scheme is genuine and bona fide and in the interest of the shareholders and creditors. I, therefore, accordingly allow the Company Petitions and approve the Scheme. The Scheme, which is at “Annexure J” to the respective Company Petitions, is hereby sanctioned and it is declared that the same shall be binding on Aditya Birla Nuvo Limited and Grasim Industries Limited and Aditya Birla Financial Services Limited and their respective shareholders, creditors and all persons concerned under the Scheme......” (Emphasis supplied) The Scheme has become final, as the same has not been challenged further and binding on all the parties, including the Revenue. 8. At the outset, the Appellant submits that the allegation of the Ld. AO as affirmed by CIT(A) as well as the contention of the Revenue during the course of hearing also before the Hon‟ble Tribunal that there was no FSB Business in the first place in ABNL, is nothing but attempt to destroy the very edifice of the Scheme (that there exists an FSB Undertaking) and, therefore, amounts to rewriting a Court approved Scheme, which is not permissible. As aforestated, the scheme proceeds on the basis that FSB being an undertaking has been demerged by the Appellant to ABCL on a going concern basis. The allegations / findings of the AO / CIT(A) and submission of the Revenue before the Hon‟ble Tribunal that (i) no FSB undertaking exists; (ii) there was no transfer of business activity on a going concern basis; and (iii) the entire scheme is a colorable device to merely transfer shares of ABFL is clearly contrary to the entire substratum of the scheme as approved by NCLT. Page | 34 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Ground No. 2 & 3 of Assessee‟s Appeal: FSB was an undertaking Allegations of the AO in the impugned Order: The conclusion of the Ld. AO that there existed no FSB Undertaking in ABNL and, therefore, conditions of section 2(19AA) of the Act are not satisfied, is based on the following four allegations: Disclosure in Annual Reports and Return of Income 9. In the Profit and Loss Account and notes thereto, ABNL‟s source of income are under various heads other than “financial services” (Para 13.1(ii), Pg. 42 of AO Order and Para 13.2 Pg. 43 – 44 of AO Order). [dealt with in Para 53 – 54 below]. 10. Interest income from lending to its Associates and Subsidiaries, has been shown under the head “Income from Other Sources.” (Para 13.1(iii), Pg. 42 of AO Order). [Factually incorrect please refer Para 49 – 50 below]. In Profit and Loss A/c in Return of Income, interest (in case of Financial Company) is shown at NIL. Interest income is disclosed in Other income (interest income in case of a company other than a finance company) (Para 13.1(v), (vi) and (vii), Pg. 42 of AO Order)[dealt with in para 53 – 54 below] No Financial Service Business existed in either of the Companies: 11. ABNL never carried on business on a standalone basis, it was only investments in closely held Companies, which companies were carrying on such business (Para 10.1(ii), Pg. 34 of AO Order) [Factually incorrect please refer Para 41, 43-44, 48-50 below].In earlier assessments, gain arising on sale of these shares are offered as Long-term Capital Gains. Engagement of Other entities viz. Subsidiaries, Joint Ventures, Associates, etc. in FSB, will not make ABNL as being engaged in FSB as these companies are distinct and have distinct business activities independent of ABNL. (Para 10.1(ii), Pg. 34 - 35 of AO Order and Para 17.1, Pg. 63 of AO Order). 12. Investment in Subsidiaries are shown under the head “non-current investments”. This itself establishes that it is a long term investment and not Business Activity of the Assessee(Para 10.1(ii), 35 of AO Order). In the Balance Sheet of the Appellant acquisition of shares are shown as Investments, which shows that the intention was not in the nature of adventure or resale (Para 10.1(iii), Pg. 37 of AO Order). Page | 35 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 13. Based on findings in Annual Reports, Returns of Income and Assessment Records, it has been established beyond any iota of doubt that there was no Undertaking carrying on the business of „financial services‟ leave alone as a „Going Concern‟ which are absolutely cardinal for the purpose of holding/terming the transfer as „Demerger‟ (Para 16.4, Pg. 60 of AO Order). 14. “Since no undertaking carrying out the business of “Financial Services” existed in the demerger company (as no such business of “financial service” was being carried out by either of the Companies), it can be said with certainty that no property attributable to such business undertaking could have been transferred as the property of resulting company.” Hence, requirement of clause I to sub section 2(19AA) of the Act is not satisfied. (Para 16.1, Pg. 58 of AO Order) Not capable of being run independently on a Going Concern Basis: 15. Hiving off FSB is basically a transaction for transfer of valuable shares of ABFL and doesn‟t constitute an independent business activity (Para 14, Pg. 51-53 of AO Order). Out of total assets worth of Rs. 1876 crore, Rs.1728 crore related to Equity shares of Aditya Birla Finance Limited (ABFL), which is subsidiary Co of ABCL. Therefore, assets and liabilities substantially consisted of Equity shares of ABFL only and such transfer of asset is not capable of being run as FSB on Going Concern basis (Para 14.1, Pg. 51 and 17.2 to 17.3, Pg. 63 - 64 of AO Order) [Factually incorrect please refer Para 43 – 44 below]. The Scheme itself is a colorable device: 16. “Since the business of „financial services‟ did not exist in either of the Companies that amalgamated, the transfer of few assets and liability, purported to be indicating the business of „financial services‟ can at best be termed as a mere transfer of assets and liabilities, chose „randomly‟ or cherry picked to give it a colour of „Demerger‟.” Conclusion, reached by the Ld. AO in Paragraph 16.6. Pg. 62 of AO Order. 17. The “so called” FSB of ABNL was hived off through the route of simultaneous merger and then demerger with GIL only for the purpose of enrichment of the shareholders of GIL.(Para 14.4 and 14.8, Pg. 52-53 of AO Order).The purpose of the Scheme is “to resort to a circuitous route as described in the Scheme is solely to enrich the shareholders of M/s Grasim Industries Ltd. by first taking over the shares of M/s ABFL through merger with M/s Aditya Birla Page | 36 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Nuvo Limited and then transferring those shares of ABFL to “M/s Aditya Birla Financial Services Limited” through the so called demerger.”(Para 14.8, Pg. 53 of AO Order).The real arrangement was merely to transfer the minority stake of shares of ABFL, by ABNL to its subsidiary ABCL and to realise potential market value by way of transfer of listed shares of ABCL to shareholders of GIL. (Para 17.5, Pg. 65 of AO Order) [Factually incorrect please refer Para 5 above and 72 – 74 below] 18. “This clandestine arrangement to denude the legitimate income that arises on such transfer and resultant tax thereon, is clearly prescribed by the Apex Court Judgment in the case of McDowell& Co. Limited vs. CTO [(1985) 154 ITR 0148), that,....” Conclusion, reached by the Ld. AO in Paragraph 19, Pg. 77 of AO Order. 19. From the impugned order, the Appellant submits that it is not entirely clear as to what is the stand of the AO, whether only shares of ABFL were transferred or that because the shares of ABFL were transferred along with the other assets / liabilities (which undoubtedly comprised on their own an undertaking), FSB became a non- undertaking. In either case, it is submitted that the stand of the AO is not sustainable in law. Allegations of the CIT(A) in its Order: Disclosure in Annual Reports and Return of Income 20. It is not apparent that Appellant was engaged in FSB on its own and it is also clear that interest income has been shown by it only under the head “other income” (Para 17.7, Pg. 155 of CIT(A) Order). 21. After analysis of Annual Reports, the CIT(A) concluded that it is clear that in its own Accounts, the Appellant was not showing any income from Financial Services under the head business. Interest income was shown under the head „other sources‟ (Para 17. 9 – 17.10, Pg. 156 – 159 and Para 17.11, Pg. 161 – 163 of CIT(A) Order). 22. After analysis of the ITR in Para 17.10 / Pg. 159 - 161 and Para 17.11, Pg. 163 – 164 of CIT(A) Order, the CIT(A) held that as income by way of interest in the case of finance Company is shown as NIL, no separate FSB business of the Appellant was in existence.(Para 17.12 / Pg. 164 of CIT(A) Order) [dealt with in Para 53 – 54 below] Page | 37 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 There existed no Financial Service Business in either of the Companies: 23. ABNL was in fact engaged in the business of manufacturing of Viscose Staple Fiber, Chemicals and Textiles etc., as is clear from Appellant‟s submission. It was never engaged in the FSB. (Para 17.1, Pg. 150 of CIT(A) Order) [Factually incorrect please refer Para 41, 43-44, 48-50 below].Only subsidiaries of the ABNL were engaged in some financial activities. (Para 17.1, Pg. 150 of CIT(A) Order). 24. In the impugned order of the CIT(A), it has been held / claimed that FSB of the Appellant was hived off by way of this demerger, when actually no such independent unit or business ever existed. It is clear that no business of FS either being conducted or ever existed in the hands of the Appellant. Therefore, no question of either de-merger or merger of such undertaking as a going concern (Para 17.2, Pg. 151 of CIT(A) Order) [Factually incorrect please refer Para 41, 43-44, 48- 50 below and also 68 – 77 below] 25. Investments made by the Appellant were in group concern. Investments were capital in nature and not current assets indicating it was not the closing stock of business (Para 17.6, Pg. 154 – 155 of CIT(A) Order) Not capable of being run Independently on a Going Concern Basis: 26. Only investment in shares of a sister concern namely ABFL of Rs. 1728.93 crore, some current investments of Rs. 117.13 crore and a few tangible assets, valued at Rs. 167.67 crore were transferred. On the contrary liability transferred are even smaller and are in the nature of deferred tax liability of Rs. 103.26 crore and short-term borrowings of Rs. 51.27 crore. The CIT(A) concluded that “A cursory look on these assets and liabilities would convey that these assets and liabilities could not constitute an independently running business and it could not qualify to be an undertaking as defined u/s 2(19AA) of the I.T. Act. In fact, explanation to section 2(19AA) clearly lays down that a mere transfer of some assets will not constitute a demerger, which actually seems to be happening in the present case. “Therefore, it only had few assets in the form of shares of ABFL, which have been transferred to ABCL, and the same could not qualify as an undertaking capable of running independent business. (Para 17.2, Pg. 151 of CIT(A) Order)[Factually incorrect please refer Para 41, 43-44, 48-50 below and also 68 – 77 below]. Page | 38 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 27. Merely some assets in the nature of shares of ABFL, along with some minor other assets were transferred, as against a unit, along with a very few liabilities and the balance amount was taken to reserve (Para 17.4, Pg. 152 of CIT(A) Order)[Factually incorrect please refer Para 43 below]. The Scheme itself is a colourable device: 28. It is more like transfer of shares held by Appellant to ABCL, which would result in capital gains. The CIT(A) observed that “real arrangement looks like transfer of minority stake in ABFL, held by ABNL, to unlock the potential market value by way of transfer of listed shares of ABCL to shareholders of GIL.” (Para 17.5, Pg. 153 of CIT(A) Order). [Factually incorrect please refer Para 5 above and 72 – 77below] 29. CIT(A) accepts that the AO cannot rewrite the scheme approved by the Court, however, holds that examination of tax implications of a scheme does not amount to rewriting the scheme as approved by the Hon‟ble NCLT. Through the Scheme of merger and demerger, the Appellant has avoided payments of capital gains tax on transfer of shares (Para 23.3, Pg. 182 of CIT(A) Order).[Factually incorrect please refer Para 5 above and 72-80 below] 30. The AO has neither change the Scheme of merger/demerger nor he can do so. What the Ld. AO has mentioned is that the demerger part of the Scheme is not tax compliant and, therefore, he has observed that provisions of section 2(22)(a) are applicable and the assessee is liable for deemed dividend. (Para 23.5, Pg. 183 of CIT(A) Order) 31. Merely because physical payment has not been made by the Appellant to its shareholders, it cannot be said that there was no distribution made by the Company. Release of assets and distribution can happen in kind. (Para 29.3, Pg. 216 of CIT(A) Order) Submission of the Revenue during the hearing before the Hon‟ble Bench and in the Written Submissions dated April 15, 2021, and April 19, 2021 32. If the merger/demerger had not taken place, sale of the shares would have attracted capital gains and the Appellant would have earned accumulated profits, which then would have been distributed to the shareholders. Page | 39 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 33. Reliance on the finding given by the Ld. CIT(A) that the Appellant did not have any pre-existing FSB business and, therefore, there was no Undertaking as contemplated under section 2(19AA) of the Act which could have been transferred. Reliance placed on press release (Pg. 135 of FPB, Vol. I) issued by ABNL to contend that ABNL did not refer to its own division at all and referred only subsidiaries. 34. It is the Subsidiaries which carried out the financial service business and the Appellant independently did not have any FSB. The Appellant did not carry out any FSB, it was merely excess fund management and giving advances to its subsidiaries. No risk factor at all was involved in the activity. 35. ABNL was engaged in holding of investments in subsidiaries and joint venture companies, which allegedly carried out FSBusiness. There is a distinction between carrying out FS Business and being a holding company business of investments in Companies which allegedly carried out FS Business. Business of the Subsidiaries cannot be considered as business of the Appellant. Subsidiaries are separate juristic persons. 36. No income from FS Business has been shown in Annual Report of ABNL from 2012-13 to 2016-17. 37. To satisfy conditions of section 2(19AA) of the Act, an undertaking has to be transferred on a going concern basis which must be capable of running the business independently. If the Appellant is contending that it satisfies conditions of section 2(19AA) of the Act, it is for the Appellant to adduce evidence in support of such claim and no evidence whatsoever has been brought on record by the Appellant. 38. If the Appellant was carrying out any services business, then indirect tax returns or laws must be complied with. However, no such weekly, quarterly or yearly compliances are made by the Appellant and, therefore, the Appellant was not carrying out any services business. 39. In connection with the contention that Ld. AO cannot rewrite the Scheme approved by Hon‟ble NCLT Order, it was contended that it is open to the Department to analyze the consequences arising out of the Scheme. Reliance was placed on the decision of the Hon‟ble Page | 40 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Delhi High Court in the case of CIT vs. Salora International Ltd. (386 ITR 580) and the decision of the Hon‟ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. vs. CIT (24 taxmann.com 323)(Pg. No. 436 – 464 of Legal Paper Book, Vol. II). Reliance also placed on the decision of Hon‟ble Delhi High Court in the case of Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Pg. No. 43 – 58 of Legal Paper Book, Vol. I). 40. It was also contended that the approval given by the NCLT to the demerger of FSB as an undertaking was considering the definition of „undertaking‟ under section 180 of the Companies Act, 2013 and, the same being different from the definition under the Income-tax Act, one has to independently see whether the transferred assets and liabilities would constitute undertaking under the Act. FSB was an ̳undertaking‘ of ABNL- 41. As stated above in the background facts (Refer Para 3, Pg. 1 to 3 above) ABNL was in the business of Financial Services by itself through fund-based lending and by making, holding, and nurturing investments in the financial services sector. In the Explanatory Statement which was issued in relation to Amalgamation of Indian Rayon and Industries Ltd. (later known as ABNL) and Birla Global Finance Ltd. (―BGFL‖), reason behind amalgamation was mentioned as ABNL and BGFL belong to the same group and amalgamation would further the overall objective of the Group to consolidate FS Business within ABNL. (Para 9, Pg. 937 Vol II FPB). Since then, ABNL has been engaged in the FS Business. 42. The term ̳undertaking ̳as such has not been defined in the Act. Undertaking as is generally understood means that it is business unit through which a gainful occupation can be carried out and is capable of being run independently. Undertaking has been defined by Hon‘ble Supreme Court in the case of Secretary, Madras Gymkhana Club Employees‘ Union Vs. Management of Gymkhana Club [1968 (1) SCR 742] (@ Para 29 – Pg. 10, Pg. 1-13 of Legal Paper Book, Vol. I)to mean "any business or any work or any project which one engages in or attempts as an enterprise analogous to business or trade". 'Undertaking' is not in its real meaning anything which may be described as a tangible piece of property like land, machinery Page | 41 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 or the equipment; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit. Property, movable or immovable, used in the course of or for the purpose of such business can more accurately be described as the tools of business or undertaking, i.e. things or articles which are necessarily to be used to keep the undertaking going or to assist the carrying on of the activities leading to the earning of profits." Shankar Construction Co. v. CIT (189 ITR 463 (Kar HC))(@Para 4 – Pg. 17, Pg. 14-18 of Legal Paper Book, Vol. I) The Appellant submits that although the aforesaid decisions were rendered in the context of interpretation of provisions of other acts / section, but the Appellant is relying on the same for undertaking the meaning of the term ̳undertaking‘ as is generally understood. 43. The definition of undertaking in the Explanation to section 2(19AA) is an inclusive definition and does not mandate a minimum threshold of assets / liabilities which would be required to constitute an ̳Undertaking‘ under the said section. The Appellant submits that the assets and the liabilities transferred by the Appellant, even dehors the shares of ABFL (only to meet the allegation of ld. AO and ld. CIT(A)), are more than sufficient for constituting an Undertaking. Further, it is submitted that not just shares of ABFL, as alleged by AO, were transferred. All assets / liabilities of the undertaking were transferred being:  Demerged Undertaking comprised of all assets, liabilities, employees, borrowings, contracts, ongoing litigations etc. (Page No. 1332 of FPB 2) Assets, liabilities, borrowings etc. # Particulars Rs. Crs. 1. Fixed assets (Office premises, furniture, computers, office equipment and vehicle) 16.67 2. Equity shares of Aditya Birla Finance Limited – 6,12,73,146 nos. (9.77% stake) 1,718.7 2 3. 8% Compulsorily Convertible 10.21 Page | 42 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Redeemable Preference Shares of Aditya Birla Finance Limited 4. Fund based lending (ICD) 13.63 5. Deposit – BEST Undertaking for office premises 0.01 6. Investment in Mutual Fund units 117.13 Total Assets 1,876.3 8 7. Borrowings 51.27 8. Current Liabilities 0.23 9. Deferred Tax liability 103.25 \Total Liabilities 154.76 Excess of assets over liabilities adjusted against the amalgamation reserve in books of account 1,721.6 1  Employees – CFO of ABNL took over position of CFO in ABCL. Following employees of ABNL transferred to ABCL (Page No. 1332 of FPB 2):  Litigation (Page No. 1332 of FPB 2) o AIDEK Tourism Services Pvt Ltd &Ors. Vs. Aditya Birla Nuvo Limited (Bombay High Court - 5 cases by petitioner and 5 cases by respondent) o Aditya Birla Nuvo Limited Vs. State of Maharashtra &Ors (Bombay High Court) o Eight cases in the 44 th Court of Metropolitan Magistrate, Andheri (Para 4.2.8.1., Pg. 105 -106 of CIT(A) Order and 1332 of FPB 2) # Name Qualification 1. Dhirendra P. Mishra M. Com, ICWA 2. Ajay Singh Jhala C A 3. Pramod Bohra M B A 4. Siddesh Ajgaonkar C A 5. Pankaj Chaudhari B. Com. 6. Himanshu Redkar C A Page | 43 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 44. The Appellant submits that the aforesaid assets and liabilities are more than sufficient for it to function independently as a separate business. Even other than shares of ABFL, assets worth more than Rs. 100 crores were transferred to the resulting company. The aforesaid assets and liabilities would certainly constitute an undertaking as defined in the Explanation to section 2(19AA) of the Act. The Appellant submits that the aforesaid undertaking is sufficient to constitute an independent Non – Banking Finance Company (―NBFC‖) as per the requirement of the RBI. (Para 4.2.7 (g) / (h), Pg. 101 of CIT(A) Order Conditions for being qualified as NBFC CIC). In other words, if the aforesaid undertaking was to be transferred to a new company, it would be required to seek registration from RBI as a NBFC and, therefore, there is no question of the revenue alleging that there was no undertaking in existence in the hands of the new resulting company. In re: Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Del HC) (@ Para 41- 43 Pg. 56, Pg. 43-58 of Legal Paper Book, Vol. I)– the Delhi High Court notes that the transferred unit would be regarded as an undertaking, if it can satisfy the test of being business activity which is carried on as a going concern. The High Court further notes that the demerged company and the resulting company negotiate as to which common assets are to be transferred and which are retained. 45. The allegation by the AO and CIT (A) that out of a gross total asset of 1876.37 Crores of the financial service business, shares of ABFL constitutes Rs.1728.93 Crores and, therefore, such a transfer is a case of mere transfer of the assets and liabilities and nothing more is completely wrong. The Appellant submits that the AO failed to appreciate that merely because one investment constitutes major chunk of the total assets of the undertaking does not mean that the undertaking ceased to be so. The other assets which have been transferred by itself are of substantial amount of Rs.147.44 Crores which cannot be said to be of no consequence so as to be completely disregarded as has been the submission of the AO and the CIT(A). The Appellant submits that other assets include tangible assets, current investments, non-current investments, loans, etc., all of which constitutes part of the undertaking of financial service business of ABNL. The AO and CIT(A) has also erred in not appreciating that along with the assets, the Appellant has also Page | 44 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 transferred, its office premises of the financial services business, its employees, liabilities, litigation with financial service business, borrowings to the resulting company, all of which is sufficient to carry on the business as an independent unit and, therefore, there finding that financial service business does not constitute an undertaking is unsustainable in law. 46. Further, the AO and CIT (A) have completely failed to recognize that apart from non-current assets, admittedly, the current assets worth Rs.117 Crores were also transferred by the Appellant as part of ̳financial service undertaking‘. Therefore, the Appellant submits that merely because some assets are recognized as non-current assets in financial statements does not mean that the undertaking ceases to be an undertaking. 47. The Appellant submits that the finding by the Ld. AO, affirmed by Ld. CIT (A), that there is no ongoing financial service business undertaking in the case of ABNL or the Appellant, is clearly contrary to the facts on record. The Appellant submits that the AO and CIT(A) have disregarded the submissions and materials filed before them during the course of the proceedings to show that ABNL was carrying on financial service business. 48. In all previous assessments, it has been accepted by the AO that ABNL has an FSB Undertaking. In the Assessment Orders for assessment years 2006-07 to 2009-10, the Assessing Officer has in fact specifically mentioned financial service business as one of the businesses of ABNL. [Pg. 248 – 272 Vol I FPB, @ page 250 mentioned in list of main items (AY 06-07), @ page 254 (07-08), @ page 257 (08-09) and page 261 (09-10) of FPB - Vol. I]. 49. Acceptance by the Assessing Officer in the assessment orders for all years that the interest income from loans and advances is taxable as business income. These loans and advances constitute activity of the FSB of ABNL which is clearly as business activity. In all the assessment years, the appellant has always offered interest income as business income and the same has been accepted as business income by the AO. (Extract of return and assessment order for AY 13-14 and AY 15-16 on Pg. 1312 to 1330 of FPB 2.) Page | 45 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 50. The Appellant submits that once the interest income from such loans has been accepted by the AO in the assessment proceedings of ABNL as being business income for all the assessment years, it is not open to the AO to take a contradictory stand in the impugned order. Having accepted interest as business income, it is not open to the Revenue to allege that FSB was not an Undertaking. Settled principle of consistency is laid down in the following decisions: a) RadhasoamiSatsangVs CIT (193 ITR 321) (SC) (@ Para 13 – 14, Pg. 109, Pg. 104-110 of Legal Paper Book, Vol. I) b) CIT Vs Quest Investment Advisors P. Ltd (2018) (96 taxmann.com 157) (Bom HC) (@ Para 7 – 9, Pg. 113 & 114, Pg. 111-114 of Legal Paper Book, Vol. I) 51. The allegation of the AO and the CIT(A) that in the Return of Income, separate business of financial service has not been disclosed and, therefore, it must be concluded that there is no financial service business of the Appellant in also not justified. The Appellant submits that in the Return of Income there are only 3 columns to mention the line of business of the assessee [Pg. 584 – 599 Vol II FPB, @ page 586 AY (13-14), @ page 589 (14-15), @ page 592 (15-16), @ page 595 (16-17) and page 599 (17-18) of FPB - Vol. II].Therefore, for an assessee like the Appellant which has multiple business, it is not possible to mention all the businesses in 3 column and, therefore, in the third column, the Appellant mentions ̳others‘ to cover all other businesses. In the Tax audit report of ABNL, wherein all the business of the assessee‘s are required to be mentioned, FS has been recognized as a business of the Appellant and the tax audit report discloses ̳financial service sector‘ as one of the businesses in each of the years. [Pg. No. 600-615 @ 601 (AY 13- 14),@ 605 (AY 14-15), @ 609 (AY 15-16), @ 612 (AY 16-17) and @ 615 (AY 17-18 of FPB, Vol. II)]. 52. The Appellant has filed detailed submission before the CIT(A) explaining as to how the all the conditions of section 2(19AA) of the Act are fulfilled (Please refer para 4.2.8 on Page No. 102-128 of the CIT(A) order), which submissions have been brushed aside by the CIT(A)while passing the impugned order. 53. Disclosure in Annual Reports and Return of Income: Page | 46 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 The AO and CIT (A) erred in holding that interest income earned by ABNL is shown under the head ̳income from other sources‘ in the Annual Account. Therefore, such income is not earned by business activity. The Appellant submits that the AO and the CIT(A) have thoroughly confused themselves between what has been disclosed in the profit and loss account and how the interest income has been assessed to tax under the Act. The Appellant submits that interest income earned by ABNL has always been disclosed under the head ̳business income‘ in the computation of income and has been so accepted by the Assessing Officer in all the assessment years. Details of interest income were also called for during the course of assessment proceedings and after enquiry on the said issue, the same has been assessed as business income. For instance, AY 2013-14 & AY 2015-16. (Pg. 1001 – 1009 Vol III FPB). 54. In so far as the ̳profit and loss account‘ is concerned, the AO has stated that the interest (in the case of financial company) is shown as ̳nil‘ and has been shown under the head ̳Interest Income (other than Finance Company)‘ and therefore, there was no business activity of financial service carried on by the Appellant. In the regards, it is submitted that the term ̳Finance Company‘ is not defined anywhere in the Act. ICAI Guidance Note on Revised schedule VI (Para 4.2.5.3, Pg. 87 - 91 of CIT(A) order and Page 1305 of FPB, Vol. III)state that Finance Company is not defined under Companies Act also, therefore, all Companies carrying on activities which are in the nature of ―business of non-banking financial institute‖ as defined u/s 45I(f) of RBI Act, 1935 shall be considered as a finance company. As per RBI Press release (1269 dated April 8, 1999), a Company can be identified as NBFC, if its financial assets are more than 50% of total assets and income from financial assets are more than 50% of gross income. ABNL did not satisfy both the criteria and, therefore, principal business of the Appellant was not NBFC and, therefore, the Appellant could not be considered as Finance Company and interest income could not have been disclosed as interest (in the case of Finance Company). However, it is pertinent to note that if the appellant were carrying on only the activity of financial services and no other activity, then the Appellant would be characterized as a finance company and the interest income would have been reflected as interest (in case of finance Company). If according to the Revenue, it would have Page | 47 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 constituted a business activity and undertaking when only this activity is being carried on, then there is no justification for any different view, merely because other business activities are being carried on by the Appellant, which makes the Appellant not a finance company. 55. The AO and CIT(A) erred in not appreciating that the term ̳undertaking‘ has been defined in Section 2(19AA) of the Act to include ̳any part of undertaking‘, ̳a unit or division of undertaking‘ or ̳a business activity taken as a whole‘, but does not include individual assets or liabilities or combination thereof not constitute a business activity. The Appellant submits that considering the definition of undertaking, it is clear that the financial service business transferred by the Appellant is clearly an undertaking for the purpose of Section 2(19AA) of the Act. 56. Shares of ABFL held by the Appellant form part of the FSB undertaking as all shares of companies held by the Appellant which are engaged in financial services business also forms part of the undertaking of FSB. Therefore, the Appellant submits that the ―FSB‖ undertaking will not only include all the other assets and liabilities listed above but also the share of ABFL as part of nurturing investment in Financial service Business. 57. Assuming without accepting that ABFL shares were not part of the undertaking, it would only mean that an additional asset has been transferred along with the Undertaking. The Appellant submits that once it is established that the Appellant transferred an Undertaking, an additional asset would not convert an Undertaking into a Non-Undertaking. Therefore, the benefit of it being an undertaking and consequently being demerger will be available for the whole of the transactions and it is not permissible to have a separate treatment only for the shares of ABFL. 58. The Appellant further submits that it is for the parties to negotiate and consent upon to formulate which assets and liabilities are to be taken over and the same cannot be challenged by the revenue. Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Page 43 – 58, LPB, Vol. I). Page | 48 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 59. In view of the aforesaid, the Appellant submits that it is amply clear that the AO has selectively referred to the facts to reach a conclusion that having complete disregard to the other facts submitted by the Appellant which clearly shows that the Appellant has transferred an undertaking under Section 2(19AA) of the Act. The Appellant further submits that CIT (A) erred in affirming such selective finding of the AO. Holding investment in subsidiary companies is recognized manner of conducting business activity: 60. As stated above, ABNL was also involved in making, holing and nurturing investments in FSB, in addition to doing Fund Based lending by itself. Under ABNL various subsidiaries were promoted and structured. (Pg. 866 of Vol II FPB). There are Regulatory and contractual compulsions for conducting business through separate SPVs. Regulatory compulsions:  SEBI Regulations which mandate that Asset management company shall not undertake any other business activity other than management and advisory services. (Para 4.2.2.2, Pg. 73 of CIT(A) order)  IRDA Regulations, inter alia, mandate that only those companies whose sole purpose is to carry on life insurance business or general insurance or re-insurance business, can apply for license. (Para 4.2.2.2, Pg. 74 of CIT(A) Order). ABNL did not satisfy the criteria. Therefore, mandatory to carry out the business through a separate entity, while significant control and management remained with ABNL.  Other criteria also such as Adequacy norms, net worth criteria etc. Contractual Compulsions:  Relevant business could not be carried out in ABNL, as it would mean that third parties would become stake holders in all other business of ABNL. (Para 4.2.2.2., Pg. 76 of CIT(A) order) 61. ABNL‘s FSB was actively involved in the decision making, drawing up strategies, preparing operating plans, preparing risk reward matrix, performing risk management function, periodic performance review, fund raising and treasury function of these subsidiaries/JVs, which were engaged in the financial services business. Sample minutes of Board Meeting and Risk Page | 49 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Committee meetings of ABNL. (Pg. 207 – 241 of Vol I FPB, @ 207 – deliberated on Risk management process of FSB.@ 208 – FSB is consumer oriented, internal audit has to be strengthened.) Further BRC Minutes (Pg. 637 – 676 Vol II FPB, @ Pg. 637) Sample copies of Risk Committee Meetings ABNL (Pg. 700 – 734 Vol II FPB) 62. External agencies and valued by research houses and investors recognized ABNL‘s contribution in FS Business because of its active involvement and presence in the financial services sector. Press releases issued by ABNL, Research reports issued by independent entities on ABNL and credit rating agency reports. (Press release – Acquisition of ASCIL (Broking business) – Pg. 184 – 185 Vol FPB Independent Research analysts reports – Pg. 186 – 206 Vol I FPB @ 186 – ABNL‘s stock price do not adequately reflect ABNL‘s strength. @ 195 – Reason for investment in ABNL would be its FSB and more specifically life insurance.) 63. The conduct of ABNL also shows the importance attributed to FSB. Disclosure and discussions in Directors Report and Management Discussion and Analysis (MDA) evidences the importance of FSB. (Pg. 330 – 538 Vol I, Vol II FPB) 64. Holding and nurturing investments is also recognized as ̳businesses under the Indian income tax law and the term business are defined in inclusive manner. a) Vodafone India Services (P.) Ltd. Vs. DCIT [2018] 89 taxmann.com 299 (Ahmedabad - Trib.) (wherein one of the Hon‘ble Members, the Hon‘ble VP is a party to the order) (Para 150-151, Internal Page No. 122 to 125 of the decision) (copy attached herewith as Annexure A).Relevant extract for Your Honour‘s ready reference is reproduced herewith: “150. Learned counsel's next arguments that the options and investments were not held as stock in trade, and, as such, any income from such investments, even by substituting ALP for the actual consideration, cannot be a business income. What this plea overlooks that even holding investments can Page | 50 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 constitute business and give rise to business income. The concept of business of holding investments is not alien to income tax law. While dealing with the concept of 'business of holding investments', we may refer to following observations made by legendry Justice K S Hegde (as he then was) in the case of CIT v. Distributors (Baroda) Pvt. Ltd [[1972]83 ITR 377 (SC)] at page 382-383........” b) DCIT Vs Colgate Palmolive India Ltd (ITA 5485/Mum/2009) (Mumbai ITAT)(Para 7 onwards – Pg. 128 -130, Pg. 124-135 of Legal Paper Book, Vol. I) (wherein, one of the Hon‘ble Members, the Hon‘ble VP is a party to the order). The Hon‘ble Tribunal has, inter alia, negated the contention of the Ld. AO that in books of accounts of shares being shown as investments and, therefore, income from the same will be treated as income from other source by holding that treatment in books of accounts cannot negate the fact that shares were purchased out of commercial expediency. Relevant extract of the aforesaid decision, for Your Honour‘s ready reference is reproduced hereunder: “................We see substance in the plea of the company that anyone buying a company would like to buy a company with minimum liabilities, it was considered appropriate to first pay off the dues by the company, even by raising the funds through fresh issue, and then sell the company. This explanation is in consonance with the ground business realities and we find no infirmity in the same. The advances given by the assessee were finally converted into equity, as the assessee company subscribed to the Camelot shares to enable Camelot to pay off its dues to the assessee company. On these facts, in our humble understanding, the assessee had invested in the Camelot, and extended financial help to Camelot, purely for commercial expediency. The head under which investments in subsidiaries is shown is governed by the disclosure requirements under Schedule VI to the Companies Act, and, therefore, the fact that an asset is shown as „investment‟ per se does not, and cannot, negate the fact that the such investments are made on the grounds of commercial Page | 51 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 expediency. Similarly, the head under which dividend income is assessed to tax does not also affect determination of question whether the shares are purchased on account of commercial expediency or not. It is only elementary that dividend income, whether the shares are held as investments or as any other asset, is always taxable under the head „income from other sources‟. Therefore, nothing really turns on Assessing Officer‟s emphasis on the fact that the Camelot shares were shown as investments in the balance sheet and that dividend income from these shares is taxable as income from other sources. We have also noted that as long as shares are acquired on the grounds of business expediency, any loss on sale thereof is also required to be treated as an admissible business deduction. Hon‟ble Supreme Court‟s judgment in the case of Patnaik & Co (supra) deals with a situation in which the assessee had subscribed to certain Government security but incurred a loss on sale of that security. The stand of the assessee was that the assessee had made the said investment with a view to promote its business ITA No. : 5485/Mum/2009 Assessment year: 2003-04 Page 7 of 12 interests and as subscription to the Government Loan was conducive to its business, the loss arose in the course of the business, and that, therefore, the assessee was entitled to a deduction of the loss claimed by it. A coordinate bench of this Tribunal upheld the claim made by the assessee. The Tribunal found that having regard to the sequence of events and the close proximity of the investment with the receipt of the Government orders, the conclusion was inescapable that the investment was made in order to further the sales of the assessee and boost its business. In the circumstances, the Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and that, therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. Upholding the stand of the Tribunal, Hon‟ble Supreme Court held that the Tribunal was right in its view. It is thus clear that as long as investment is Page | 52 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 justified on the grounds of commercial expediency, the loss on sale of such investment is to be considered a business loss. The nature of business expediency could vary from case to case but what is important is that there must be an underlying motive to serve business interests of the assessee in making such investment. Let us now turn to the facts of the case before us. The company in which shares are subscribed is engaged only in the business of manufacturing the toothbrushes for the assessee company. Any investment in such a company is justified for pure commercial considerations, and, therefore, loss on sale of such shares is admissible as business losses............. (Emphasis supplied) c) The aforesaid decision has been upheld by the Hon‘ble Jurisdictional High Court reported in 370 ITR 728 (Para 7 to 9, Pg. 138, Pg. 136-139 of Legal Paper Book, Vol. I). Wherein the Court observed as under: “7. The Commissioner and the Tribunal concurrently found that the Camelot was fully owned subsidiary of the assessee and engaged in the manufacturing of toothbrushes exclusively for the sole client, namely, the assessee. Shares purchased of Camelot were also sold by the assessee to one Ramesh Sukharam Vaidya for a consideration of Rs. 45,00,000. The Assessing Officer held that the sum of Rs. 5,50,00,000 which was invested by the assessee in the equity of Camelot on March 17, 2003, and which have been used to repay the loan to the assessee- company, amounting to Rs. 5.50 crores, before March 1, 2003, would demonstrate that the purpose of investment was to give a long-term enduring benefit to the assessee. Merely because it was made in the normal course of business, it cannot be termed as anything but long-term investment. This conclusion of the Assessing Officer was challenged in the appeal before the first appellate authority and the Commissioner concluded that the main reason for setting up Camelot was to manufacture toothbrushes exclusively for the assessee. Since the assessee was relying on Camelot for manufacturing of Page | 53 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 toothbrushes to be traded by the assessee, the investment is nothing but a measure of commercial expediency to further business objectives and primarily related to the business operations of the assessee. At no point of time the investment in Camelot was made with an intention to realize any enhancement value thereof or to earn dividend income. The investment was made to separately house the integral part of the business activity. In such circumstances, the Commissioner relied upon the above judgments and allowed the appeal. He concluded that the loss of Rs. 5.50 crores are a business loss in the hands of the assessee. He set aside the order of the Assessing Officer. 8. The Revenue carried the matter in appeal and the Tribunal has dealt with this issue extensively. In paragraph 7 of its order, the Tribunal has upheld the conclusion of the Commissioner and by giving additional reason. 9. Upon a perusal of this material, we are unable to agree with Mr. Pinto that question 5.1 reproduced above is a substantial question of law. Given the peculiar facts and circumstances and the nature of the investment so also being for commercial expediency, the view taken by the Commissioner and the Tribunal concurrently cannot be termed as perverse. That view being imminently possible in the given facts and circumstances. It does not raise any substantial question of law. (Emphasis supplied) Further, Revenue has not challenged the aforesaid finding before the Supreme Court and the same has become final, as evident from SC SLP dismissal order dt. 21.12.17 (In Civil Appeal No. 25987/2015). (Pg. 140-153 of Legal Paper Book, Vol. I) Similar view has been taken in the following decisions: d) SA Builder vs CIT (288 ITR 1)(SC) (Para 25, Pg. 175, Para 31, Pg. 176, Pg. 170-177 of Legal Paper Book, Vol. I) e) Nawn Estates (P) Ltd Vs CIT (1977)(106 ITR 45)(SC) (Pg. 118, Pg. 115-123 of Legal Paper Book, Vol. I) Page | 54 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 f) VST Industries Ltd Vs ACIT (2010)(134 TTJ 361) (Hyd ITAT) (Para 7, Pg. 182, Pg. 178-187 of Legal Paper Book, Vol. I) g) Cosmos Industries Ltd Vs DCIT (ITA 3730/Del/2015) dt 31.12.2018 (Facts Para 2, Pg. 155, Argument of Assessee – Para 8, Pg. 161, Held: Para 12, Pg. 154-169 of Legal Paper Book, Vol. I) 65. The Appellant further submits that doing business through subsidiaries/JVs is also recognized legal business concept. In this regard reliance is placed on the following decisions: a. State of UP and Others VsRenusagar Power Co. and Others (1988-075-AIR-1737-SC) (Para no. 4.2.8.7, Pg. 119 to 121 of CIT(A) order) (Para 43(Pg. 228), Para 54 (Pg. 230), Para 64 (Pg. 236) and Para 68(Pg. 237), Pg. 214-246 of Legal Paper Book, Vol. I) b. Sanofi Pasteur Holding S.A. vs. DOR (354 ITR 316 AP HC) (Pg. 313 – 314, Pg. 247-365 of Legal Paper Book, Vol. I). In this case also the allegation of the Revenue was a colourable device formulated by the Assessee for avoiding capital gains tax and the Step-down subsidiary was only for the purpose of defrauding legitimate revenues. The High court, inter alia, held as under. ―Creation of wholly owned subsidiaries or joint ventures either for domestic or overseas investment is a well-established business/commercial organizational protocol; and investment is of itself a legitimate, established and globally well recognized business/commercial avocation.” 66. The argument of the Revenue that carrying on business by itself and carrying through the Subsidiaries are two distinct aspects and the appellant is merely holding investment in companies which are carrying on the business is not sustainable in law. The Appellant once again reiterates that the Appellant was engaged in two sets of activities I) fund-based lending which the Appellant carried out by itself and ii) making, holding, nurturing investments into Companies in Financial Service Sector. The argument of the Revenue that it was merely doing Page | 55 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 excess fund management is also incorrect. In the preceding years, ABNL earned regular interest income. ABNL held Equity Shares of ABFL, Mutual Funds Units, various Inter Corporate Deposits and Preference Shares of ABFL. Further, the Undertaking (looked independently) fulfilled the criteria of being a Core Investment Company (―CIC‖) prior to demerger as well. ABCL was NBFC, CIC ND SI before and after demerger and therefore, no fresh registration was required. If the resulting company was a new company, it would have required registration as NBFC and would be regarded as CIC. (Para 4.2.7, Pg. 110 – 111 of CIT(A) Order and Pg. 1256 Vol III FPB (Conditions for being qualified as NBFC CIC). 67. The Appellant further submits that contention of the Revenue that ̳onus / burden‘ is on the Appellant to establish there existed an ―Undertaking ―which has been demerged by the Appellant is not justified. The Appellant submits that the scheme as approved by NCLT records that the Appellant has demerged the FSB which was an undertaking and that the said undertaking has been transferred as going concern. Therefore, the Appellant submits that if the revenue wants to allege that the said facts are not correct, then the ̳onus / burden‘ is clearly on the revenue to show as to how the said facts are not correct. The Appellant submits that the Revenue has clearly failed to discharge the said burden. The Appellant submits that all the allegations of the Revenue with respect to the disclosure in the accounts, etc. have already been dealt with by the Appellant in this submission. Transferred as Going Concern: 68. The Appellant submits that the AO and CIT(A) erred in holding that the undertaking is not transferred as a going concern as the financial service business could not have come into being as an independent undertaking. The Appellant submits that such finding has been made without substantiating the same on the basis of the facts and figures available on record. The Appellant submits that as part of the undertaking, tangible assets i.e. office, current assets, investments, non-current assets, employees, liabilities, borrowings, continuing litigation, employees‘ obligations etc. have been transferred to the demerged company. The Appellant submits that considering the assets and liabilities transferred by the Appellant to the Page | 56 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 demerged company, it is clear that the same is capable of being run as an independent entity. Further, the consolidated scheme at clause 15.1 and 15.2.1 (Pg. 51 – 52 of FPB) states that the undertaking is transferred as a going concern. Therefore, finding given by the AO and CIT(A) is clearly erroneous and contrary to law. Also refer to Para 4.2.8.11 on Page 125-126 of CIT(A) order. 69. The Appellant draws Your Honor‘s attention to the decision of the Hon‘ble Delhi High Court in the case of Indo Rama Textile Ltd (2012)(23 taxmann.com 390) (Del HC) (Para 41 – 43, Pg. 56, Pg. 43-58 of Legal Paper Book, Vol. I), wherein the Court observed as under in context of Undertaking being run as an independent business: 41. Upon reading of the aforesaid Section, it is apparent that the definition of Demerger in Act, 1961, would be satisfied if the undertaking that is being demerged is hived off as a going concern, that means, if it constitutes a business activity capable of being run independently for a foreseeable future. To ensure that it is a going concern, the Court while sanctioning a Scheme can certainly examine whether essential and integral assets like plant, machinery and manpower without which it would not be able to run as an independent unit have been transferred to the demerged company. 42. However, this Court is not in agreement with the Applicant's submissions that in a Scheme of Demerger by virtue of Section 2(19AA) of the Act, 1961, all the properties of the undertaking become the property of the resulting company. This Court is of the view that non-transfer of some of the pervious common assets being used by the transferee undertaking will not affect IRTL status as a going concern. 43. In fact, it is settled legal position that there is no requirement under the provisions of the Act, 1961 or Act,1956 for transfer of all common assets and/or liabilities relatable to the Undertaking being demerged. The Applicant's submission that all common assets that cannot be divided must be transferred to the transferee namely, IRTL overlooks the explicit language of Section Page | 57 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 2(19AA)(i) of the Act, 1961, which states that ''all the properties of the undertaking being transferred by the demerged company, immediately before the demerger becomes the property of resulting company by virtue of the demerger''. The expression ''being transferred'' is relatable to such assets as are being transferred to make it a going concern. Moreover, if the applicant's submission is accepted it would put all the schemes of demerger in a 'straightjacket' format and it would also infringe upon the two company's freedom to negotiate with regard to the transfer of common assets. This Court is of the view that while framing a scheme of demerger, the existing and the resulting companies after ensuring that both of them are a going concern, are free to negotiate which common asset/liability would be transferred to which undertaking. After all, it is on this asset/liability transfer basis that share swap ratio are assessed, determined and allotted. (Emphasis supplied) Similar view has been taken by the Hon‘ble Bangalore Tribunal in the case of KBD Sugars & Distilleries Ltd Vs ACIT (ITA 1362 and 1363/Bang/2011) (Para 8.1.3, Pg. 88 onwards, Pg. 59-103 of Legal Paper Book, Vol. I) 70. Demerged undertaking considered on standalone basis meets the conditions of being an NBFC and a CIC. All the assets and liabilities transferred including the employees etc., by the Appellant are sufficient for any person to run the business of financial service as a going concern. (Please refer Para 4.2.7 of CIT(A) order on Page No. 100-101) 71. The Appellant submits that the AO and the CIT (A), erred in holding that the demerger is not a tax compliant demerger as no resulting company has come into existence because of demerger. The Appellant submits that under the Act, there is no requirement of a new company coming into existence on account of a demerger. The Act contemplates transfer of an undertaking to an existing company. The Appellant submits that the definition of the ̳resulting company‘ under Section 2(41A) of the Act clearly shows that demerger can be made to an existing company. Therefore, the Appellant submits that Page | 58 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the impugned order passed under section 115Q r.w.s. 115O of the Act is invalid and contrary to law. Re-writing of a Court approved Scheme, not permitted: 72. The Appellant submits that the interpretation canvassed by the Ld. AO, Ld. CIT(A) and canvassed during the course of argument in-fact destroys the very edifice of the sanctioned Scheme that there existed an Undertaking which was demerged to ABCL. The entire scheme is based on the fact that there existed an established Undertaking of FSB which was demerged and such undertaking was demerged as a going concern. (Kindly refer Para68 to 71 above). Therefore, the Appellant submits that the interpretation canvassed by the Revenue that there was no FSB undertaking in existence and that the undertaking was not transferred as a going concern is nothing but an attempt to re-write a Sanctioned Scheme, which is not permissible. 73. The Appellant submits that once the Scheme has been approved by the NCLT, Revenue cannot seek to over-reach or depart/differ from the explicit provisions of the scheme. It is respectfully submitted that the terms of the Scheme are binding on the AO, and it is not open to the AO to proceed on the basis that the scheme was effected solely with a view to transfer shares of ABFL as circuitous transaction. Further, once the Scheme has been approved by the appropriate authority, Revenue cannot allege it to be against public policy, which includes taxation. It is settled position of law that once the Scheme is approved it attains binding force not only inter se the Transferor and Transferee Companies, but also in rem. The Appellant relies upon following decisions where it has been held that once scheme has been approved it has a binding force and cannot be allowed to be tinkered with or its express provisions departed/differed from, even if it is contrary to the provisions of the Act: a) Dalmia Power Limited Vs ACIT (2019) (112 taxmann.com 252) SC (Pg. 377-390 of Legal Paper Book, Vol. II), wherein the Supreme Court held as under: “4.6 Pursuant thereto, the Schemes were sanctioned by the NCLT, Chennai vide Orders 16.10.2017, 20.10.2017, 26.10.2017, 28.12.2017, Page | 59 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 10.01.2018, 20.04.2018 and 01.05.2018; and vide Orders dated 18.05.2017 and 30.08.2017 by the NCLT, Guwahati. Accordingly, the Schemes attained statutory force not only inter se the Transferor and Transferee Companies, but also in rem, since there was no objection raised either by the statutory authorities, the Department, or other regulators or authorities, likely to be affected by the Schemes. .............. 4.9 In the present case, Appellant Nos.1 and 2/Transferee Companies filed their original Returns of Income on 30.09.2016 and 30.11.2016 respectively. Thereafter, they entered into Schemes of Arrangement and Amalgamation with 9 Transferor Companies in 2017. The Schemes were finally sanctioned and approved by the NCLT, Chennai vide final orders dated 20.04.2018 and 01.05.2018. The Appointed Date as per the Schemes was 01.01.2015. Consequently, the Transferor/ Amalgamating Companies ceased to exist with effect from the Appointed Date, and the assets, profits and losses etc. were transferred to the books of the Appellants/ Transferee Companies/Amalgamated Companies. The Schemes incorporated provisions for filing the revised Returns beyond the prescribed time limit since the Schemes would come into force retrospectively from the Appointed Date i.e. 01.01.2015. Accordingly, the Appellants filed their Revised Returns on 27.11.2018. The re-computation would have a bearing on the total income of the Appellants with respect to the A.Y. 2016-2018, particularly on matters in relation to carrying forward losses, unabsorbed depreciation etc. .................... On a plain reading of section 119(2)(b), we find that this provision would not be applicable where an assessee has restructured their business and filed a revised Return of Income with the prior approval and Page | 60 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 sanction of the NCLT, without any objection from the Department. (Emphasis supplied) b) Electrocast Sales India Ltd. v. DCIT (170 ITD 507) (T) Kol) (2018) (Pg. 424-435 of Legal Paper Book, Vol. II) “4.4 We find that the scheme of amalgamation would be approved by the Hon'ble High Court only after ensuring that the same is not prejudicial to the interests of its members or to public interest. Hence the merger scheme approved by the Hon'ble High Court having in mind the larger public interest, cannot be disturbed by the revenue merely because the assessee is not entitled for benefits u/s 72A of the Act. The expression 'Public interest' was discussed by the Hon'ble Gujarat High Court in the case of Wood Polymer Ltd. (supra) wherein the Hon'ble Court refused to sanction the scheme of amalgamation formulated solely for the purpose of avoiding taxes. It was held that: ................................. Hence it could be safely inferred that the Court would exercise due diligence and would conduct detailed enquiries before sanctioning the scheme. A scheme formulated for the purposes of tax evasion cannot be held to be in 'public interest' and hence the same cannot be sanctioned under the provisions of Companies Act, 1956. The fact that the Hon'ble Calcutta High Court had accorded its sanction to the scheme of amalgamation in the assessee's case implies that the same had been done by considering representations from the various fields and by duly considering the tax evasion point for income tax purposes. ..................................... Hence if there be any objections for the income tax department, they could raise the same at that stage i.e., prior to sanction of scheme by the court. Once the scheme is approved, it implies that the same has Page | 61 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 been done after duly considering the representations from the Government / revenue. (Emphasis supplied) c) ITO vs. Pubanchal Power Co. Ltd. (ITA No. 201/Kol.2010) (Pg. 492, Pg. 485-506 of Legal Paper Book, Vol. II) From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon‟ble Gujarat High Court in the case of Wood Polymer Ltd., in re and Bengal Hotels Pvt. Ltd. in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon‟ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquidator nor the Regional Director nor Central Government raised any objection to the scheme of amalgamation. In such circumstances, we are of the view that the revenue has nothing to say at the time of approval of scheme by Hon‟ble High Court in the present case. (Emphasis supplied) From the aforesaid it is clear that once the scheme is approved it cannot be disregarded or its terms sought to be differed from or modified by the Revenue. 74. Similar view has been taken in following decisions  Sadananda Varde vs. State of Maharashtra (115 Taxman 407) (Para 80, Pg. 415, Pg. 391-423 of Legal Paper Book, Vol. II) Bom HC,  Vodafone Essar Gujarat Ltd Vs. CIT (24 taxmann.com 323) (Para 43, Pg. 456, Pg. 436-464 of Legal Paper Book, Vol. II),  Priapus Developers (176 ITD 223) (Para 13 onwards (Pg. 478), Pg. 465-484 of Legal Paper Book, Vol. II), Page | 62 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 75. From the above, it is clear that the argument of the revenue to the extent that the same is contrary to the scheme is not sustainable in law. Therefore, the Appellant submits that it is neither open to the revenue to argue that FSB undertaking was not in existence before the demerger nor that the undertaking was not transferred as a going concern. The Appellant submits that once the scheme is approved, then the facts stated in the scheme are sacrosanct and the same cannot be changed, altered or discarded without challenging the scheme itself. In the present case, admittedly, the scheme has not been challenged by the revenue and, therefore, it is not open to revenue to contend anything contrary to the scheme. 76. The Appellant further submits that the reference to section 180 of the Companies Act, 2013 to allege that it is still open to the revenue to contend that FSB is not an undertaking for the purpose of section 2(19AA) of the Act, as undertaking is separately defined under the companies Act is completely misplaced. The Appellant submits that the Explanation to section 180(1)(a) which defines the term ̳undertaking‘ specifically states that the said definition is for the purpose of the clause under which it is defined i.e. the said definition is applicable only for clause (a) of subsection (1) of section 180 of the Companies Act, 2013. The said definition does not travel beyond the said section. Section 180 of the Companies Act, 2013 deals with the powers of the Board and does not deal with the schemes of merger / demerger. Therefore, when the scheme of arrangement is approved by NCLT, the Hon‘ble court has proceeded on the general understanding of the term ̳undertaking‘, in addition to that the Scheme categorically provides that the scheme is in line with the provision of section 2(19AA) of the Act and, hence, it is now not open to the revenue to contend that an undertaking has not been demerged by the Appellant. 77. The Appellant further submit that the reference to the decision of Indo Rama Textile Ltd (2012)(23 taxmann.com 390) and particularly para 47 of the decision to argue that whether a demerger is a tax compliant demerger or not is to be determined by the tax authorities post demerger does not help the case of the Revenue. The Appellant submits that the Appellant is not disputing the finding in para 47 of the Decision. However, the contention of the Appellant is that the Page | 63 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Revenue cannot re-write the scheme to hold that an arrangement is not a tax compliant demerger. The Appellant submits that if the scheme is not a tax complaint demerger on the basis of the facts admitted in scheme, then the Revenue can hold it to be a non-tax compliant demerger. E.g. Under the scheme, the consideration is receivable by the transferor company, it will not be regarded as a tax complaint demerger. However, it is not open to the revenue to re-write the scheme in the garb of determining whether the scheme is tax compliant or not. Only Opportunity to object a Scheme is before the Scheme is Sanctioned: 78. Income-tax Department was also issued a notice on 03.03.2017 as required under section 230(5) of the Companies Act, 2013 to submit its representations / objection and there is a statutory presumption in that section that if no response is received within 30 days, the tax department has ―no representations to make on the proposal‖. Copy of letter dated 03.03.2017 duly acknowledged by the Assessing Officer of GIL is at (Page No. 292 to 294 of Vol I FPB). The Appellant submits that that being the statutory position, if the tax department, after almost 19 months of the scheme being approved is allowed to raise such objections to the scheme, the same would amount to giving permission to an authority exercising quasi-judicial function to take benefit of its own wrong. 79. Further, Circular No. 1/2014 issued by MCA dated January 15, 2014, provided that Regional Director shall invite comments from IT Department, if no comments are received it may be presumed that IT department has no objection (Pg. 1241 – 1242 Vol III FPB). The Appellant submits that the aforesaid well settled legal position has been re-iterated by the CBDT itself vide Instruction No. F. No. 279/Misc./M-171/2013-ITdated April 11, 2014 (Refer Pg. No. 1243 FPB Vol III), wherein the CBDT has categorically stated that only opportunity available to the Department to object to the scheme of amalgamation if it is found to be prejudicial to the interest of the Revenue is at the stage of sanctioning of the scheme. Authorities were directed to send their comments to Regional Director for placing it them before the Court. Therefore, the Appellant submits that even Page | 64 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 CBDT has accepted the position that only opportunity available to the Revenue where it wishes to differ from the explicit provisions of a scheme is during the course of sanctioning of the scheme. In fact, the aforesaid principle has been given statutory recognition in section 230(5) of the Companies Act, 2013. 80. The Appellant further draws Your Honor‘s attention to the decision of Hon‘ble Ahmedabad Tribunal in the case of Urmin Marketing (P.) Ltd. [2020] 122 taxmann.com 40 (Ahmedabad - Trib.) (Para 30.14 to 30.15 of the decision – copy attached herewith as Annexure B), wherein the Hon‘ble Tribunal following the aforesaid two Circulars, held as under: ―30.14 From the above circular, it is transpired that the Revenue was conscious about the fact that there was the possibility of misusing the provisions of the Income- tax Act in the name of the scheme of amalgamation as provided under section 2(1B) causing prejudice to the Revenue. But the Revenue despite having the opportunity in its hand did not raise any objection within the time allowed by the MCA or subsequently by raising the objection in the impugned scheme of amalgamation. Thus, from the conduct of the Revenue, it is revealed that there was no grievance in the impugned scheme of amalgamation. Had there been any grievance of the Revenue, the same could have been brought to the notice of the regional director of the MCA, then the suitable action should have been initiated against the impugned scheme of the amalgamation. In this regard, we note that recently the Mumbai bench of NCLT in one of the petitions for amalgamation in case of Gas Investment (P.) Ltd (Transferor) and Ajanta Pharma Ltd. (Transferee) in CPS No 995 and 996/2017 has not approved the scheme of amalgamation on the objection raised by the revenue. The relevant extract of the order reads as under: “36. The rationale given in the scheme among others things are the proposed amalgamation of the transferor company into Transferee Company by the scheme, as a result of which the shareholders of the transferor company viz. the promoters of the Page | 65 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 transferor company (who are also the promoters of the transferee company) shall directly hold shares in the transferee company and the promoters would continue to hold the same percentage of shares in the Transferee company pre and post-merger. 37. The above rationale presented by the petitioner company is without any Justification. Petitioner has to comply with all applicable laws. By this scheme of amalgamation and arrangement Gabs/shareholders of Gabs are avoiding full tax liability which is strenuously objected by the Income- tax Department as discussed Supra. Any transfer of property from one entity to other has to be treated as sale/transfer and the same has to comply with applicable provisions of law including applicable tax liability, stamp duty. In the instant case, the transferor is a private Ltd. company which is a separate legal entity and any transfer of shares to other entity including individuals from the legal entity would attract applicable tax liability. Therefore, we are of the considered view that the Bench can sanction/approve the scheme only if it complies with all applicable provisions of the Act, Rules and if the scheme is in the interest of public, shareholder etc. However, the petitioner companies did not provide details with regard to compliance of tax liability raised by the Income-tax Department, their undertaking to pay the huge tax liability as pointed out by the income department etc. 38. From the above analysis of the financials of Gabs, the bench noted that with an equity share capital of only 1,91,100 the promoters/shareholders of Gabs who are also the common promoters of APL, by way of this proposed scheme of amalgamation and arrangement would get the shares of APL worth Rs.1477.50 Crores (market value as on 31-3-2017) and that too without paying any Income Tax, Stamp Duty etc. for which the bench is of the considered view that the same is not in the public interest, thousands of shareholders of Transferee company especially retail shareholders. The market value of the same number of shares as at 31-3-2016 was 1,182.59 Crores. 39. Since Income-tax department (IT) has raised strong Page | 66 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 objections about tax benefit, tax avoidance, tax loss as discussed above, we are of the opinion that it would be www.taxguru.in advisable to settle the important/crucial issue of huge tax liability before sanctioning the scheme by the Tribunal rather than disputing the same at a later stage after the scheme is sanctioned by the Tribunal. It is mandatory as per section 230(5) of the Companies Act, 2013, a notice under sub-section (3) along with all the documents in such form shall also be sent to central government, Income-tax Authorities, RBI, SEBI, ROC, stock exchanges, OL, CCI and other Sectoral regulators or Authorities for their representations. In response to the notice received as per above section the Income- tax Department has raised valid observation/objections as detailed above, we find merit in the objections raised by Income-tax Department, and we are also inclined to agree with the objections raised.” From the above, it is inferred that the Income-tax Department, being aggrieved with the scheme of amalgamation, raised the objection, which was duly accepted by the NCLT and accordingly, the scheme of amalgamation was disapproved in the above case. 30.15 Now, the question arises whether the scheme once approved by the Hon'ble Gujarat High Court after receiving no objection from the Income-tax Department, the AO/revenue has authority to challenge the same. What is the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the revenue cannot object the impugned scheme of amalgamation. It is because, it is implied that the revenue has given its consent in the impugned scheme of amalgamation by raising no objection in response to the letter issued by the regional director of the MCA as discussed above. Furthermore, had there been any grievances to the revenue, then it should have approached to the Hon'ble High Court through the regional director of the MCA. But it did not do so. As such the revenue on one hand is issuing circulars to its officers to object Page | 67 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the scheme of amalgamation if it is found prejudicial to the interest of revenue but on the other hand it remains silent when such opportunity was afforded to it and raising the same issue during the assessment proceedings which in our considered view is not desirable.” (Emphasis supplied) 81. In any case, Revenue cannot recharacterize a transaction, as held by Bombay High Court in DIT-IT vs. Besix Kier Dabhol SA (210 Taxman 151) (Pg. Pg. 539-541 of Legal Paper Book, Vol. II) 82. The Appellant submits that the reliance placed by the Revenue on the decision of the Delhi High Court in the case of CIT vs. Salora International Ltd. (386 ITR 580), is misplaced. The Court in that case was merely concerned with whether capital gain is chargeable under the Act on the basis of the terms of the Scheme or no and not with a situation as in the present case where the terms of the Scheme are being modified or altered by the Revenue. It was an admitted fact in that case, that capital gains is chargeable, and the only dispute was with respect to the quantification of the capital gains. The Court adjudicated on the basis of the approved Scheme itself and not what the Scheme ought to have been re-characterize as per the Revenue, as is sought to be done in this case. Further, the Court in para 25 of the decision notes that in the said case, it is clear, that the whole consideration was receivable by the transferor company, which fact is absent in the present case. 83. The decisions relied by the Revenue of the Hon‘ble Gujarat High Court in the case of Vodafone Essar Gujarat vs. CIT (supra), in fact supports the case of the Appellant. In that case Revenue had objected before the Court at the time of sanctioning of the Scheme. 84. Further, reliance placed by the Revenue on Paragraph 19 of the Hon‘ble NCLT Order to contend that they had objected to the Scheme and also that the Appellant has given an undertaking to the Hon‘ble NCLT that the Appellant would discharge liability arising out of the implementation of the Scheme is also misplaced. The Appellant submits that firstly, the Objection raised in Paragraph 19 was in relation to merger of ABNL with the Appellant; secondly, the undertaking was only in relation to Page | 68 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 discharge of liability arising out of the merger, as ABNL became non-existent after the merger and Appellant was required to discharge liability arising from existing and continued litigation and thirdly, it was not an objection raised by the Income-tax Department. It may further be noted that such undertaking is not there with respect to Demerger of FSB with ABCL as both the demerged company and resulting company continue to the in existence. Liquidator‘s Report for Your honor‘s perusal is attached herewith as Annexure C. 85. Even otherwise the allegation of the Ld. AO and Ld. CIT(A) that purpose of the scheme of merger and demerger was to enrich the shareholders of the Appellant by following this long scheme is unfounded. The Appellant submits that on account of the merger of the ABNL into the Appellant and demerger of the financial service business to ABCL, there is no enrichment to the shareholders of any of the entities. On account of the merger, the shareholders of ABNL have got shares of the Appellant of the same value as the value of the shares held in ABNL. Further, since ABCL is a subsidiary of the Appellant, on account of the demerger of the financial service business, the shareholders of the Appellant have received the shares of ABCL, the consequence of which is that the value of the shares of the Appellant has reduced to the extent of the receipt of shares of ABCL. For example, if the value of shares of the Appellant was Rs.100/- before demerger, the value of the shares of the Appellant reduced to Rs.80/- after demerger and correspondingly, share of ABCL of Rs.20/- was received by the shareholders. Therefore, in the hands of the shareholders, there is no enrichment at all under the said scheme. The Appellant submits that pursuant to the demerger, the shareholding of the shareholders in the Appellant is split into two shares i.e. of the Appellant and ABCL. Therefore, the allegation of The AO is clearly unfounded. 86. The Appellant further submits that the reference to indirect tax provision to allege that as no return is filed for FSB, no separate undertaking exist is not justified as – a. As per section 66B r.w.s. 66D(n)(i) of the Finance Act, 1994, Service tax was not applicable to interest income as the same was in the list of activities excluded from the ambit of service tax. Page | 69 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 b. As per Sl No. 27(a) of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, interest is excluded from the ambit of Goods and Services tax Act. Relevant extract of Finance Act 1994 and Notification dated 28.06.2017 is enclosed as Annexure D and Annexure E respectively. Therefore, the Appellant submits that the question of separate registration of FSB and consequently filing of return of income of FSB does not arise. 87. The Appellant submits that there existed an ―Undertaking‖ as prescribed under section 2(19AA) of the Act. The Appellant submits that the finding in the order dated March 14, 2019, under section 115Q r.w.s. 115O of the Act affirmed by CIT (A) that the provision of Section 2(22)(a) of the Act of the Act is attracted to the demerger, is wholly incorrect and contrary to law and ultimately liable to be set aside. Ground No. 4 of Assessee‘s Appeal: Provisions of Section 2(22)(a) of the Act are not applicable: 88. Without prejudice to the aforesaid contentions that the Appellant has transferred an undertaking and, hence, the demerger is a tax compliant demerger, the Appellant submits that even otherwise, the provision of Section 2(22)(a) of the Act are not applicable in the present case as the conditions necessary for applicability of the said sections are not fulfilled. The Appellant submits that section 22(22)(a) reads as under – "dividend" includes— (a) any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. Form the reading of the aforesaid section it is clear that the provision is attracted only when the following conditions are cumulatively fulfilled – a. any distribution by a company. b. distribution must be of accumulated profits. Page | 70 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 c. distribution must entail release of all or any part of the assets of the company. d. distribution must be to its shareholders. The Appellant submits that in the present case, none of the aforesaid 4 conditions are satisfied and, hence, the question of applicability of section 2(22)(a) in the present case, does not arise. 89. The Appellant submits that in the present case, there is no ̳distribution‘ by the Appellant Company. The Appellant submits that the transfer and vesting of the FSB by the Appellant to ABCL under the scheme of arrangement cannot be regarded as a distribution. The Appellant submits that as per the clear and undisputable terms of the Scheme of arrangement, that consideration on account of the demerger, is receivable by the Shareholders only and not by the Appellant (Refer Para 4.8 above) and adjustment on account of the transfer of the financial service undertaking by the Appellant has been carried out in the reserve of the Appellant (Refer Para 21.1.2, Pg. No. 63 of FPB, Vol I). The Appellant has made the adjustment in the Amalgamation Reserve, which is a Capital Reserve, which, by definition, is not capable of being distributed as dividend. Hence, the Appellant submits that there is no distribution by the company of its accumulated profits and therefore, the order dated March 14, 2019, under section 115Q r.w.s. 115O of the Act, affirmed by order passed by CIT(A), is clearly erroneous, unsustainable and bad in law. 90. The Appellant further submits that there is no release by the Appellant of any of the assets of the Appellant to its shareholders. The Appellant submits that for Section 2(22)(a) of the Act to be applicable, there must be a release by the Appellant to its shareholders of the assets of the company. The Appellant submits that AO and CIT(A) have grossly erred in not appreciating the undisputable fact that there is no release of any of its assets of the Appellant to its shareholders and, hence, the provisions of Section 2(22)(a) of the Act are not applicable. The Appellant submits that as per the Scheme of arrangement, the Appellant has transferred the FSB undertaking to ABCL and the Shareholders of the Appellant have received the shares of ABCL from ABCL. Therefore, it is clear that the Appellant has not released any asset in favour of Page | 71 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the shareholder, hence, the question of applicability of section 2(22)(a) does not arise. 91. The Appellant submits that the Appellant has transferred its assets to ABCL and ABCL under the approved scheme has issued shares to the shareholders of the Appellant. Under the Scheme consideration was to be paid to the Shareholders of the Appellant and not the Appellant. The Appellant submits that the allegation of the Ld. AO and Ld. CIT(A) that it must be presumed that the shares of ABCL has been received by the Appellant which in turn has been distributed by the Appellant to its shareholder clearly tantamount to rewriting the express provisions of the Scheme, which as submitted above is clearly not permissible. The Appellant submits that the share of ABCL were never received by the Appellant and it cannot even be presumed that the shares of ABCL are first received by the Appellant and then transferred to its shareholder as it goes completely contrary to the scheme as approved by the NCLT. Further, the Appellant submits that if the argument advance by the revenue is to be accepted, it would mean no demerger is tax complaint as the condition of clause (iv) of section 2(19AA) would never be fulfilled. Even though the resulting company has issued shares to the shareholder of the demerged company, the Revenue will argue, that the shares have been presumed to be issued to the Demerged company which the Demerged company has distributed to its shareholder. The Appellant submits that the submission of the Revenue will, therefore, clearly lead to absurdity. Further, if such an argument cannot be canvassed for the purpose of section 2(19AA), the same would certainly also not hold good for the purpose of section 2(22). The Appellant places reliance on the decision of the Hon‘ble Hyderabad Tribunal in the case of ITO vs. Zinger Investments P. Ltd. (147 ITD 694) (copy attached herewith as Annexure F), wherein the Hon‘ble Tribunal has held that in the Court approved scheme no consideration was due to the transferor (Appellant), therefore, no consideration under the Scheme is attributable to the Assessee. Therefore, there can be no question of transfer of any assets by the Appellant to its shareholders whether actual or presumed. 92. The Appellant also places reliance on the decision of Ajai Choudhary vs. DCIT (74 ITD 350) (Page No. 542 – 547 of LPB, vol. II, @ Para 24 – 28, Pg. 546) in context of 2(22)(d) of the Page | 72 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Act. The Hon‘ble Tribunal rejected the contention of the Commissioner that on demerger of computer business of a Company in which the Assessee was a shareholder, the Shares issued by the resulting company to the Assessee is deemed dividend under section 2(22)(d) of the Act. The Hon‘ble Tribunal held that there is no distribution to its shareholders by the company i.e. the Company in which the Assessee was shareholder as the shares have been issued by resulting company and not the company in which the assessee was the shareholder. Hence, there is no distribution of accumulated profits. The aforesaid decision has been affirmed by the Hon‘ble Delhi High Court vide order dated May 23, 2001 (ITA No. 36 of 2000). The Appellant submits that the aforesaid decision is applicable to the facts of the present case, and, hence, the question of applicability of section 2(22)(a) does not arise. 93. The Appellant further places reliance on the decision of the Hon‘ble Bombay High Court in the case of Sadananda Varde vs. State of Maharashtra (supra), wherein the Court has observed as under: “98.It is true that in a case of amalgamation, there is a share exchange ratio prescribed according to which the shareholders of the transferor company would be entitled to the shares of the transferee company. This, however, does not make it a situation of exchange of immovable property, or relinquishment of any right to immovable property so as to make the transaction amenable to section 269UA of the Income-tax Act. There is neither sale nor purchase in a case of amalgamation. Section 54 of the Transfer of Property Act defines „sale‟ as a transfer of ownership in exchange for a price, „price‟ being defined in section 2(10) of the Sale of Goods Act as any consideration paid for sale of the goods. In CIT v. Motors & General Stores (P.)Ltd. [1967] 66 ITR 692 , it was pointed out by the Supreme Court that the presence of money consideration is an essential element of a transaction of sale. Tested by this yardstick, it would appear that in an amalgamation, no consideration in any form much less in the form of money—flows from the transferee company to the transferor company, which was the erstwhile owner of the assets. The shares are Page | 73 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 issued by the transferee company, not to the transferor company, but to the shareholders of the transferee company, who must necessarily be treated as distinct from the transferor company itself. The shareholders of the transferor company could not be deemed in law to be the owners of the assets of the transferee company, nor can they be said to have held any interest in the assets of the transferee company - Bacha F. Guzdarv. CIT AIR 1955 SC 74. Right from the time of Salomon‟s case [Salomon& Co. [1897] AC 22], a company has always been treated as a separate and distinct juristic person with a personality of its own different from that of its shareholders. No shareholder can legitimately claim to have an interest in any of the properties or assets held by the company. The judgment of the Supreme Court in Accountant & Secretarial Services (P.) Ltd. v. Union of India AIR 1988 SC 1709, was pressed into service to contend that a bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, though materially controlled by the Central Government, has a distinct personality of its own and its property cannot be said to be the property of the Union of India. Hence, it is contended that by the act of amalgamation, there was no sale of any assets by the transferor company (sixth respondent) to the transferee company (ninth respondent) in the amalgamation. Thus, it is urged that there being no sale or exchange or lease of immovable property in the case of amalgamation, the transfer of the assets of the sixth respondent to the ninth respondent does not fall within the ambit of Chapter XX-C of the Income-tax Act, 1961.” From the aforesaid, it is clear that the Jurisdictional High Court has held that it cannot be presumed that consideration has been received by the transferor Company under the scheme of demerger. 94. Further, the Appellant submits that distribution presupposes the existence of assets claimed to be distributed and it does not cover a situation where an asset is created by allotment, of shares as in the instant case. Therefore, there is no question of the applicability of section 2(22)(a) of the Act. Distribution by itself presupposes existence of an asset. Distribution cannot be Page | 74 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 applied when asset is created and allotted (Khoday Distilleries Ltd. vs. CIT (307 ITR 312)) (Para 8, Pg. 586, Pg. 582-590 of Legal Paper Book, Vol. II). In this case there are no shares in existence which are asset of the Appellant available for distribution. 95. The Appellant submits that Section 2(22)(a) of the Act does not take within its ambit an ̳indirect transfer‘ of assets by the Appellant to its shareholders (which can be the only basis on which the Revenue rests its case) as the term ―directly or indirectly‖ has not been used in the section. The Appellant submits that wherever the legislature intended to include indirect transfer in the ambit, the same has been so specified at numerous places in the Act. Therefore, unless there is a direct transfer of the assets from and by the Appellant to its shareholders, the same cannot result in applicability of Section 2(22)(a) of the Act. Hence, the Appellant submits that the order dated March 14, 2019 under section 115Q r.w.s. 115O of the Act affirmed by order of CIT (A) is clearly erroneous and bad in law. The Appellant submits that in the context of section 40A(2)(b), the Hon‘ble Jurisdictional High Court in the case of HDFC Bank v ACIT 410 ITR 247 (Pg. 512-538 of Legal Paper Book, Vol. II)has held that an indirect shareholding cannot be considered for determining the relationship between the companies, when the section does not refer to indirect shareholding. Similarly, the Appellant submits that an indirect transfer cannot be fall within the ambit of section 2(22)(a) of the Act. Also refer Nandlal Kanoria (122 ITR 405) Cal HC (Pg. 507-511 of Legal Paper Book, Vol. II). 96. The Appellant further submits that the presumption that such imaginary dividend is out of ―accumulated profits‖ is also a result of Ld. AO consciously ignoring the actual facts, the scheme and the accounting entries as per which the debit in respect of net assets has gone to amalgamation reserve account and not to accumulated profits. Indeed, as submitted earlier, amalgamation reserve, by definition is a capital reserve which can never be distributed as dividend under the provisions of the Companies Act. Capital reserve arising pursuant to a scheme is not an accumulated profit (CIT Vs STADS Ltd (2015) (373 ITR 313/61 taxmann.com 33)(Mad) (Para 11, Pg. 566, Pg. 564-567 of Legal Paper Book, Vol. II) and ITO VsShreyans Page | 75 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Investments (P) Ltd (2013) (141 ITD 672)(T) (Kol) (Para 8, Pg. 573, Pg. 568-575 of Legal Paper Book, Vol. II). Further on an imaginary situation, deeming provisions cannot be invoke a deeming section. Reliance is placed on CIT Vs. Moon Mills Ltd 59 ITR 574 (SC) (Pg. 552, Pg. 548-554 of Legal Paper Book, Vol. II), CIT Vs. KhimjiNanshy 194 ITR 192 (Bom HC) (Para 10, Pg. 557, Pg. 555-557 of Legal Paper Book, Vol. II) 97. The Appellant submits that AO and CIT (A) have erred in imputing illegality in the hands of the Appellant by holding that the Appellant has distributed the shares of ABCL to its shareholders as dividend; whereas under the provisions of the Companies Act, the Appellant is not permitted to distribute dividend by transfer of assets. The Appellant submits that AO and CIT(A) cannot interpret a transaction in such a way as would result in an act contrary to the provisions of law being imported to the Appellant. 98. The Appellant submits that on account of demerger, no dividend is received by a shareholder as a shareholder merely receives shares of another (resulting) company, which represents the value of the undertaking transferred from the first company to the resulting company, that is to say, the very same value which was represented by the shareholders holding shares of one company is now represented by holding shares of two companies. The scheme of demerger does not result in an increase in the value to the shareholders. Therefore, there is no question of the scheme of demerger being treated as dividend in the hands of the shareholders of the demerged company. 99. The Appellant submits that the issue of applicability of Section 2(22)(a) of the Act on account of issue of shares under a scheme of arrangement has been clarified by the CBDT in Circular No.5-P dated 9 th October 1967. The CBDT has clearly directed/ set out its position that the issue of shares pursuant to the scheme of arrangement does not come within the ambit of Section 2(22)(a) of the Act. The Appellant submits that the circular deals with the case of a scheme of amalgamation as the demerger provisions were not part of the Act at the time, but the same would be fully applicable to a case of demerger as well. Page | 76 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 100. Prior to the year 2000, the Act did not have any provision to exempt the transaction of demerger from the purview of section 2(22)(a) of the Act. If the interpretation canvassed by the Revenue is accepted, then in all cases of demerger pre- 2000, dividend was liable to tax, which is an absurdity that follows from the Revenue‘s interpretation of the provision. Further, the Appellant submits that as interpretation which leads to an absurd consequence must be avoided. The Appellant further in this regard relies upon the observation made in report of Dr. Raja Chelliah Committee (197 ITR (St.) 177), wherein it has been suggested that in order to remove any controversy or doubt as to the taxability of any shares or assets received by the Shareholders in Scheme of Reconstruction, it may be clarified that provisions of section 2(22)(a) of the Act will not be applicable. The Appellant further submits that Clause (v) in section 2(22) has been inserted out of abundant caution and to allay fears that when there is reduction of capital, deemed dividend wouldn‘t be attracted (CIT vs. Madurai Mills Co. Ltd. (89 ITR 45)) (Pg. 580, Pg. 576-581 of Legal Paper Book, Vol. II). The interpretation canvassed by the AO would lead to a situation that prior to amendment all such transfers were subject to provisions of section 2(22) of the Act. Settled position that interpretation which leads to absurdity must be avoided. (CIT vs. JH Gotla 156 ITR 323) (Para 45 and 46, Pg. 708, Pg. 698-709 of Legal Paper Book, Vol. II). 101. The Appellant further submits that the Dr. Raja Chelliah Committee also observed that that there is no likelihood of the Scheme of comprise being abused or misused, as the High Court is empowered under Chapter V of the Companies Act 1956 to take into account the views and objections of the Central Government before the Scheme is approved. The Appellant further submits while interpreting a deeming provision, in case of an ambiguity, it has to be resolved in favour of the Assessee. Reliance is placed on the decision of the Hon‘ble Supreme Court in the case of Gopal and Sons HUF vs. CIT 391 ITR 1 (Para 12, Pg. 562, Pg. 558-563 of Legal Paper Book, Vol. II. Page | 77 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 102. In view of the aforesaid the Appellant submits that provisions of section 2(22)(a) of the Act are not applicable in the facts of the given case. Ground No. 5 of Assessee‘s Appeal and 1 – 6 of Revenue‘s appeal: 103. The Appellant submits that the assets and liabilities were accounted for at fair value on the merger of ABNL with the Appellant and not at historical value. Accordingly, the book value of assets and liabilities transferred in demerger represents fair value of the assets and liabilities transferred. Therefore, the net value of assets of financial services business transferred under the demerger would be Rs. 1721.61 crores on which deemed dividend has to be calculated. 104. Without prejudice, the dividend income is taxable u/s 56 of the Act. Rule 11UA provides for computation method to arrive at fair market value of shares for the purpose of section 56. Thus, even if the shares issued by the resulting company is to be considered as dividend, its fair market value is to be computed following Rule 11UA, which works out to Rs. 39.51 per share. The affidavit filed by the Assessing Officer before the Hon‘ble Bombay High Court in WP No.1405/2019 (Pg. No. 1115 and 1141 FPB Vol III), Revenue has accepted that the amount of deemed dividend is to be computed by applying Rule 11UA. The said affidavit is also part of remand report filed by the AO to CIT(Appeal) (Page 1056-1146 FPB Vol III). 105. AO has wrongly applied Rule 11UA taking the valuation date at subsequent point of time, the CIT(A) rightly accepted that listing price of 1 st Sep. cannot be the basis for valuing deemed dividend. On 04.07.17, ABCL share was unlisted share. Therefore, as per the provision of the Act r.w.r. 11UA, only option left is to do it on the basis of 11UA (1) (c) (b), which is NAV Basis. The Appellant submits that CIT(A) is wrong in taking PWC Valuation Report. Revenue cannot take a different stand than the stand taken in the affidavit filed before the Hon‘ble Court. In DCIT Vs. Ozone land Agra Pvt. Ltd. (4854/M/16) (Mum ITAT) (Pg. 665-677 of Legal Paper Book, Vol. II) it is held that when statute provides for rule to compute fair value, the AO cannot choose any other method. Page | 78 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 106. The Appellant submits that the CIT(A) ought not have rejected the Valuation Report under Rule 11UA submitted by the Appellant without bringing on record any evidence contradicting the finding given in the Report. The CIT(A) erred in rejecting the valuation report merely on the basis of standard disclaimers made in the Report, which at best would lead to a fresh determination of Valuation under Rule 11UA. Once the position is accepted that valuation has to be done as per Rule 11UA, the CIT(A) ought to have carried out such an exercise on its own, if the valuation submitted by the Appellant was to be rejected. It is pertinent to note that similar disclaimers are also given in the PWC Report on which the CIT(A) has vehemently relied upon (Pg. No. 1044 Vol III of FPB) 107. Without prejudice, Valuation Report of ABFL states that the value of Shares as per Rule 11UA comes to Rs. 84.10. The CIT(A) ought to have considered the same. 108. Without prejudice The Appellant submits that accumulated profits needs to be derived from the financials- CIT Vs. Urmila Ramesh (230 ITR 422) (SC) (Para 13, Pg. 598, Pg. 591-601 of Legal Paper Book, Vol. II). 109. The Appellant submits that Valuation date should be taken as the Board meeting date of 11.8.16 when the Swap ratio was determined, agreed and decided. All activities thereafter were formalities to implement the decision. Shareholders approved scheme in April 2017, the Hon‘ble NCLT approved was on 01.06.2017. The Appellant places reliance on the following decisions for the proposition that valuation has to be taken on the date on which transaction was agreed upon. a. LahiriPromotorsVs ACIT (ITA 12/Vizag/2009) (Para 12, Pg. 612, Pg. 602-613 of Legal Paper Book, Vol. II) b. ITO VsModipon Ltd (154 ITD 369) (T Del) (Para 13, Pg. 618, Pg. 614-628 of Legal Paper Book, Vol. II) 110. The Appellant further submits that if more than one fair values are available, the Assessee can choose the valuation. The Appellant places reliance on the decision of Shree Cement Ltd VsAddl CIT (160 TTJ 529) (Jaipur Tribunal) (Para 13, Pg. 638, Pg. 629-648 of Legal Paper Book, Vol. II), approved by Page | 79 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Rajasthan HC in ITA No. 85 of 2014 (Para 18-19, Pg. 658, Pg. 649-664 of Legal Paper Book, Vol. II) a. In this case, the AO chose listing price, CIT(A) chose PI Fund subscription price. The assessee submits adoption of rule 11UA price b. In such case, the Appellant be allowed to choose any one fair value 111. The Appellant submits that price at which shares were allotted to PI fund is not relevant as the same is not comparable to existing shareholder of holding company. 112. Without prejudice the Appellant submits that Rate of Dividend Distribution Tax cannot exceed rate as per DTAA in case of non- resident / foreign company shareholders. Reliance is placed on the decision of Giesecke Devrient (India) Pvt Ltd (Delhi ITAT) (Pg. 683-697 of Legal Paper Book, Vol. II) Submission for the proposition Dividend covered under section 2(22)(a) does not come within the ambit of section 115-O. 113. Section 115-O of the Act stipulates that ―any amount declared, distributed or paid by such Company by way of dividend (whether interim or otherwise)‖, shall be charged to additional income tax at the rate of fifteen percent. The Appellant submits that dividend referred to sub-section 1 of section 115- O of the Act refers to dividend declared and approved under the Companies Act and no other Dividend. The Appellant submits that deeming fiction provided under section 2(22)(a) of the Act do not travel beyond the provisions of that section. It is settled proposition that legal fictions are restricted to the purpose it sought to achieve and cannot expand beyond its legitimate field. The Appellant submits that any other interpretation would make the words used subsequent to dividend being ―whether interim or otherwise‖ a dead letter. The Appellant submits that only interpretation which can be advanced to make the subsequent words not a dead letter is to hold that dividend referred to in section 115-O of the Act is ―dividend‖ as declared under the Companies Act. The Appellant submits that it is settled principle that words Page | 80 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 employed by the legislature cannot be reduced to a dead letter and such an interpretation must be avoided.‖ 26. Further the 3 rd submission of the learned senior advocate is as Under: - ―On the conclusion of the hearing on July 7, 2021, the Hon‘ble Bench has required the Appellant if it so chooses, to file a short written note on the question of whether the extended definition of dividend as per section2(22)(a) of the Income-tax Act, 1961 ( ̳the Act‘) will fall within the ambit of section 115- O. In addition to contentions raised vide our submission dated April 29, 2021, we submit as under:- 1. For Your Honors ready reference, relevant extract of section 115-O and 115Q of the Act are reproduced hereunder: “Tax on distributed profits of domestic companies. 115-O. (1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003 but on or before the 31st day of March, 2020, whether out of current or accumulated profits shall be charged to additional income-tax hereafter referred to as tax on distributed profits at the rate of fifteen per cent: [Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this sub- section shall have effect as if for the words "fifteen per cent", the words "thirty per cent" had been substituted].” Finance Act2018have inserted proviso, w.e.f. 01-04- 2018 “115Q. If any principal officer of a domestic company and 2018 the company does not pay tax on distributed profits in accordance with the provisions of section 115- Page | 81 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply. Explanation. —[***]” *** Omitted by Finance Act, 2018, w.e.f 1-04-2018, Prior to its omission, Explanation read as under: “Explanation - For the purpose of this Chapter, the expression “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof” 2. The submission of the Appellant is three-fold and is as under: - i) Section 115-O of the Act provides that a domestic company shall be charged with additional income tax over and above its total income when such company declares, distributes, or pays dividend (whether interim or otherwise). The Appellant submits that the Appellant has not declared, distributed, or paid any amount to its shareholders. It is further submitted that such amount has to be paid ̳by way of dividend‘, which condition is admittedly not fulfilled in the present case as the Appellant has neither given any amount to its shareholders by way of dividend. In relation to the condition of ―distribution‖ of dividend, the Appellant reiterates the submission made in relation to non-applicability of section 2(22)(a) of the Act that;(a)There has been no distribution at all in as much as shares of Aditya Birla Capital Limited came into existence on allotment; and further (b) There has been no distribution made by the Appellant to its shareholders. Further, even if one was to take the view that there is a distribution of asset as contemplated under section 2(22)(a) of the Act, still there is no ̳distribution of dividend‘ as required under section 115-O of the Act. Hence, the provision of section 115-O is not applicable. Page | 82 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ii) The dividend referred to in section 115-O of the Act must mean dividend as understood in the normal parlance or as understood under the Companies Act. It is submitted that, the extended definition of dividend under section 2(22) does not fit into the scheme of section 115-O of the Act. The Appellant further submits that this is made abundantly clear by use of the words ―interim or otherwise‖ in section 115O of the Act, which clearly supports the view that the term dividend is to be interpreted as is normally understood and not by applying the extended definition. Further, it is submitted that section 2 starts with ―In this Act, unless the context otherwise requires‖. In the present case it is submitted that the wordings of 115-O of the Act requires the term dividend to be interpreted differently from the definition of deemed dividend under section 2(22) of the Act. The Appellant submits that the proviso to section 115- O(1) cannot be pressed into service to contend that the extended definition given in section 2(22) ought to be applied to section 115-O.It is well settled proposition that a proviso normally does not extend the scope of the main section and it only creates an exception to the main section. Therefore, the proviso cannot be interpreted to extend the scope of the main section. Without prejudice, even if it is held that the proviso extends the meaning of the term dividend, in section 115-O, it can only extend it to dividend referred to in sub- clause (e) of section 2(22) of the Act and no other sub-clauses of section 2(22) of the Act. The Appellant submits that Revenue has not appreciated the difference between sub-clauses (a) to (d) of section 2(22) of the Act on the one hand and sub-clause (e) of section 2(22) of the Act on the other hand. Whereas sub-clauses (a) to (d) deal with distribution, inter alia, including of assets to shareholders, sub-clause (e) deals with payment of any sum, which can only be in monetary terms. Therefore, the Appellant submits that there is no Page | 83 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 question of sub-clauses (a) to (d) of section 2(22) of the Act being covered under the term dividend under section 115-O of the Act. iii) The Appellant further submits that Explanation to section 115Q of the Act which previously widened the scope of the term ―dividend‖ has been omitted from April 1, 2018. The Appellant submits that it is settled position of law that once a provision is omitted from the statute, without any saving clause, it means that the said provision must be held as never being on the statute in view of section 6 and 6A of General Clauses Act, 1897. The Appellant in this regard draws Your Honors attention to Pg. No. 755 – 756 of Principles of Statutory interpretation by Justice G.P. Singh (14 th Edition): “Under the common law rule the consequence of repeal of a statute are very drastic. Except as to transaction past and closed, a statute after its repeal is as completely obliterated as it had never been enacted. The effect is to destroy all inchoate rights and causes of action that may have arisen under the repealed statute. Therefore, leaving aside cases where proceedings were commenced, prosecuted and brought to finality before the repeal, no proceedings under the repealed statute can be commenced or continued after the repeal.” The Supreme Court in the case of Fiber Board P. Ltd. vs. CIT (376 ITR 596) has held that ―repeal ―would include ―omission‖ and any other interpretation would be wholly superfluous. Therefore, the Appellant submits that once the Explanation providing for extended meaning of ―dividend‖ has been omitted, dividend has to be interpreted as understood in its common parlance as provided for in the Companies Act. The Appellant says that it is possible to contend that the present appeal is concerned with assessment year 2018-19, therefore, the law as on the first day of the assessment year i.e. 1 st April, 2018 has to be seen, as Page | 84 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 on which date the Explanation was not part of the statute. 3. Consequence of the interpretation canvassed by the Revenue :– The Appellant submits that the proposition canvassed by the Revenue is that the term ―dividend‖ in section 115-O of the Act covers even deemed dividend referred to in section 2(22) of the Act. The Appellant submits that the said interpretation would lead to inevitable consequence that all dividend, including dividend deemed under section 2(22)(e) of the Act would be exempt in the hands of the recipient under section 10(34) of the Act. This would also mean that all cases where such dividend has been taxed in the hands of the recipient would have to be deleted.‖ 27. During hearing, the learned senior advocate further referred to the factual paper book volume – I (in 3 volumes containing 1311 pages which was earlier submitted on 11/1/2021 was also extensively referred. He further referred to the factual paper book volume – II submitted on 22 nd of March 2021 and legal paper book volume – I containing 709 pages filed on 23/3/2021, legal paper book volume – II from 710 – 742 pages submitted on 30 June 2021 was also referred. Further legal paper book volume – III containing pages 743 – 838 filed on 14/10/2021 was also referred to. He also extensively referred all 3 submissions made on 19/4/2021, 30/4/2021 and 9/7/2021 filed during the course of earlier hearing before the other Constitution. 28. Further on several queries raised by the bench on 28/3/2022 he referred to the interim order of The National Company Law Tribunal dated 6/2/2017, communication dated 13/9/2017 to the shareholders regarding apportionment of cost of acquisition cost demerger, relevant extract of notice is sent to the shareholder on effect of scheme of arrangement, relied upon rule 8 of The Companies (Compromises, Arrangements And Amalgamations), Rules, 2016 and report dated 31/3/2017 of the official liquidator of Madhya Pradesh. He submitted that during hearing before the national company law tribunal the Page | 85 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 official liquidator respondent. Further the income tax department did not raise any objection to the scheme before the NCLT. 29. On 5/4/2022 he referred to the relevant extract of the balance sheet, profit and loss account and note on deferred tax liability as per the annual report of the assessee for financial year 2017 – 18 and breakup of the deferred tax liability related to financial services business and statement showing net assets of financial services business after excluding the shares of Aditya Birla finance limited and deferred tax liability pertaining to those shares to demonstrate that the assessee has transferred an undertaking of financial services business which is capable of running on its own on standalone basis and is a going concern. He also explained the net worth of the financial services business undertaking transferred. 30. To demonstrate the above aspect further on 6/4/2022 he referred to the relevant extract of notice dated 15/2/2017 sent to shareholders, secured and unsecured creditors, statement of assets and liability of financial services business as on 31/12/2016 and approval dated 30/1/2019 obtained by the assessing officer from the principal Commissioner of income tax for issuing notice u/s 133 (6) for commencement of proceedings for dividend distribution tax chargeability. 31. On the issue of transfer of undertaking showing that it is compliant with the provisions of Section 2 (19 AA) of the income tax act, on 11/4/2022, learned senior advocate referred to the copy of the decision of the coordinate bench [ 70 TTJ 789 ] and Honourable Bombay High Court in case of Texspinn engineering and manufacturing works [ 129 Taxman 1] on the issue of distribution to shareholders, along with the relevant extract of commentary of Sampath Iyengar on income tax where Definition of Dividend is mentioned and Dr raja Chelliah recommendations are considered, on interpretation of Statues of Shri GP Singh on consequence of repeal of section to show that Dividend Distribution tax is not applicable on dividend u/s 2 (22) (a) of the Act Page | 86 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 32. On 12/4/2022 he extensively referred to the decision of the Honourable Supreme Court in case of Fiber Boards private limited 376 ITR 596 (SC ) on the issue of omission of provisions of the Act 33. on 13 July 2022 he referred to the copy of the service tax registration certificate obtained by the company to show that assessee had financial services business and he referred to the decision of the Honourable Karnataka High Court in case of KBD sugars and distilleries Ltd. Dated 30-06-2022 in ITA no 169 of 2014. 34. All his submissions revolve around the fact that the i. demerger entered by the assessee is tax compliant u/s 2 (19AA) of the act as assessee has demerged an undertaking with all its assets and all liabilities as a going concern ii. It complies with all the conditions laid down therein. iii. even otherwise, there is no distribution of assets by the assessee to the shareholders, iv. there are no accumulated profits, v. Dividend distribution tax is not chargeable on the deemed dividend and the order passed by the lower authorities are not sustainable. vi. He also extensively submitted that the only point of time available with the revenue to challenge the scheme is before the national company law tribunal, despite notice to the AO, no objections were raised, therefore, now the income tax Department is attempting to rewrite the scheme already approved by the national company law tribunal which is not in accordance with the law and not permissible. Submissions on behalf of the Assessee post directions of LD DRP dated 30/6/2022 for AY 2018-19 whenThe Ld. DRP in assessment proceedings have held that Demerger of the assessee complies with all the conditions of section 2 (19AA) of The Act, Page | 87 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 35. At the fag end of hearing, Assessee submitted the copies of directions of LDDRP dated 30-6-2022 in assessment proceeding of the assessee. ld. Sr Advocate submitted that the assessee has filed return of income on 30/11/2018 which was revised on 29/3/2019. In revised return the assessee company has declared total income of ₹ 20,701,265,313 for assessment year 2018 – 19. The learned Deputy Commissioner of Income Tax, Transfer Pricing – 2 (2) (1), Mumbai passed an assessment order dated 30/7/2021 making an adjustment of ₹ 2,033,833,017/– on account of international transaction and domestic transactions. The draft assessment order in this case was passed on 30/9/2021 u/s 143 (3) of the income tax act. The assessee filed an objection before The Dispute Resolution Panel – 1, Mumbai. In the assessment order the learned assessing officer has held that the transaction of demerger is not covered within the exception contained in the provisions of Section 47 of the income tax act as it is not a tax compliant demerger. This action has been taken by the learned assessing officer relying on the order of the learned assessing officer and the CIT (A) in proceedings u/s 115Q read with Section 115O of the act (the impugned order in appeal before us). As per that order the identical reasoning was given by the learned assessing officer holding that the Simultaneous merger and demerger is for enrichment of the shareholder of the assessee in a camouflaged manner and avoiding payment of taxes on capital gains and dividend distribution tax in the hands of the assessee. The learned assessing officer further alleged that the consideration in the form of shares of Aditya Birla capital limited was receivable by the assessee and the same has been distributed to the shareholders. Therefore, the transaction is liable to tax as capital gain. He submitted that the identical reasoning given by the learned assessing officer that the demerger is not tax compliant u/s 2 (19 AA) of the act and therefore transaction is subject to chargeability of capital gain. He submitted that assessee preferred an objection before the learned dispute resolution panel which has now dealt with the issue as per objection Page | 88 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 number 14 – 16 at Para number 25.1 onwards in direction dated 30/6/2022 wherein the learned dispute resolution panel held that:- i. AO is incorrect in holding that there was no financial services business being carried out by the Aditya Birla nuvo Ltd prior to the implementation of composite scheme of business reorganization ii. before the demerger, the merged entity held total financial assets of ₹ 5853 crores and considering the details of assets &liabilities transferred by the assessee to the demerged entity of the financial services business, it was capable of being run as a going concern, holding that Aditya Birla nuvo limited did carry out the financial services business prior to the implementation of the scheme iii. The dispute resolution panel notwithstanding the finding of the learned national company law tribunal that the scheme is compliant of Section 2 (19 AA) of the act examine the scheme in various clauses of the provisions of the law held that subsection (i) of Section 2 (19 AA) are satisfied. iv. The DRP further held that as per paragraph number 15.2.9 of the scheme which provides that all assets , liabilities, loans, obligation, duties etc. of the demerged undertaking are transferred to the resulting company and on verification of the details of liabilities and assets the subsection (ii) of Section 2 (19 AA) is satisfied. v. The DRP further held that that the learned assessing officer has not disputed that the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in books of accounts immediately before the demerger and therefore it is compliant of clause (iii) of the provisions of Section 2 (19 AA) of the act. Page | 89 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 vi. The learned dispute resolution panel further held that there is no dispute with respect to the compliance with subsection (iv) and (v) of Section 2 (19 AA) of the act. vii. The learned dispute resolution panel further held that the transfer of the undertaking is on a going concern basis and therefore it complies with the provisions of subsection (vi) of the act viii. the learned dispute resolution panel further rejected the finding of the learned assessing officer that scheme is a mere transfer of assets and liabilities and no new resulting company came into existence post demerger and that there was a financial service business in demerged entity which could have continued doing business as a finance company on standalone basis and is capable of being run as a going concern ix. With respect to the objection of the learned assessing officer that financial services business is hived off for only enrichment of the shareholders of Grasim industries limited, the learned dispute resolution panel held that if such interpretation is entertained then it would amount to completely nullifying the provisions related to demerger. x. The DRP held that the revenue can examine NCLT approved scheme for compliance of tax laws however it cannot rewrite the scheme to hold the arrangement that it is not tax compliant demerger. xi. It was further held that clause (iv) of Section 2 (19 AA) clearly provides that in consideration of demerger, the resulting company shall issue shares to the shareholders of the demerged company. In the present case this has been complied with as consideration in the case of demerger is always receivable by the shareholders of the demerged company and not by the demerged companies itself and if contentions of the learned assessing officer are accepted, no tax compliant demerger can ever take place. Page | 90 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 36. Thus, it was submitted that, the direction of the learned dispute resolution panel are binding on the assessing officer, and as the learned dispute resolution panel as per its directions held that the demerger is tax compliant as per the provisions of Section 2 (19 AA) of the act, now the learned assessing officer cannot say in this proceedings before the coordinate bench that the demerger is not tax compliant. He submitted that the learned assessing officer cannot now take a stand which it has taken while passing the order u/s 115O read with Section 115Q which is in challenge before the coordinate bench now. He therefore submitted that the direction of the learned dispute resolution panel has closed this case in favour of the assessee. 37. He concluded his argument by saying that in view of his earlier submission as well as the direction of the learned dispute resolution panel, the appeal of the assessee on all the grounds deserves to be allowed and appeal of the learned assessing officer becomes infructuous and hence should be dismissed. SUBMISSION OF REVENUE PRIOR TO SUBMISSION OF Direction of The Ld. DRP 38. The learned ASG Shri Anil Singh along with Shri Akhileshwar Sharma, Special Counsel led argument on behalf of the learned assessing officer. The revenue has filed 2 volume of paper books containing 634 pages, made written submission on 16/4/2021 of 27 pages relying heavily on the decision of the Honourable Supreme Court in case of CIT versus Sutlej cotton Mills supply agency Ltd (1975) 100 ITR 706 (SC) and the decision of the Honourable Delhi High Court in case of CIT versus Salora international Ltd 386 ITR 580 (Delhi) (2016) submitting that details of financial services business as claimed by the assessee of Aditya Birla Nuvo limited is merely a high sounding word and it is like an ordinary activity of fund management which is common in any business of group concern. And therefore, it is apparent that there is Page | 91 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 no financial services business carried on by Aditya Birla Nuvo limited. It was further claimed that there is no rewriting of the scheme by the learned assessing officer but he is merely examining whether the arrangement complies with the conditions of Section 2 (19 AA) of the act and merely because scheme is approved by national company law tribunal it would not constitute a valid demerger as per the income tax act. The AO is required to look into the applicability and compliance of Section 2 (19A A) of the act. It was vehemently stated that the scheme may not be a deliberate attempt on the part of the assessee to evade tax but even innocent non-compliance of the statutory provision or failure to fulfil all the requisite conditions Under the income tax act may attract certain tax liability. It was vehemently stated that there is no merit in the argument of the assessee that revenue is now stopped from objecting to the scheme saying it is not in compliance with Section 2 (19 AA) of the act as it failed to raise the objection before the national company law tribunal when the scheme was being considered. A specific reference was also made to paragraph number 19 of the order of the NCLT wherein the Grasim industries Ltd undertook to discharge the income tax, service tax and other taxes in accordance with law after implementation of the scheme. Therefore, the assessee was fully aware of the liability arising Under the Income Tax Act 1961 as it has given an unconditional undertaking to discharge the income tax liability. 39. On 19/4/2021, further written submission was made to show whether the demerger is in compliance with the mandate of Section 2 (19 AA) of the income tax act or not. The learned special counsel submitted that assessee company never had an undertaking which could be transferred and it was argued that that the question of Aditya Birla Nuvo limited carrying on business of investment in financial services merely because it held shares of companies that allegedly did financial services business or because the companies were given funds by Aditya Birla nuvo Ltd cannot and would not amount to Aditya Birla Nuvo limited conducting the business of financial services. Reference was Page | 92 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 made to a press release of 2008 which shows that the services were allegedly rendered only by other companies or entities and not by ABNL itself therefore admittedly Aditya Birla Nuvo limited did not have the requisite permission/approvals for carrying on these businesses including financial services business. In the end, it was contended that Aditya Birla Nuvo limited was never carrying on financial service business but was merely holding shares of other companies, providing funds to the companies that were allegedly engaged in financial services business. As Aditya Birla Nuvo limited was not carrying on a business activity, the question of the same being transferred as a whole cannot and does not arise and what has been transferred are merely individual assets and liabilities which do not constitute an undertaking and business activity which do not fall within the ambit of the provisions of Section 2 (19 AA) of the act. 40. Further on 19/05/2021, once again the learned special counsel reiterated that there is a distinction between the assessee‘s business and business of subsidiaries. The assessee has failed to show that who are its clients, service recipient, how many transactions took place as financial transactions, what are the taxes charged on the processing fees, payment of goods and service tax, service tax and securities transaction tax or any other indirect tax collected on the processing fee charged from its clients, periodic return with regulatory authorities and licenses issued in its own name to conduct financial services business. It was submitted that unless this is shown it cannot be accepted that there was a financial services business conducted by the assessee. It was further stated that merely because interest income is taxed Under the head profit and gains of the business it cannot be accepted that a financial service business was in existence. This is so because the assessee in its profit and loss account has disclosed the interest income under the head other income. It was further contended that none of the decision cited by the assessee support the proposition that assessee was carrying any financial services business. Further merely mentioning the same in the tax audit report cannot Page | 93 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 help the case of the assessee without mentioning in the ROI. It was further stated that page number 1000 and 1009 of the factual paper book of the assessee gives the details of the financial business activity of the assessee which is nothing but interest on fund transferred to group companies. Thus, there is no systematic business activity carried on by the assessee. In the same submission, coming to the aspect of examining the scheme approved by NCLT of merger and demerger, it was stated that the scheme was prepared by the assessee and same cannot be deemed to be the findings of the national company law tribunal. The national company law tribunal order nowhere records its findings that the scheme is tax compliant and in accordance with Section 2 (1B) and Section 2 (19 AA) of the income tax act. Same is also beyond the jurisdiction of national company law tribunal to state so. with respect to the applicability of the provisions of Section 2 (22) (a) of the act, it was stated that the assessee pursuant to the scheme of merger and demerger has entered into a preordained series of transactions whereby shares of Aditya Birla finance limited were first of transferred to the assessee. These shares are assets are then transferred to Aditya Birla capital limited in return for which the shareholders of the assessee have received shares of Aditya Birla capital limited. Thus a transfer/release of assets of the assessee has resulted in distribution in favour of the shareholders of the assessee company and accordingly the present transaction squarely falls within the ambit of provisions of Section 2 (22) (a) and has been rightly brought to tax. It was further contended that reliance on the CBDT circular of 1967 is misplaced since the same deals with the amalgamation and not the demerger. The presently the issue is of demerger and therefore that circular does not apply. 41. On the appeal of the ld. AO It was further stated that the valuation adopted by the CIT – A is not proper and the valuation adopted by the learned assessing officer is correct because the learned assessing officer has taken the value arrived at the traded price of those shares which is most transparent and proximate in time with the comparable Page | 94 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 taken from the stock market when the shares of Aditya Birla capital limited was listed on 1/9/2017 at Bombay stock exchange. It was further claimed that levy of interest u/s 115P is proper and consequential. 42. Further submission was made on 7/7/2021, relying on the decision of the Honourable Delhi High Court in case of salora international Ltd (supra), it was submitted that that the present distribution of shares to the shareholder of the assessee is nothing but a distribution and/or payment of dividend to the shareholders of the assessee and is correctly chargeable to tax u/s 115O of the act. 43. On 9/7/2021,on query by the bench, whether on the deemed dividend envisaged u/s 2 (22) of the act, the provisions of Section hundred and 15 O of the act applies or not, the revenue submitted in affirmative and relied upon the decision of the Honourable Bombay High Court in case of principal Commissioner of income tax versus Kayani Jamshid Pandole in ITA number 387 of 2016 dated November 19, 2018 in para number 12 it was held that the plane effect of the explanation, therefore, would be that even the deemed dividend u/s 2 (22) (d) of the act would be covered for the purpose of chapter XIID. Inescapable conclusion, therefore, would be that such dividend would exempt from tax in the hence of the receiver in terms of Section 10 (34) of the act. Therefore, it was submitted that even on the deemed dividend distribution tax is payable. 44. On 5/5/2022 the learned ASG appeared along with the special counsel and submitted a written note which is as Under: - ―The challenge in both the Appeals is to an Order dated 24th September 2020 (Pg 390 of the Department's paper book) passed by the Commissioner of Income Tax (Appeals) in an appeal preferred by the Assessee against an Order dated 14th March, 2019 of the AO. By the Impugned Order the Hon'ble CIT (Appeals) has confirmed the Order of the AO on all aspects except on the point of valuation of the dividend which is assessable to tax (Ground No. Page | 95 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 5 page no-620 of CIT(A), finding of AO on the issue of valuation page no238-243) The Appeal of the Department is limited to challenging this finding whilst the Assessee impugns the entire Order of the CIT (Appeals). Principal Issues that arise for consideration in these proceedings 1. Whether the Demerged Financial Services Business constitutes an Undertaking as per Section 2(19AA) of the Act and the Demerger fulfils the conditions laid down in Section 2(19AA) of the Act? 2. Is Revere seeking to go behind the Scheme or challenge the Scheme as alleged by the Assessee? 3. Is there a case of Deemed Dividend in the present transaction? Applicability of Section 115-0 4. What should be the valuation of the dividend in such a case? Transaction/Scheme of Merger 1. Originally there were all together three companies' which had inter connection of holding with each other (pre-composite scheme ABNL.ABFSI. (Later became ABCL) and ABFL 2. ABNL owned 9.77% of ABFL and 100% of AFSL (Later became ABCL) 3. ABFL owned 90.29% of ABFL. 4. There was merger of ABNL into GIL. i.e., the assessee. Therefore, ABNL did not exist after merger. 5. Since ABNL, merged into GIL, all its shareholders merged with GIL. 6. ABFSL, continued to have 90.23% in ABFL (which was earlier 100% reduced as certain percentage went to private companies") 7. 4.7.2017: Transfer takes place whereby the alleged financial services business of merged GII went to ABFSL (renamed as ABCL). Page | 96 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 8. Thus, ABFSL became 100% holding company of ABFL and for this transfer ABFSL allotted shares of ABFSL directly to the shareholders of merged GII 9. The entire purpose and object of the scheme was to benefit the shareholder of original GIL and ABNL or the merged GIL. Had this demerger step not taken place either ABNL or merged GIL would have been constrained to sell 9.77% of ABFL to ABFSL. 10. For this sale ABFSL would have paid monies to merged GIL, which monies would be accumulated profits, which would then be given to the shareholder of merged GIL as dividend/liable to tax and therefore to avoid tax this entire scheme has been worked out. 11. Our submission is that the transaction is not a demerger as contemplated under Section 2(19AA). 12. Section 2(19AA) contemplates transfer of an undertaking that is the business activity undertaken as a whole and not the individual assets or liability or combination of both as it would not constitute a business activity. 13. Therefore, there must be an existing business activity which was being carried out for it to be demerged. 14. There has to be a distinction drawn between carrying out financial services business and being the holding company of the companies that may be carrying on financial services business. 15. ABNL did not carry out financial services business itself but was the holding company of the companies that were carrying out financial services business [This distinction is most fundamental and crucial, also appears in finding and reasons given by CIT(A)] Broad Outline of Submissions on the Issues Page | 97 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 1. Whether the Demerged Financial Services Business constitutes on Undertaking as per Section 2(19AA) of the Act and the Demerger fulfils the conditions laid down in Section 2(19AA) of the Act? a) The submission of the Assessee is, inter alia, that Birla Global Finance Limited was a registered with RBI carrying on financial services (Pg 462). This company was acquired by ABNL in 2005 (Pg 464); -With this merger, ABNL became full-fledged financial services company engaged in retail asset finance, capital market, investment, life insurance, asset financing. b) ABNL carried out financial services business directly as a separate Division and through subsidiaries and JVs (Pg 465) c) Thus, the submission of the Assessee was that it carries on the business through a separate Division and through its subsidiaries and joint venture companies. d) Revenue Submissions 1. A perusal of Section 2(19AA) would evince that the sine qua non for the applicability of the said provision is that there must be a transfer by a demerged company of its one or more undertakings to a resulting company by fulfilling the conditions mentioned therein. 2. An Undertaking is defined as section 2(19AA). 2a. Therefore an undertaking as defined above clearly postulates the following elements viz. 1. Undertaking shall include 2. any part of an undertaking, or 3. a unit or 4. division of an undertaking or 5. a business activity taken as a whole, 6. but does not include individual assets or liabilities or any thereof not constituting a business activity. Page | 98 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 3. Hence, the Assessee would have to show that what has been transferred pursuant to a scheme of demerger is a business activity taken as a whole and not individual or liabilities or any combination thereof not constituting a business activity. 4. This aspect can be further broken down into two issues which may need to be addressed viz: - 1. Is there an existing business activity which was being carried out and demerged? 2. If no, then no further enquiry would arise. 3. if yes, then whether that business activity has been transferred as a going concern basis 5. It is submitted that a distinction needs to be drawn here between carrying out financial services business and being the holding company of companies that may be carrying on financial services business. 6. As would be evident from the record, highlighted herein below, ABNL did not carry out financial services business itself but was the holding company of companies that were allegedly carrying on financial services business. It is submitted that this distinction is the most fundamental and crucial aspect of the present case which bears out the reasoning and findings of the Learned CIT(A). 7. As explained earlier, the case of the Assessee is pegged on two legs viz ABNL carried out financial services business directly as a separate Division and through subsidiaries and JVs (Pg 465) Case of Separate Division 8. At this juncture, it may also be clarified that the ABNL was not making investments in the open market. All its purported investments were only in its group companies or sister concerns. 9. ABNL to have had a Corporate Finance Division as per the Balance Sheet produced by Assessee (Pg 96 of Assessee Paper Book). However, the investments holding of shares by ABNL was limited to its group concerns and/or sister concerns. No Page | 99 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 investments whatsoever were made in the open market or in non-related entities. Hence, in the first instance, it is submitted that merely holding of shares of a group company cannot and would not qualify as a business. Further, even allegedly providing financial assistance to group companies is part of deployment of surplus fund within the group and not a financial service business, 10. A business, it is trite, must have, inter alia, an element of risk and/or profit. None of the above mentioned elements exist in the present case qua the alleged "investments" made by ABNL in its group or sister concerns. Hence, on the face of it no business of financial services was done or is shown to be done by ABNL. 11.It is further submitted that this case is contrary to the record and the declarations of ABNL and thus, amounts to the Assessee blowing hot and cold the same time, which is impermissible in law. It may be noted that, 1. ABNL showed these as "investments" not as stock in trade. 2. The Annual Reports quoted (Pg 546 to 548) in the Order of the CIT(A) also show that no income from financial activities as business was ever shown. 3. Press Releases relied upon by the Assessee also show that the financial services business was done by other companies or entities and not by ABNL itself (Pg 116 to 183 of the Assessee Paper Book). 4. The Division shown in the Press Releases also do not show a financial services division in ABNL as is now being claimed (Pg 116 to 183 of the Assessee Paper Book). 12.Hence, it is submitted that firstly, these alleged investments, cannot and do not constitute a business and secondly, that this allegation of the Assessee is contrary to its own past conduct and hence, it would now be estopped from contending to the contrary Page | 100 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Case of Separate Division carrying out investment through subsidiaries and JVs 13. It is submitted that the other submission of the Assessee is that ABNL was the head and heart of the financial services business run by it through its subsidiaries and JVs. It is submitted that assuming whilst denying this to be true, the business of financial services even if controlled by ABNL, cannot and would not amount to ABNL carrying out the business of financial services. The business of financial services was being done only by the subsidiaries and JVs 14. The subsidiaries and JVs being separate juristic entities under the law cannot be equated to ABNL and would stand on a separate and independent footing. 15. Hence, on the face of it, ABNL was not carrying on financial services business. At the highest, it was the holding company of companies which were carrying on financial services business. The two however, cannot be equated. 16. Test is not whether Assessee had wherewithal to do the business but whether it actually carried out such a business on a going concern basis which was stand alone and hence could be transferred as an undertaking. 17. No liquidity or infrastructure to run a purportedly independent undertaking has been transferred which also negates the submission of the Assessee. 18. A simplicitor transfer of shares has taken place. These shares were shown as investments and not even as current assets by the assessee indicating that they were not part of the business of purchase and sale of shares either A mere glance at these assets and liabilities transferred/ hived off show that it is not capable of being run as an independent business of financial services on a going concern basis and does not qualify to be an undertaking as envisaged u/s 2(19AA) of the Act (Pg541); Page | 101 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 19. Considering the above, the tests and requirements of Section 2(19AA) are not met (Pg 555). 20. Lastly, and in the further alternative it is submitted that even on the own showing of the Assessee only the purported heart and brain is sought to be transferred and not the body. The heart and brain are unable to operate without a body and hence, on the own showing of the Assessee it is evident that not only was there no undertaking to transfer but that nothing that has been transferred has an independent existence which would qualify as an undertaking in terms of Explanation I of section 2(19AA) of the Income-tax Act 1961 much less a going concern. 21. As already pointed out, the Scheme of Arrangement will have to comply with section 2(19AA) of the Income-tax Act 1961. The requirement of the section is 1. It should be an undertaking: 2. The undertaking should be transferred as a going concern: 3. It should not include individual assets which do not constitute business activity. 22. The subsidiaries or JV's being separate entities under the law cannot be equated ABNL and would stand on an independent & separate footing, 23. ABNL did not show its holding of share as stock in trade but as long-term investment. 24. As already mentioned, there is a distinction between the assessee business and business of subsidiaries. The Assessee has failed to show what are his own business activities of financial services business. The Assessee has not shown 1. Who are its clients/ Service Recipients. 2. How may transactions take place allegedly as financial transactions. 3. What are the taxes charged on the processing fee. Page | 102 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 4. Payment of GST, Service Tax, STT or any other indirect taxes collected on the processing fee charged from its clients/service recipient. 5. Filing of periodic return with the Regulatory Authority. 6. Licenses issued in their own name to conduct Financial Services business. 25. The record of 1994, 2004 or 2005 will be of no help to Assessee. The Assessee must show its financial services business at the time of amalgamation and particularly demerger. The Assessee has failed to give any particulars of the financial business service activity. 26. The arguments of the Revenue is that the scheme in question does not pass the test under the Income-tax Act 1961. 27. The Revenue is not challenging the scheme. It is merely determining the incidence of tax, and this is clearly permissible as per the law laid down in para 18 and 19 in [2016] 70 taxmann.com 92 (Delhi) Commissioner of Income-tax v Salora International Ltd. para 46 to 48 in Indo Rama Textile Ltd (2012) (23 taxmann.com 390) (Del HC) 27. (2012) 24 taxmann.com 323 (Guj) Vodafone Essar Gujarat Ltd vs. Department of Income Tax. Is Revenue seeking to go behind the Scheme or challenge the Scheme? 28. As mentioned above, Revenue is not challenging or seeking to re-open the scheme which has been approved by the Hon'ble NCLT. Revenue is merely examining the tax implication of the scheme of arrangement. Such an exercise, it is respectfully submitted would the exclusive domain of the Tax Authorities. 29. Hence, the allegation that by assessing the tax payable on the scheme, the Department is seeking to rewrite or challenge the scheme must only be stated to be rejected. The Department is, in fact, seeking to tax the scheme which has been approved. Page | 103 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 30. This position is squarely covered by the judgments in Salora, Indo Rama (Delhi High Court) and Vodafone (Gujarat High Court). 31. Therefore, it is submitted that the Tax Authorities have merely examined the scheme to identify the true nature of the transaction and impose tax accordingly. This in no way affects or amounts to rewriting the scheme of arrangement as approved by the Hon'ble NCLT. ―32. Without prejudice to the above, in the alternative, it may be noted that even otherwise the Order dated 1 June, 2017 whereby the scheme was approved by the Hon'ble NCLT expressly provides that- ―......it is stated that the Scheme is, inter alia, in compliance with Section 2(1B) of the Income Tax Act, 1961 and it was further stated that Grasim Industries Limited undertakes the discharge the Income Tax Service Tax and other taxes, if any, in accordance with the low, after implementation of the Scheme.‖ (Para 19 Pg 317). Hence, ex facie, the Assessee undertook to discharge the tax liabilities that would arise. The Assessee having undertaken as do so, cannot seek to now resile therefrom and even otherwise, would be liable to pay the tax statutorily payable upon the said transaction scheme. Is a case of Deemed Dividend made out? 33. The Assessee has merely by entering a scheme of arrangement passed on the consideration receivable by it on transfer of assets to shareholders. 34. Thus, where Assessee directs third party to pay consideration in respect of any transaction transfer, the same tantamount to two separate transactions: firstly, receipt of consideration by the company and secondly, the distribution of the consideration to the shareholder. This is because the contract is between the company and the purchaser only, the Page | 104 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 benefits are transferred to the shareholders. Therefore, merely because physical payment has not been received by Assessee it cannot be concluded that there is no distribution made by the company to the shareholders. 35. Section 2(22) would have to be analyzed in detail. 36. A perusal of the same would show that the Assessee does not fall under what is not dividend in light of the fact that there has been no demerger as contemplated under Section 2(19AA). 37. The definition of what is dividend is an illustrative definition which begins by the word "includes" Hence, the Legislative intent to ensure that the word dividend is construed broadly, except for the few exceptions mentioned in the Section itself is evident. 38.Relevant facts 1. Pre-transfer/alleged demerger, the shares of ABFL were the assets of the Assessee: 2. Admittedly, this asset i.e., the shares of ABFL were owned by the Assessee and not its shareholders. 3. These shares of ABFL were transferred to ABCL. 4. Compensation in lieu of such transfer would be receivable by the Assessee only and or payable to the Assessee only, and not its shareholders. 5. However, as part of the structuring of the transaction, this payment was made by issuance of shares of ABCL, which were distributed to the shareholders of the Assessee. (NOTE: Shares receivable only by the Assessee were, distributed to its shareholders instead of the Assessee receiving them.) 39. The aforesaid facts would show that, as mentioned above, the Assessee has by way of the scheme undertaken two transactions as a part of the demerger:- 1. Part 1 1. Sale of the shares by the Assessee to ABCL; (Note: the word sale is used instead of transfer since, if not for a scheme, a Page | 105 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 transfer from one company to another company would be way of sale). 2. Monies for this sale would be receivable only by Assessee and would be its profits. 3. It may be noted that Explanations 1 and 2 to Section 2(22) of the Income Tax Act, provide, inter alia, that "the expression "accumulated profits wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956 and The expression "accumulated profits" in sub- clauses (a), (b), (d), and (e) shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in for include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place.‖ 4. Hence, it is submitted that the monies which would have been received against the of shares would be the profits of the company i.e. the Assessee and thus, its accumulated profits as per the Explanation to the said Section. 2. Part 2-Dividend Distribution 1. Instead of receiving the consideration for the sale of the shares in its coffers, the Assessee, directed these very "profits" of the Assessee to be distributed amongst its shareholders. 2. Hence, it is submitted that the Assessee has distributed its profits amongst its shareholders which would be nothing but dividend distribution. 40. In this connection, attention is invited to the Division Bench judgment of the Delhi High Court of Commissioner of Income tax Page | 106 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 v. Salora International Ltd. reported in [2016] 70 taxmann.com 92 (Delhi), wherein, it has been observed, inter alia, as under: - ―18, ...However, we are unable to appreciate any material difference, in so far as the incidence of tax is concerned, between a scheme of arrangement which has been approved by a Company Court under the provisions of the Companies Act, 1956 (or the Companies Act 2013) or any other binding arrangement agreement. Mere sanctioning or approval under Section 391- 394 of the Companies Act 1956 would not alter the character of the scheme or the nature of transaction embodied therein for the purposes of levy of income tax under the Act. To illustrate the aforesaid, let us take an instance of a company which enters into an agreement for sale of one of its undertakings (substantial) and in terms of the agreement, a part of the consideration is payable directly to its shareholders. The company also obtains the necessary approvals of its shareholders as required under the provision of Section 180 of the Companies Act, 2013, which is part material to Section 293 of the Companies Act, 1956 Another company which is identically situated enters into a similar arrangement, however, follows a different route and instead of directly approaching its shareholders, files a scheme of arrangement before the Company Court and makes an application for the requisite meetings to be convened, The Court gives directions for holding of the meetings and the entire transaction (the scheme) is placed before the members and creditors for obtaining their approval. After following the prescribed procedure, the Company Court sanctions the scheme. In either case, the nature of the transaction essentially remains the same. In the first case, it is effected by means of an agreement, which is binding and in the latter case, it is effected under the scheme of arrangement which too is binding under the provisions of the Companies Act, 1956 for the Companies Act 2013). In our view, Page | 107 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 there would be no difference as to the incidence of taxation on the sale effected through the two modes,” ... “27... We are unable to accept Mr Kapoor's contention that merely because part of the consideration for the transfer of the Panasonic Division had been paid to the shareholders of the Assessee by issue of fully paid-up shares the same could not be stated to have been "received or accruing" in favour of the Assessee...” ... “30...And as stated hereinbefore, the nature of the transaction embodied in the Scheme is indisputably one of transfer of an undertaking which belonged exclusively to the Assessee. Thus, no other person had any right to claim the sale consideration for transfer of the said undertaking. In the given facts, the only inescapable conclusion that can be drawer is that a part of the consideration to which the Assessee was entitled to, had with its consent been diverted to its shareholders. The Assessee cannot escape accounting for such part of the consideration merely on the ground that it did not receive it but was discharged by MTAIC by issuing fully paid shares to the shareholders of the Assessee in terms of the Scheme." 41. Considering the above, it is submitted that the four tests, as even identified by the Assessee, are covered and/or met in the present case: - a. Any distribution by a company - Assessee has distributed the sale proceeds receivable against the sale of its assets (i.e. the shares of ABFL) to the shareholders of the Assessee. b. Distribution must be of accumulated profits - the sale proceeds had they been received by the Assessee from ABCL, would have been a part of its accumulated profits. Page | 108 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 c. distribution must entail release of all or any part of the assets of the company-Assessee has released its assets i.e. shares of ABEL d. Distribution must be to its shareholders - sale proceeds which are due and payable to the Assessee only and not its shareholders have been distributed to its Shareholders. 42. Hence, it would be evident that there has been a distribution of dividend, which is thus, liable to be taxed as such. 43. Lastly, without prejudice to the fact that there is no ground raised either before CIT(Appeals) or in the Appeal Memo as to the applicability of Section 115-0, it 15 submitted that the same would be applicable in the instant case. 44. A perusal of Section 115-0, would evince that 1. the Section opens with non-obstanteclause. 2. It provides that any amount declared, distributed or paid by such company by way of dividends - hence, it is a disjunctive test, viz. that the dividend must either be declared or distributed or paid. This interpretation is also borne out sub- section 3 which further explains the disjunctive nature of the test 3. further, the dividend could be declared, distributed or paid either out of current or accumulated profits. 45. Hence, it is submitted that on a plain perusal of the provision read with the submissions of the Revenue above on the issue of dividend, the present distribution of shares to the shareholders of the Assessee is nothing but a distribution and/or payment of dividend to the shareholders of the Assessee and hence, liable to tax under Section 115-O of the Act The Assessee has merely by entering into a scheme of arrangement passed on the consideration receivable by it on transfer of assets to shareholders. Thus, where Assessee directs third party to pay Page | 109 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 consideration in respect of any transaction/transfer, the same tantamount to two separate transactions firstly, receipt of consideration by the company and secondly, the distribution of the consideration to the shareholder This is because the contract is between the company and the purchaser only, the benefits are transferred to the shareholders Therefore, merely because physical payment has not been received by Assessee it cannot be concluded that there is no distribution made by the company to the shareholders. Valuation of Dividend 46. There is a variation in the value of the shares as computed/used for different Purpose. ₹39.51 The Value of shares as computed by the assessee CA under Rule 11UA although saying that the same should not be construed as a certificate under Rule 11UA (See para 35.13 CIT(A) Order page no. 631) ₹84.10 The value of ABCL shares as computed in the valuation report of ABFL is ₹ 84.10 (CIT Order Para 35.17 page 633) ₹145.40 The Value adopted by CIT (a is the value of shares adopted for issuing shares of ABCL to PL fund ₹261.20 Share market value BSE as on 1 st Sep 2017 47. There is an element of subjectivity and possible bias in each valuation EXCEPT the transaction value of shares in the Bombay Stock Exchange. In the circumstances, the value arrived at by the Assessing Officer is the most transparent without any element of subjectivity which is the quoted price of shares in BSE. Further, the date of listing has been taken as it is most Page | 110 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 proximate date on which market value of shares of ABCL is available. The market value of the share is the most appropriate even for the reason that the listing of shares is done for the purpose of unlocking the true value of the shares. 48. Even otherwise and without prejudice to the above and assuming whilst denying that Rule 11UA is applicable even then the fair market value of quoted shares shall be the transaction value as recorded in such stock exchange 49. The findings of the CIT(A) is contrary to the apex judgment in CIT v. Central India Industries Ltd. 82 ITR 555 (SC) (Pg. 152- 158) wherein the apex court held as ―Therefore when dividend is received in kind, in order to find out the true income received by an assessee, the property that has been received by him has to be valued on the basis of its market value. Otherwise, it is not possible to compute the income received by him. It is well known that the face value of shares need not be their real value at a given point of time. The market price of particular shares may be very much more than their face value or very much less. It would be wrong to say that when shares are distributed as dividend, the person who receives them gets only their face value in terms of money What he really receives is the market value of those shares as on the date he became entitled to those shares. The value of the shares distributed does not depend on the valuation made by the distributing company The income earned by an assessee has to be determined by the authorities under the Act and not by a third person” 50. The shareholders of Appellant got enriched by the extent of the value of shares of ABCL allotted to them as a result of the re-structuring. The distribution of assets is getting effected directly to the shareholders bypassing the company itself. Had the company first sold these assets, it would have resulted into commensurate profits in the hands of the company leading to Page | 111 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 accretion of its reserves. Therefore, if it had distributed the monetary value to its shareholders, the issue of reserves would not have arisen. Since the book value of assets transferred is miniscule in comparison to the fair market value, the reserves of the company do not reflect the profit that would arise on transfer/sale of such assets. Therefore, the argument raised by the assessee is not applicable in the instant case. 51. The Ld. CIT(A) erred in ignoring that the Fair Market Value of per share at Rs.261.20 arrived at by the Assessing Officer is most transparent and proximate in time with the comparable taken from the stock market when the share of ABCL was listed on 01-09-2017 in BSE.‖ Thus, the Ld. ASG vehemently supported the orders of the lower authorities and submitted that impugned charge of deemed dividend is correctly made out on assessee and assessee is in default for payments of Dividend Distribution tax on the same, hence, interest is also correctly levied. On the value of deemed dividend, he supported the order of the LD AO. Submission of revenue after the issue of direction by the learned dispute resolution panel in case of the assessment proceedings of the assessee for assessment year 2018 – 19 (direction dated 30/6/2022) 45. When the learned senior advocate placed on record the direction issued by the learned dispute resolution panel in assessment proceedings of the assessee for assessment year 2018 – 19 dated 30 June 2022, where the learned Dispute Resolution Panel has accepted that the demerger is tax compliant i.e. as per the provisions of Section 2 (19 AA) of the act, now the learned assessing officer has also accepted the same by passing assessment order u/s 143 (3) rws 144C(13) of The Act , there is nothing left to be argued by revenue. Thebench also raised a question that in the impugned appeal the argument of the revenue is directly opposite to the direction of the learned Dispute Resolution Panel in the assessment proceedings of the assessee with respect to the taxability on account of the demerger. Page | 112 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 The bench also read out the relevant paragraphs of the dispute resolution panel‘s direction to show that all the arguments raised by the revenue in this appeal , impugned order of The ld. AO in this appeal and Appellate order of the learned CIT – A – advanced before us, comes to a nullity. 46. It was also pointed out by the bench that now the order of the learned CIT – A which is passed by the one Commissioner has now been overruled by a panel of 3 commissioners i.e. DRP. Further it was also pointed out to LD DR that directions of the learned dispute resolution panel are non-appealable by revenue. It was also pointed out that unless the direction of DRP are upset by invoking the powers of section 263 of the Act, the issue becomes final that the demerger is tax neutral as per the provisions of Section 2 (19 AA) of the act. Therefore, now the appeal of the assessee deserves to be allowed and appeal of the learned AO deserves to be dismissed. It was also pointed out that AO cannot blow hot and cold on the same issue taking a contradictory position in 2 different proceedings for the same assessment year. The bench also made it clear that only provision available with the revenue is to proceed under the provisions of Section 263 of The Income Tax Act, if it still wants to contest this appeal. The learned special counsel sought time to seek instructions. Request was acceded to. 47. Subsequently on 5/9/2022, the learned special counsel filed return note submitted by the Deputy Commissioner of Income Tax, Central Circle – 1 (4), Mumbai i.e. the learned AO submitting as Under: - ―Sub: Written submission in respect of Grasim Industries Ltd Vs DCIT CC 1(4), Mumbai vide ITA no. 1935/Mum/2020(PAN- AAACG4464B) for AY.2018-19. ************* This written submission is being filed on behalf of the respondent i.e., DCIT CC-1(4), Mumbai in the above case. 2. In the reference to the ITA no. 1935/Mum/2020, it is stated that the DRP order in the above mentioned case for the AY 2018-19 was passed on 30.06.2022 u/s 144C(5) of the Income Tax Act, 1961 Page | 113 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 (hereinafter referred as the Act) and the Order Giving Effect to the said directions of Hon'ble DRP was passed on 26.07.2022 as per the provisions of clause 10 and 13 of the Section 144C of the Act 3. 3. The provision of Clause (10) and (13) of Section 144C are hereby reproduced for your reference. Sec. 144C(10): Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. Sec 144C(13): Upon receipt of the directions issued under Sub- section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. As per the provisions mentioned above, the term 'shall' is used in the clause (10) & (13) of the Section 144C, so, it was compulsory to pass the order giving effect in the stipulated time frame in conformity of the directions of Hon'ble DRP. Further, it is submitted that earlier there was a provision to file further appeal u/s 253(2A) of the Act before the Appellate Tribunal against the directions/order of the Hon'ble DRP with the approval of the Principle Commissioner or Commissioner. However, this provision was omitted by the Finance Act, 2016 w.e.f. 01.06.2016. So, at present, there is no provision to file further appeal against the order/directions of DRP Accordingly, the Order Giving Effect passed on 26.07.2022 is the compliance to the provision of clause(13) of Section 144C. In respect to it, it is submitted that the department has not accepted the directions of the Hon the DRP on merit. So, department, in the absence of any appeal filing opportunity against the direction, has raised a rectification request under rule 13 of the Income Tax (DRP) Rules, 2009 as there are mistakes/errors Page | 114 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 apparent in the above directions given by Hon'ble DRP vide its directions dated 30.06.2022 The grounds for rectification request filed to the Hon'ble DRP as under: I. A cursory look on these assets and liabilities transferred by assessee would convey that these assets and liabilities could not constitute an independently running business and it could not qualify to be an undertaking as defined u/s 2(19AA) of the IT Act. In fact explanation to sec 2(19AA) clearly lays down that a mere transfer of some assets will not constitute a demerger, which actually seems to be happening in the present case (para 17.2 on page no. 152 of CIT(A) order) For the purpose of section 2(19AA), it is essential to satisfy that the undertaking being de merged is hived off as a going concern. In order to ensure if it is a going concern, the judicial authority should examine whether essential and integral assets like plant, machinery. man power etc. without which it would not be able to run as an independent unit, have been transferred to resulting company (para 17.3 on page no.152 of CIT(A) order). The business activity being de-merged ought to be a whole unit by itself, which can sustain and continue to carry on with the activities even after been hived off. Whatever a few assets in the form of shares of ABFL etc. have been transferred to ABCL could not qualify to be an undertaking, capable of being running independently as a business unit as envisaged u/s 2(19AA) of the Act. II. On perusal of the DRP order (para 25.4.6 on page 88-89 of DRP order), it is seen that the DRP has merely reproduced the details of assets and liabilities transferred by the assessee and erred in accepting the contention of the assessee that merely with minority stake of ABFL, assessee was able to carry out financial services business. The DRP has not given any finding as to how in the absence of essential assets like machinery, plant etc. the assessee was carrying out its business. Page | 115 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 III. DRP has not considered the fact that only subsidiary companies of the assessee were engaged in some financial services activities. Therefore as far as the assessee's own affairs are concerned, it did not have a standalone "financial business unit" (para 17.1 on page no. 150 of CIT(A) order). Therefore, once it is held that there was no financial services business carried out by assessee, it would be only subsidiary companies of the assessee, which were doing the financial services business. The business carried out by subsidiary companies cannot be regarded as business of the assessee. It is settled position that subsidiary company pays tax on its own income and assessee does not pay tax on the income of the subsidiary company. As a corollary, the business of the subsidiary cannot be considered to be business of the assessee. IV. The DRP has erred in not considering the contention of the revenue that the shares of ABFL were shown as investments and not as current assets, indicating that they were not part of a business of sale / purchase of shares either (para 17.4 on page no. 152 of CIT(A) order). This supports the case of the revenue as disclosing the assets as part of investment and not as stock in trade in books of accounts also shows that assessee is not carrying out any financial services business. V. Revenue has relied on various judicial precedents as given below (para 17.5 on page no. 153-154 of CIT(A) order), which have not been considered by the DRP:  L&T Finance Ltd Vs. Deputy Commissioner of Income-tax, Circle 2(2)(4), Mumbai (2017) 87 taxmann.com 03 (Mumbai-Trib.)  Duchem Laboratories Ltd v/s ACTT (2010) 47 DTR 0484 (Mumbai - Tribunal)  Avaya Global Connect Lid v/s ACIT (2008) 13 DTR 0309) - Mumbai Tribunal  CIT v/s Bharat Bijlee Ltd. (2014) 365 ITR 258 (Dom) - Hon'ble High Court of Bombay Page | 116 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19  DCIT v/s NOCIL Ltd. [2017) 159 DTR 0009 (Mumbai(Trib)] Bombay Tribunal,  Mahindra Engineering & Chemical Products Ltd. v/s ITO (2012) 51 SOT 0496)-Bombay Tribunal  M/s. KBD Sugars & Distilleries Ltd. vs. Asstt. Commissioner of Income Tax, Circle 11(5) Bangalore in ITA Now 1362 A 1363/Bang/2011,  Uma Enterprises Private Ltd in SB Company Petition No 14/2012, Above decisions support the contention of revenue that the assessee was not carrying out any financial services business activity. In view of the above, it is submitted that the department has not accepted the directions of the Hon'ble DRP on merit. So, department has raised a rectification request dated 17.08.2022 under rule 13 of the Income Tax (DRP) Rules, 2009 as there are mistakes/errors apparent in the above directions given by Hon'ble DRP vide its directions dated 30.06.2022. Your Honour is kindly requested to consider this written submission of the Revenue in the above case for your kind consideration.‖ The above note was also accompanied with a letter dated 23/8/2022 being rectification request Under rule 13 of The Income Tax (DRP) Rules, 2009 submitted to the learned dispute resolution panel by the Deputy Commissioner of income tax, central circle – 1 (4), Mumbai. 48. The learned special counsel did not argue anything on that date except submitting the above note. Thus, the argument of the revenue was also concluded. Relevant sections of The Income Tax Act 1961 A) Section 2 (19AA) of the Act [(19AA) 99 "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 1 of the Companies Act, 1956 (1 of 1956), by a demerged company of its Page | 117 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 one or more undertakings to any resulting company in such a manner that— (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger: 2 [Provided that the provisions of this sub-clause shall not apply where the resulting company records the value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger, in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015;] (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis 3 [except where the resulting company itself a shareholder of the demerged company is]; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting Page | 118 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of the undertaking is on a going concern basis; (vii) The demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. Explanation 1. —For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation 2.—For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include— (a) the liabilities which arise out of the activities or operations of the undertaking; (b) the specific loans or borrowings (including debentures) raised, incurred and utilized solely for the activities or operations of the undertaking; and (c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger. Explanation 3.—For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation 4.—For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or Page | 119 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 reconstruction fulfils 4 [such conditions as may be notified in the Official Gazette 5 , by the Central Government]. 6 [Explanation 5.—For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified 7 by the Central Government in the Official Gazette.] 8 [Explanation 6. —For the purposes of this clause, the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company— (i) is a public sector company on the appointed day indicated in such scheme, as may be approved by the Central Government or any other body authorized under the provisions of the Companies Act, 2013 (18 of 2013) or any other law for the time being in force governing such public sector companies in this behalf; and (ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf;] B) Section 2 (22) (a) and exceptions to deemed dividend (22) 14 "dividend" 15 includes— (a) any distribution 15 by a company of accumulated profits 15 , whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ; but "dividend" does not include— (v) any distribution of shares pursuant to a demerger by the resulting company to Page | 120 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] C) Section 2 (19AAA) Definition of Demerged Company (19AAA) "demerged company" means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company;] D) Section 2 (41A) definition of Resulting company (41A) "resulting company" means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger;] E) Section 115 O and 115P of The Act 8 [CHAPTER XII-D SPECIAL PROVISIONS RELATING TO TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES Tax on distributed profits of domestic companies. 69 115-O. 70 [(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of 71 [fifteen] per cent:] 71a [Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this sub-section shall have effect as if for the words "fifteen per cent", the words "thirty per cent" had been substituted.] 72 [(1A) The amount referred to in sub-section (1) shall be reduced by, — 73 [(i) the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and,— (a) where such subsidiary is a domestic company, the subsidiary has paid the Page | 121 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 tax which is payable under this section on such dividend; or (b) where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend: Provided that the same amount of dividend shall not be taken into account for reduction more than once;] (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. Explanation. —For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.] 74 [(1B) For the purposes of determining the tax on distributed profits payable in accordance with this section, any amount by way of dividends referred to in sub-section (1) as reduced by the amount referred to in sub- section (1A) [hereafter referred to as net distributed profits], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in sub-section (1), be equal to the net distributed profits:] 74a [Provided that this sub-section shall not apply in respect of dividend referred to in sub-clause (e) of clause (22) of section 2.] (2) Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on distributed profits under sub-section (1) shall be payable by such company. (3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of— (a) declaration of any dividend; or (b) distribution of any dividend; or (c) payment of any dividend, whichever is earliest. (4) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid. (5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon. 75 [(6) Notwithstanding anything contained in this section, no tax on distributed profits shall be chargeable in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or Page | 122 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 otherwise) on or after the 1st day of April, 2005 out of its current income either in the hands of the Developer or enterprise or the person receiving such dividend 76 [***]] : 77 [Provided that the provisions of this sub-section shall cease to have effect from the 1st day of June, 2011.] 78 [(7) No tax on distributed profits shall be chargeable under this section in respect of any amount declared, distributed or paid by the specified domestic company by way of dividends (whether interim or otherwise) to a business trust out of its current income on or after the specified date: Provided that nothing contained in this sub-section shall apply in respect of any amount declared, distributed or paid, at any time, by the specified domestic company by way of dividends (whether interim or otherwise) out of its accumulated profits and current profits up to the specified date. Explanation.—For the purposes of this sub-section,— (a) "specified domestic company" means a domestic company in which a business trust has become the holder of whole of the nominal value of equity share capital of the company (excluding the equity share capital required to be held mandatorily by any other person in accordance with any law for the time being in force or any directions of Government or any regulatory authority, or equity share capital held by any Government or Government body); (b) "specified date" means the date of acquisition by the business trust of such holding as is referred to in clause (a).] 79 [(8) Notwithstanding anything contained in this section, no tax on distributed profits shall be chargeable in respect of the total income of a company, being a unit of an International Financial Services Centre, deriving income solely in convertible foreign exchange, for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2017, out of its current income, either in the hands of the company or the person receiving such dividend. Explanation.—For the purposes of this sub-section,— (a) "International Financial Services Centre" shall have the same meaning as assigned to it in clause (q) of section 2 80 of the Special Economic Zones Act, 2005 (28 of 2005); (b) "unit" means a unit established in an International Financial Services Centre, on or after the 1st day of April, 2016; (c) "Convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder.] Page | 123 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Interest payable for non-payment of tax by domestic companies. 115P. Where the principal officer of a domestic company and the company fails to pay the whole or any part of the tax on distributed profits referred to in sub-section (1) of section 115-O, within the time allowed under sub- section (3) of that section, he or it shall be liable to pay simple interest at the rate of 81 [one] per cent for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. Reasons and Decision 49. We have carefully considered the rival contention and perused the orders of the lower authorities as well as the direction of the learned Dispute Resolution Panel dated 30 June 2022 in assessment year 2018 – 19 in case of the assessee. 50. We find that the direction of the learned Dispute Resolution Panel covers all the issues with respect to the taxability of the demerger of the financial services business undertaking under the provisions of Section 2 (19AA) of the income tax act. The direction of the learned dispute resolution panel deals with the objection number 14 – 15 – 16 raised by the assessee against the draft assessment order passed by the AO. The relevant objections are as Under: - ―Objection no 14 Demerger considered to be not compliant with the provisions of Section 2 (19 AA) of the act 1. Erred in passing the impugned order without providing opportunity of personal hearing to the assessee and with premeditated mindset. Further the conclusion of the learned AO was preordained, and the show cause notice was mere formality 2. erred in passing the impugned order and making following additions to the income of the assessee i. long-term capital gain Rs. 16595,24,91,129/- ii. short-term capital gain ₹ 6176,73,22,832/- iii. depreciation allowance disallowed ₹ 28,978,988/- Page | 124 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 iv. reduction in block of assets ₹ 285,744,847/– 3. erred in holding that the demerger of financial services business (FSB) undertaken by the assessee is not in accordance with the conditions of Section 2 (19 AA) of the act and also erred in holding that the transaction is basically a transaction for transfer of combination of assets and liabilities and thereby income arising on the transfer of the said assets is chargeable to capital gains u/s 45 (1) of the act 4. erred in holding that the conditions of Section 2 (19 AA) of the act are not complied on account of the following reasons: - i. considering that FSB was not a separate undertaking is no business activities in the nature of financial services have been carried out basis the perusal of the annual report in the return of income of the company and ABNL ii. considering that as part of demerger the assets and liabilities transferred from the assessee mainly and substantially is constituted by equity shares of Aditya Birla finance limited (ABF) and hence such transfer is not capable of running the FSB on a going concern iii. not appreciating the true essence of the composite scheme of merger and demerger and in holding that the logical reasoning is the enrichment of the shareholders of the assessee in a camouflaged manner and avoiding payment of taxes on a capital gain and dividend distribution tax iv. not considering the fact that along with the assets and liabilities related to the FSB of the assessee, employees, having experience in the field of finance were also transferred pursuant to the demerger, along with premises, furniture, office, equipment, vehicles, securities, borrowings, liabilities, contracts, litigation on a going concern basis Page | 125 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 v. not considering the assessment orders of the past years, where it has been specifically mentioned/accepted that ABN is engaged in financial services business vi. not considering the accountants report issued by independent chartered accountant for the purpose of quantification of disallowance u/s 14 A of the act which specifically mentions financial services business as a separate business vii. without considering the minutes of business review meetings, press release, independent research reports and directors report and management discussion and analysis (MDA) and other evidence submitted by the assessee which conform to the fact that ABNL was engaged in carrying out systematic and organized the activities of financial services business viii. considering and heavily relying on the decision of the AO as well as the CIT (A) in the proceedings u/s 115Q read with Section 115O of the act without appreciating the fact that the same has not attained finality and has been challenged by the assessee before the ITAT ix. erred in not accepting that the term undertaking as defined in explanation 1 to Section 2 (19 AA) of the act is an inclusive definition which includes any part of an undertaking or a unit or division of an undertaking or business activity taken as a whole. The learned AO also add in not appreciating that the demerged financial services business was an undertaking and was transferred on a going concern basis Page | 126 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 x. erred in not appreciating that the income from fund based lending was always taxed by the learned AO as business income xi. erred in not appreciating that the demerger was compliant with the provisions of Section 2 (19 AA) of the act and is expressly exempt u/s 47 of the act xii. in addition to the provisions of explanation 1 to Section 2 (19 AA) of the act, the learned AO erred in concluding that the conditions mentioned in clause (i), clause(ii) and clause (vi) of Section 2 (19 AA) of the act were not complied with by the assessee xiii. erred in not appreciating in facts and in law that the holding investment in subsidiary company is also a business activity xiv. erred in placing reliance on various judicial precedent on essentials of validity of demerger which are clearly distinguishable from the facts of the assessee‘s case OBJECTION no 15 scheme of arrangement once approved by the national company law tribunal cannot be challenged i. failed to appreciate that composite scheme of arrangement which included the merger of ABNL with Grasim industries limited and subsequent demerger of FSB of the assessee to ABCL was duly approved by the NCLT by its order dated 1 June 2017 where the scheme specifically states that the demerger of FSB is compliant with the provisions of Section 2 (19 AA) of the act ii. erred in appreciating the Cardinal principle of law that once the scheme presented is approved by the court/NCLT, the same is sacrosanct, binding on all the parties concerned, especially when the scheme is approved after giving due opportunity to all parties concerned Page | 127 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 iii. erred in not appreciating that NCLT had given an opportunity to the revenue to raise objections, if any against the scheme and where there were no objections raised, such scheme cannot be challenged now during the course of assessment iv. was not justified in treating the scheme approved by NCLT is clandestinely arrangement to dilute the legitimate income that arises on such transfer and resultant tax thereon and failed to appreciate that the scheme was held by NCLT is genuine, bona fide and binding on all concerned persons Under the scheme v. was not justified in rewriting the scheme of arrangement is approved by the NCLT which is not permissible and contrary to the law vi. failed to appreciate that NCLT is a creation of law which has been vested with all the powers of the court and therefore it cannot be said that the NCLT does not have force of statutes. vii. Erred in stating that the income tax proceedings are not hindered by the order of NCLT is proceedings Under the companies act are not non-obstante to the income tax proceedings as per the act viii. without prejudice to the above, erred in disregarding the judicial precedent cited by the assessee is to state that even if court approved scheme results in reduction in tax liability, it does not become basis for the Department to challenge the same ix. erred in holding that there is no intention to attempt being made to alter/modify or rearrange the scheme and conclusion drawn on the basis of the scheme approved by the NCLT x. erred in not appreciating that the revenue cannot read in words directly or indirectly for drawing its conclusions OBJECTION NO 16 disregarding the demerger in taxing the transaction as capital gains in the hands of the assessee i. erred in holding that the transaction of demerger is not covered within the exceptions contained in the provisions of Section 47 of the act as it is not a tax compliant demerger. Also the learned AO erred in relying on the order of the learned AO and CIT – A in the proceedings u/s 115Q read with Section 115O of the act without Page | 128 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 appreciating the fact that same is challenged before the ITAT by the assessee ii. erred in stating that Simon tenuously merger and demerger is for enrichment of shareholders of the assessee in camouflaged manner and avoiding payment of taxes on capital gains and dividend distribution tax in the hands of the assessee iii. erred in holding that consideration in form of shares of ABCL was receivable by the assessee and the same has been distributed to the shareholders. Further, the learned AO failed to appreciate that in absence of actual consideration received or accruing to the assessee there cannot be any capital gains chargeable to tax in the hands of the assessee iv. without prejudice erred in adopting the fair market value of shares of ABCL at the rate of ₹ 261.20 per share on the day of listing on 1 September 2017 for the purposes of computing sale consideration v. without prejudice to the above even if it is considered that the transaction is liable to tax as capital gain, in absence of consideration, the computation mechanism u/s 48 of the act fails vi. without prejudice, the learned AO erred in not appreciating that it is a case of demerger involving lump-sum consideration and in absence of any provision Under the act it is not permitted to appropriate lump-sum consideration to various assets and liabilities transferred mechanism for computation of capital gains fails and therefore no capital gain is chargeable to tax vii. without prejudice, the learned AO failed to appreciate that consideration for demerger directly accrued to and was received by the shareholders by virtue of statutory vesting as per NCLT order and accordingly no income accrue to the assessee and therefore cannot be said to be part of income of the assessee 51. on reading of the above objections raised by the assessee before the learned dispute resolution panel it is apparent that the learned assessing officer rejected the contention of the assessee that all the assets and liabilities of an undertaking is transferred on a going concern basis of financial services business is tax neutral as provided Under the provisions of Section 2 (19 AA) of the act and no capital gain Page | 129 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 is chargeable to tax in view of the provisions of Section 47 (vib) of the act. This is identical to the charge levied by the learned assessing officer in the impugned appeal holding that such transfer amounts to deemed dividend in the hands of the shareholders of the assessee company as per the provisions of Section 2 (22) (a) of the act and assessee is an ̳assessee in default‘ as it did not pay dividend distribution tax Under the provisions of Section 115 O of the income tax act. 52. The Ld. DRP passed direction on 30/06/2022 as under: - “Discussion and Directions of the DRP on Objection No. 14 to 16: 25.1 The submissions of the assessee are carefully considered. The facts are that the Assessee is a widely held public listed company and its shares are listed on recognized stock exchanges On August 11, 2016, the Board of the Assessee approved a scheme of arrangement u/s 391 to 394 of the Companies Act, 1956 and other applicable regulations for merger of Aditya Birla Nuvo Ltd. (ABNL) with the Assessee and subsequent demerger of the 'Financial Services Business' (FSB) into Aditya Birla Capital Ltd (ABCL) earlier known as Aditya Birla Financial Services Ltd (ABFSL) Subsequently, the NCLT, Ahmedabad Bench, vide order dated June 01, 2017 approved the scheme as per which, the merger became effective from July 01. 2017 and the demerger became effective from July 04, 2017. 25.2 However, during the assessment proceedings, the Assessing Officer (AO) held that the demerger of FSB is not in accordance with the conditions of section 2(19AA) of the Income-tax Act, 1961 (the Act) citing the following reasons and went on to compute capital gains in the hands of Assessee: i) No business activity in the nature of Financial Services by GIL/ABNI (Para 10.2 of the draft assessment order): Page | 130 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ii) FSB was hived off for enrichment of the shareholders of GIL and to avoid paying the capital gain tax which would have otherwise become due (para 10.4 of the draft assessment order) iii) No new resulting company came in existence post demerger (para 10.5 of the draft assessment order); iv) Conditions prescribed under sub-clause (i), (ii) and (vi) of section 2(19AA) of the Act are not satisfied as a new resulting company capable of running finance business has not come into existence (para 10.7/12.1/12.2/12.3 of the draft assessment order). v) Approval of the scheme of demerger by NCLT does not automatically mean that it is a valid demerger in terms of the provisions of section 2(19AA) of the Act unless mandatory conditions prescribed therein are satisfied; vi) As no financial service business existed either in GIL or ABNL, the scheme is a mere transfer of assets and liabilities (para 12.5 of the draft assessment order); vi) The so-called FSB demerged from GIL was not capable of being run as a Going Concern (para 13.3 of the draft assessment order); vii) Proceedings before NCLT are non-obstante to the proceedings under Income-tax Act, 1961 (para 14 of the draft assessment order). 25.3 The panel has carefully considered the submissions of the assessee, the issues raised by the AO in the draft assessment order, the Composite Scheme of merger of GIL with ABNL and subsequent (purported) demerger of Financial Services Business (FSB) of GIL to ABFSL, now known as ABCL, and relevant provisions of law The findings of the panel on the issues raised by the AO in draft assessment order are as brought out in the following paragraphs. 25.4 Whether there was a Financial Services Business carried out by GIL/ABNL Page | 131 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 25.4.1 The AO in his draft order held that there was no business activity in the nature of Financial Services carried out by GIL or ABNL for following reasons: a. Interest in case of Financial Company) is shown at NIL (Para 9.1(5), Pg. 147 of AO Order); b. The Other income (interest income in case of a company other than a finance company) is shown (Para 9.1(7), Pg. 147 of AO Order). c. Based on findings in Annual Reports. Returns of income and Assessment Records, it has been established beyond any iota of doubt that there was no Undertaking carrying on the business of financial services leave alone as a Going Concern which are absolutely cardinal for the purpose of holding terming the transfer as Demerger (Para 12.3, Pg. 161 of AO Order) 25.4.2 It is noted that in terms of the composite scheme, it has been claimed that ABNL was in the business of FSB (a) by itself through fund-based lending and (b) by making, holding and nurturing investments in the financial services sector Further, the Explanatory Statement to Amalgamation of ABNL and Birla Global Finance Ltd (BGFL), effected in 2006, also mentioned the reason behind amalgamation that ABNI and BGFL belonged to the same group and amalgamation would further the overall objective of the Group to consolidate Financial Services Business within ABNL. 25.4.3 The panel has considered the rival contentions it is noted that the term Finance Company is not defined anywhere in the Income-tax Act 1961 (the ̳Act‘) Guidance Note of ICAI on Revised Schedule VI states that Finance Company is not defined under Page | 132 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Companies Act also, therefore, all Companies carrying on activities which are in the nature of "business of non-banking financial institute‖ as defined u/s 451(f) of RBI Act, 1935 shall be considered as a finance company. 25.4.4 As per RBI Press release (1269 dated April 8, 1999), a Company is to be identified as NBFC, if its financial assets are more than 50% of total assets (netted off by intangible assets) and income from financial assets are more than 50% of gross income. As per these criteria, Pre-demerger, ABNL as a company was not an NBFC as: -It did not satisfy the criteria of financial asset constituting more than 50% of the Total assets; and also -It did not satisfy the criteria of income from financial asset constituting more than 50% total income. 25.4.5 However, the panel notes that for the issue at hand, it is not relevant whether ABNL, as a whole, could have been regarded as a Finance Company. What is to be analyzed is whether the observation of the AO that ABNL did not possess any Financial Services business segment is correct or not. 25.4.6 Viewed from this angle, it is noted that during the period prior to the implementation of the composite scheme (the Scheme), Financial Services Segment of ABNL did satisfy the above mentioned two tests but it could not be regarded as an NBFC as the said definition is qua an entity and not qua a division. This is clearly borne out of a perusal of assets, liabilities, borrowings etc. hived off in The Scheme: Sr No Particulars ₹ (crore) 1. Fixed assets (Office premises, 16.67 Page | 133 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 I t c a n b e n o t e d f r o m the above description of assets, liabilities, borrowings etc. hived off from ABNL as a separate FSB (as claimed by the assessee) that taken independently, any entity having the above assets/liabilities will satisfy both the conditions prescribed by RBI Press release (1269 dated April 8, 1999) to qualify as NBFC as it: -- Satisfies the criteria of financial asset constituting more than 50% of the Total assets. -- Satisfies the criteria of income from financial asset constituting more than 50% of total income. furniture, computers, office equipment and vehicle) 2. Equity shares of Aditya Birla Finance Limited ( ̳ABFL‘)- 6,12,73,146 nos. (9.77% stake) 1.718.72 3. 8% Compulsorily Convertible Redeemable Preference Shares of Aditya Birla Finance Limited 10.21 4. Fund based lending (ICD) 13.63 5. Deposit- Best undertaking for office premises 0.01 6. Investment in Mutual Find units 117.13 Total Assets 1876.38 7. Borrowings 51.27 8. Current Liabilities 0.23 9. Deferred Tax Liability 103.25 Total Liabilities 154.76 Excess of assets over liabilities against the amalgamation reserves in books of account 1,721.61 Page | 134 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 25.4.7 Further, it is a fact that ABNL did not satisfy both the criteria of RBI press release and, therefore, its principal business could not have been NBFC. Therefore, it could not have been considered as a Finance Company and interest income could not have been disclosed as interest (in the case of Finance Company). However, the panel is in agreement with the contention of the assessee that if ABNL were carrying on only the activity of financial services and no other activity, then it would be characterized as a finance company and the interest income would have been reflected as interest (in case of finance Company). 25.4.8 If the contention of the AO is accepted then no demerger is possible in any company which carries out multiple lines of business. What is to be seen in the present context is whether viewed in isolation, the hived off entity existed as a unit pre- demerger, and if yes, whether it could have sustained itself had it been hived off in isolation. 25.4.9 Moreover, a Core Investment Company is defined to mean a non-banking financial company carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet: -- it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies: -- its investments in the equity shares... in group companies... constitute not less than 60% of its net assets as mentioned in clause above. --it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies... Page | 135 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Based on the description of assets/liabilities as mentioned in para 25.4.5 above, the demerged undertaking, viewed independently, fulfilled the criteria of being a Core Investment Company ("CIC") prior to demerger as well. If the resulting company was a new company, it would have only required registration as NBFC and would be qualified to be regarded as CIC. Further, ABCL was NBFC, CIC ND SI (Non-Deposit taking Systemically Important Core Investment Company) before the demerger, and retains the same status after the demerger as well. 25.4.10 What follows is that the Demerged undertaking qualified to be NBFC Resulting Company was already a NBFC and the demerged undertaking became part of it. The resulting company is carrying out the business of BFC with the demerged undertaking as a going concern. 25.4.11 It may not be out of place to mention that even if the FSB were to be demerged in a new resulting company, the regulatory requirement of a minimum asset size of Rs 100 crore would have been satisfied and the new standalone resulting company could have carried on the business as a Systemically Important CIC under the RBI regulations. It would still have been a transfer on a going concern basis. This requirement would have been satisfied by the hived off entity even if one would disregard, though without any valid reasons, the value of shares of ABFL (Rs 1718.72 crore) held by it. 25.4.12 The AO has also stated that in the Return of Income, separate business of financial service has not been disclosed and, therefore, it must be concluded that there is no financial service business of the Assessee. The panel does not find the argument persuasive. In the Return of Income, there are only three columns to mention the line of business of the assessee. Therefore, for a Page | 136 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 taxpayer who has multiple business, it is not possible to mention all the businesses in these 3 columns. Considering this, the panel is inclined to agree with the assessee that due to this shortage of space in the third column, the Assessee mentions others to cover all other businesses. Further, it is seen from the Tax audit report of ABNL for AY 2014- 15 to A.Y. 2017-18 in form 3CD furnished u/s 44AB (reference- page no. B-1984- 1997 of paper book filed before the DRP) wherein all the business of the assessee are required to be mentioned in Item No. 10A, and noted that ̳financial services‘ has been recognized as a business of the Assessee in each of the years. 25.4.13 It is also seen from paper book page number B-1998 - B- 2019 submitted before the DRP, in the report furnished by chartered accountant for AY 2015-16, 2016-17, and 2017-18 which was obtained by the assessee to certify the expenses related to exempt income u/s 14A, it has been mentioned (para 1.2) that ABNL has businesses carried on in various divisions (also called units). The annexure 1 of the report gives the list of units. One of the distinct divisions/units mentioned therein is Finance Services Division, situated in Mumbai which is stated to be engaged in asset based financial services. 25.4.14 The Assessee has further submitted that interest income from fund-based lending earned by ABNI has always been disclosed under the head ̳business income‘ in the computation of income and has been so accepted by the Assessing Officer in scrutiny assessment of all the assessment years (including AY 2018-19); and that the AO having accepted interest income earned on fund-based lending business income, it is now not open to the Revenue to allege that FSB was not a separate ̳Business‘. Page | 137 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 In this regard, the panel perused the record, and more specifically, assessment orders pertaining to AY 2006-07, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19 It is noted that in the assessment order for AY 2006-07, one of the divisions of ABNL has been mentioned as Birla Global Finance, Mumbai whose main activity is mentioned as Financial Services In AY 2013-14 and 2014-15, the assessee had shown income from financial activities of ₹209.25 crore and ₹152.80 crore, respectively, (as seen from page no B-1974 of the paper book filed before the DRP/note 17 forming part of the financial statements) under the head Business Income within the sub-head other income and was accepted as such by the AO. In his order u/s 143(3) of the Act Same has been the case for the AY 2016-17 to 2018-19 as well. The financial statement of quarter ending June 2017 at notes 15/page B-2393 of the paper book, and March 2017 & March 2016 at Note 15 at page B-2386 of the paper book, similarly shows interest income under the head Business Income within the sub-head other income. This being so, it is not possible to agree with the AO that there was no financial services business being carried out by ABNL prior to the implementation of composite scheme. 25.4.15 The panel has also noted that before the demerger, the GIL/ABNL held total financial assets of Rs. 5853.37 crore (carrying cost), and except for following two assets, all of them were part of the FSB demerged under the Scheme: (1) Shares of ABCL (Rs. 4721.57 crore) were not included as a part of demerged undertaking as a company cannot receive its own shares. The same is also as per approved Scheme (clause (a) of para 1,1); and Page | 138 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 (ii) Equity Shares of Aditya Birla Idea Payment Bank Ltd (Rs 127 .48 crore) Aditya Birla Idea Payment Bank is a joint venture with Vodafone Idea Ltd. As investments only in relation to and pertaining to the financial service business were included in the definition of demerged undertaking, the said shares did not form part of demerged undertaking. The assessee also furnished a reconciliation of the valuation of assets held as FSB and subsequently demerged to ABCL. As all the financial assets related to FS business stood identified and demerged, the conclusion that there was a distinct business segment related to financial services which was later on demerged under the Scheme. 25.4.16 Considering the details of assets and abilities transferred by Assessee to demerged company, it is clear that the same was capable of being run as a Going Concern. Further, it is also noted that in the consolidated scheme at clause 15.1 and 15.2.1, it is stated that the undertaking is transferred as a going concern. The panel is of the view that unless the AO establishes that the scheme fails to conform to the express provisions of the Act [most prominent of which in this case is section 2(19AA)], a scheme duly approved by NCLT has to be complied with. In view of the above, it is held that ABNL did carry out a Financial Services Business prior to the implementation of the Scheme. 25.5 Applicability of Section 2(19AA) 25.5.1 Demerger has been defined under the Act in sub-section 19AA of section 2 For ready reference, the provisions of section 2(19AA) are extracted below: Page | 139 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 (19AA) "demerger", in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 39411 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that- i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger. (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger. (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred al values appearing in its books of account immediately before the demerger: Provided that the provisions of this sub-clause shall not apply where the resulting company records the Value of the property and the liabilities of the undertaking or undertakings at a value different from the value appearing in the books of account of the demerged company, immediately before the demerger in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015, (iv)the resulting company issues in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis except where the resulting company itself a shareholder of the demerged company is: (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other Page | 140 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise, than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company. (vi) the transfer of the undertaking is on a going concern basis. (vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. Explanation 1.- For the purposes of this clause, "undertaking‖ shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation 2. - For the purposes of this clause, the liabilities referred to in Sub-clause (1) shall include- (a) the liabilities which arise out of the activities or operations of the: undertaking. (b) the specific bans of borrowings (including debentures) raised, incurred and utilized solely for the activities or operations of the undertaking and (c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total Page | 141 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 value of the assets of such demerged company immediately before the demerger. Explanation 3 - For determining the value of the property referred to in sub clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation 4 - For the purposes of this clause, the splitting up or the reconstruction of any authority of a body constituted or established under a Central State or Provincial Act or a focal authority or a public sector company into separate authorities or bodies or local authorities of companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government. Explanation 5 - For the purposes of this clause, the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if such reconstruction or splitting up has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as may be notified by the Central Government in the Official Gazette. 12-13 [Explanation 6. - For the purposes of this clause, the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and the resulting company--- (i) is a public sector company on the appointed day indicated in such scheme, as may be approved by the Central Government or any other body authorized under the provisions of the Companies Act, 2013 (18 of 2013) or any other law for the time being in force governing such public sector companies in this behalf, and Page | 142 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 (ii) fulfils such other conditions as may be notified by the Central Government in the Official Gazette in this behalf.] 25.5.2 As mentioned above, the NCLT, Ahmedabad Bench, vide order dated June 01, 2017, had approved the composite scheme as per which, the merger of ABNL with GIL became effective from July 01, 2017, and the demerger of Financial Services Business of GIL in to ABFSL (now known as ABCL) became effective from July 04 2017. 25.5.3 The NCLT at para 36 of the order approving the scheme has stated that the scheme is genuine, bonafide and is binding on all the persons concerned under the scheme Clause F of the scheme provides that demerger of FSB is compliant with section 2(19AA) of the Act Clause 15.1 of the Scheme in relation to Transfer of Assets and Liabilities also specifically provides that transfer of the demerged undertaking is in accordance with the provisions of section 2(19AA) of the Act. It is noted that the AO was issued notice on 03.03.2017 as required u/s 230(5) of the Companies Act 2013 to submit its representations. There is nothing on record to suggest that the assessing authorities did. in any manner, object to the implementation of the Scheme. 25.5.4 Section 230(5) of the Companies Act, 2013 reads as below: (5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1) of section 7 of the Competition Act, 2002 (12 of 2003), if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and Page | 143 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. As can be seen, there is a statutory presumption in that section that it no response is received within 30 days the Department has ―no representations to make on the proposal‖. Further circular No 1/2014 issued by MCA dated 15 th January 2014 provides that if no comments are received it may be presumed that the Department has no objection. 25.5.5 The aforesaid legal position has been re-iterated by the CBDT itself vide Instruction No. F No. 279/Misc.M-171/2013-IT dated April 11, 2014, wherein the CBDT has stated that only opportunity available to the Department to object to the scheme of amalgamation if it is found to be prejudicial to the of the Revenue is at the stage of sanctioning of the scheme. Authorities were directed to send their comments to Regional Director for placing it before the Court. Also, reference can be made to the decisions in the case of Dalmia Power Ltd v ACIT (112 taxmann.com 252) (SC) and Sadanand S. Varde State of Maharashtra (274 ITR 609) (Bombay HC) for reiteration of the same principle by Hon'ble Supreme Court and Hon'ble Bombay High Court. 25.5.6 Notwithstanding the above, and the finding by NCLT that the Scheme is compliant of section 2(19AA) of the Act, the panel has examined the Scheme vis- à-vis various clauses of section 2(19AA) of the Act. Sub-section (1): all the property of the undertaking, being transferred by the demerged company, immediately before the Page | 144 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 demerger, becomes the property of the resulting company by virtue of the demerger, 25.5.7 The AO in para 12.1 of his draft order has stated that "since no undertaking carrying out the business of financial services existed in the demerged company (as no such business of „finance services' was being carried out by either of the companies), it can be said with certainty that no property attributable to such business undertaking could have been transferred...‖ Based on this observation, it was held that sub- section (1) is not complied with. 25.5.8 As the panel has already held in para 25.4 above that there did exist a financial service business (FSB) carried on by ABNL, the above observation of the AO is not tenable. What remains to be seen now is whether all the property of the FSB being transferred by the demerged company has become the property of the resulting company by virtue of the demerger. 25.5.9 It is noted that Para 15.2 of the Scheme, inter alia, states that all the asses properties vestments, movable properties, immovable properties etc. of the demerged undertaking shall be to and vested in the resulting company. Further, there appears to be no dispute with respect to assets transferred to ABFSL (now ABCL) As such, it is clear that sub- section (1) of section 2(19AA) satisfied in the present case. Sub-section (i): all the liabilities relatable to the undertaking, being transferred by the demerged company, Immediately before the demerger, become the labilities of the resulting company by virtue of the demerger; 255.10 In para 12.2 of his order, the A.O. has pointed out following defects in the claim of the assessee: (i) that the total assets transferred to ABFSL adds up to Rs. 1876.37 crore, which is mainly composed of minority stakes 19.77%) in ABFL, being Rs. 1728 93 crore and cumint investment of Rs 11713 crore. It was further stated that the balance sheet of Page | 145 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ABNL and Gil 5 on 31.03.2017 did not show any current Investments and therefore was highly unlikely that any such current investment could have been created or generated in the intervening period, when no business of Financial Services was ever in existence. The above observation of the AO is considered. The A.O. has based his observation only on surmises and conjectures without bringing anything on record to refute the assertion of the assessee that current investments in the form of investments in Mutual Funds of Rs. 117.13 crore are transferred. The panel has also perused the segmental accounts of ABNL for the F.Y. 2016-17. It can be seen from Note 4C (Current Investment) that ABNL was holding current investments worth Rs. 532.10 crore in the form Mutual Funds as on 31.03.2017. Therefore, the observation of the AO that the balance sheet of ABNL and GIL as on 31.03.2017 did not show any current investments is not borne out of record. As regards the existence of business of Financial Services, the panel has already given its findings by holding that there did exist a business of Financial Services. (ii) that the nature of liabilities transferred, i.e., Deferred tax liabilities of Rs. 103.26 crore, short-term borrowing of Rs. 51.27 crore and employee's liability of Rs. 0.22 crore are not reflective of an undertaking carrying on business of 'Financial Services.‘ The panel does not find the above argument persuasive. The AO has once again based his arguments on his claim already discussed that no business of Financial Services was being carried out by ABNL prior to the demerger. What is important for the purposes of sub-section (i) of section 2(19AA) is to examine that whether all the liabilities of the undertaking before the demerger are taken over by the demerged company or not. There is no suggestion in the assessment order that this was not the case. Further, Para 15.2.9 of the scheme, inter alia, provides that all Page | 146 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 debts, liabilities, loans, obligations, duties etc. of the demerged undertaking shall be transferred to the resulting company. Details of all liabilities including current liabilities, deferred tax liabilities, borrowings etc. relatable to the demerged undertaking and transferred to the resulting company have been provided by the assessee and are part of record. Even the AO has not disputed that same, and instead, he has chosen to only dwell on lack of FSB in demerged company. As such, the panel holds that sub-section (i) of section 2(19AA) is satisfied in the present case. Sub-section (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger: 25 5.11 Transfer of assets and liabilities of demerged undertaking has taken place at book values in accordance with clause (iii) of section 2(19AA) This has also not been disputed by the A.O. Sub-section (iv): the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis except where the resulting company itself is a shareholder of the demerged company: Sub-section (v): the shareholders holding not less than three- fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company: Page | 147 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 25.5.12 It is noted that there appears to be no dispute on the conditions mentioned under sub-sections (iv) and (v) of section 2(19AA). However, the panel independently examined the Scheme, and perused Clause 20.1 of Part thereof which provides for consideration for vesting of demerged undertaking. The said clause states that in consideration for transfer and vesting of the demerged undertaking into the resulting company, the resulting company shall issue and allot to each shareholder of the demerged company, shares of the resulting company in specified ratio. It further provides that no cash consideration shall be paid resulting company to the demerged company or its shareholders. Further, the assessee has submitted that in accordance with the terms of the Scheme as consideration of the demerger, the resulting company issued its equity shares to the shareholders of the demerged company on proportionate basis all the shareholders of the demerged company received shares from the resulting company in the proportion of their holding in demerged company. Sub-section (vi): the transfer of the undertaking is on a going concern basis: 25.5.13 The AO in para 12.3 of his order has stated that the condition of ̳the transfer of the undertaking being on a going concern Basis‘ is not satisfied. While reaching this conclusion it has been observed that: From the discussions contained in the preceding Paras, which are based on the findings in the Annual Report Returns of Income, and Assessment Records & has been established beyond any iota of doubt that there was no Undertaking carrying on the business of „financial services' leave alone as a „Going Concern‟ which are absolutely cardinal for the purpose of holding terming the terming as 'Demerger‟ Page | 148 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 25.5.14 The panel has already held above that ABNL was carrying out Financial Services Business (FSB). However, it is recognized that while this a necessary condition for the demerged undertaking to be a 'going concern', it may not be sufficient for it to be able to operate on a going concern basis. As such, the panel has examined various aspects of the entity demerged from ABNL to see whether it can be deemed to be a ̳going concern‘ 25.5.15 It is noted that FSB was being carried on by ABNL for several years. As brought out in para 25.4.13 above. ABNL was showing interest income and income from other financial services as Business Income consistently and was assessed so us 143(3) of the Act by the AO till as late as AY 2018-19. 25.5.16 It is also seen that the assets and abilities of the undertaking transferred are sufficient for it to function independently as a separate business Transferred assets and liabilities are sufficient to constitute an independent NBFC as per the requirement of the RBI If the undertaking were to be transferred to a new company, it would only had to seek registration from RBI as a NBFC, as the demerged undertaking considered on standalone basis met all the conditions of being an NBFC and a CIC. Reference in this regard can be made to the discussion in para 25.4.9 above. All the assets and abilities transferred including the office space, fixtures, employees, current assets etc. are sufficient to run the business of financial service as a going concern. 25.5.17 It follows that the demerged undertaking is capable of being run as an independent undertaking on a going concern basis as it, on a standalone basis, qualified to be NBFC CIC as per the RBI regulations, which requires that 90% of net assets should be in the form of investments in group companies and investment in equity shares in group companies is not less than 60% of its net Page | 149 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 assets. As per RBI guideline, asset size required to carry out NBFC CIC business is Rs 100 crore and the demerged undertaking had far more capital to carry out the business. Demerged undertaking possessed requisite sufficient infrastructure consisting of office, computer, equipment, furniture, vehicle, liquid assets, fund- based lending, securities etc. to carry our NBFC business of its own on sustainable basis. 25.5.18 it is pointed out here that even if out of gross asset of Rs. 1,876 crores transferred under the demerger, an amount of Rs. 1,728 crores related to stake in a subsidiary company is not considered, the demerged entity included assets totaling to Rs. 157.66 crore, such as tangible assets, current investments, non- current investments, loans, etc. 255.10 Further the term ̳Business‘ is defined in section 2(13) in inclusive manner and deletion is very wide The term ̳undertaking‘ has been defined in section 218AA) of the Act to include why part of ̳undertaking‘, a unit or division of undertaking or a business activity taken as a whole ̳but does not include individual assets or liabilities or combination thereof not constituting a business activity. As held above, the assessee was carrying out a financial services business in ABNL the income from which was duly assessed as Business Income consistently by the A.O. it is also noted that Explanation 1 to section 2(19AA) goes as far as recognizing a ̳part of undertaking‘ to be ̳undertaking‘. Based on the facts of the case, it is apparent that the activities of the FSB are at least a part of the undertaking and FSB would therefore quality to be an ̳undertaking‘ for the purposes of section 2(19AA). 25.5.20 Fact that shares of ABFL held by the Assessee formed part of the FSB undertaking is irrelevant to the present proceedings. The FSB undertaking not only includes all the other assets and liabilities of demerged undertaking but also the share of ABFL as Page | 150 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 part of nurturing investment in FSB. As has been discussed above, even such shares were not part of the demerged entity; it would still have qualified to be an NBFC as per extant RBI regulations. 25.5.21 Considering the above, it is clear that the demerged entity was capable of being run as a „going concern‘ on its own, and therefore the demerger of FSB to ABFSL was on going concern basis. Sub-section (vii): the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. 25.5.22 As no condition has been notified under section 72A(5) of the Act. clause (vii) of section 2(19AA) is not relevant. 255.23 In view of the above discussion, supported by documentary evidences, the panel holds that the demerged financial services undertaking is ̳undertaking‘ in terms of Explanation to section 2(19AA) of the Act. Further, the conditions prescribed in section 2(19AA) are complied with in the instant case: 1. All assets, properties and liabilities of the demerged company became the assets, properties and liabilities of the resulting company. 2. All assets, properties and liabilities have been transferred by the assessee at book value; 3. Resulting company issued shares to the shareholders of the assessee, 4. Shareholders holding not less than three fourth in value of the shares assessee became the shareholders of ABCL by virtue of the said demerger; 5. The transfer of undertaking was on a going concern basis 25.6 The Scheme is a mere transfer of assets and liabilities Page | 151 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 AND No new Resulting Company came in existence post demerger 25.6.1 The AO, in para 10.5 of the draft assessment order has noted that "No New Resulting Company came into being as a result of Demerger as the Demerged "Financial Services Business could not have come to being as an Independent Undertaking in absence of any such business being carried out by either of the companies, and also in view of the fact that, it was a case of mere transfer of few assets and liabilities including a 9.77% stake in ABFL that was transferred to "M/s Aditya Birla Financial Services Limited”. 25.6.2 In this regard, it is noted that the Act defines a Resulting Company in sub- section (41A) of section 2 in following manner: (41A) "resulting company means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger; 25.6.3 It can be seen from the definition that there is no reference to any precondition that a new entity or company must come in existence for the purpose of qualifying to be termed as resulting company. Rather by use of words ―.... One or more companies to which the undertaking of the demerged company is transferred......‖, intention of the legislature is clear that the undertaking of demerged company can be transferred to an existing company as well. As such, the argument that since no Page | 152 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 new resulting company came into existence, it is not a valid demerger is not liable to be accepted. 25.6.4 As regards the Scheme being a mere transfer of a few assets and liabilities as perceived by the A.O., it is stated that the same could have been a case had there been no business of financial services in the demerged company or else the undertaking being demerged was not capable of being run on 'going concern Basis‘ on its own. As the panel has already held that there was a financial services business in GIL/ABNL which could have continued doing business as a Finance Company on stand-alone basis, the conclusion of the AO, that the Scheme is nothing but a mere transfer of a few assets and liabilities cannot be accepted. 25.7 The so-called FSB was not capable of running as a Going Concern 25.7.1 This issue has already been dealt with in para 25.5 above. 25.8 FSB hived off for only enrichment of shareholders of GIL 25.81 In para 10.4 of the draft assessment order, the AO has observed that the logical reason for the whole scheme of merger and demerger was the enrichment of shareholders of M/s Grasim Industries Limited in camouflaged manner and avoiding payment of taxes on capital gains and dividend distribution tax in the hands of Assessee Company. 25.8.2 The panel has gone through the facts of the case, and the Scheme, thoroughly. Various clauses of the Scheme bring out the fact that the transaction that of a demerger. It is a well settled law that apparent state of affairs must be considered as real unless otherwise proved. The underlying presumption behind the observation of the AO appears to be that the shares of ABCL Page | 153 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 should have first been received by the Assessee, and by not doing so, that the Assessee has bypassed the normal practice of booking capital gains. 25.8.3 However, if such interpretation is entertained then I would amount to completely nullifying the provisions related to demerger. In the opinion of the panel, though the Department can examine an NCLT approved Scheme for compliance of tax laws it cannot re-write the Scheme to hold that arrangement is not a compliant demerger. If the scheme is not a tax compliant demerger on the basis of the facts admitted in the Scheme then the Department can hold it to be a non-tax compliant demerger. For example, under the Scheme, if the consideration is receivable by the demerged company, it will not be regarded as a tax compliant demerger and the assessee will have to pay tax on resultant capital gains. However, if on a thorough examination of an approved Scheme vis-à-vis tax laws, no conflict is found out, then it is not open to re-interpret the Scheme so as to impose tax liabilities. 25.8.5 Clause (iv) of section 2(19AA) clearly provides that in consideration of demerger, the resulting company shall issue its shares to the shareholders of the demerged company. The subject scheme is of demerger, and the scheme provides for issue of shares by the resulting company to the shareholders of the demerger company in consideration of demerger. If in a case of demerger, it is allowed to assume that the consideration was receivable by the Demerged company, then the provisions related to demerger will not work at off and become meaningless Consideration in case of a demerger is always receivable by the shareholders of the demerged company and not by the demerged company and if contentions of the accepted, no tax compliant demerger can take place. Page | 154 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 As such, the panel does not find the observation of the AO that the Scheme was put in place only for enrichment of the shareholders of the assessee company to be legally tenable. 25.9 Approval of NCLT doesn‘t automatically mean a demerger as per the Act AND Proceedings before the NCLT are non-obstante to the proceedings under the Act 25.9.1 The panel agrees with the AO that the approval of NCLT does not prevent the Revenue from examining the Scheme for tax compliance. Though the Scheme approved by NCLT does have force of law, it has still to pass the test of being in conformity with specific provisions enacted in the Act to claim desired reliefs. In the present case, it is basically the provisions of section 2(19AA) which need to be sated for the Scheme to qualify as a tax-compliant demerger. 25.9.2 However, the panel has already held in para 25.5 that the Scheme satisfies a the conditions laid down under section 2(19AA) of the Act Once it is held that a valid demerger has indeed taken place in terms of the provisions of the Act, it is the view of the panel that the same has to be accepted without attempting to re- write the Scheme which has duly been approved by NCLT 25.10 Considering the above, the panel holds that there was a distinct financial services business being carried out regularly over the years by ABNL which was also duly recognized by the AO in assessment proceedings consistently over the years. Upon merger with GIL, the resulting company demerged all the assets held by under financial services business to ABCL. In fact, the only two assets which not included in the demerger were shares of ABCL, itself and equity shares of a joint venture to telecom sector, Aditya Birla Idea Payment Bank Ltd. As such, it is clear that a distinctly demarcated financial sector business within ABNL was demerged as per the Composite Scheme. The demerged entity, in Page | 155 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 itself and on stand-alone basis, was qualified to be recognized as an NBFC under the extant RBI regulations, should it have chosen that way, and was capable of being run on a Going Concern Basis. The panel has examined the Scheme in detail in terms of the provisions of section 2(19AA) of the Act, and it holds that the Scheme satisfies all the conditions laid down u/s 2(19AA) to qualify as a case of valid demerger in terms of the Income-tax Act, 1961. In view of the above, the panel allows objection no. 14, 15 and 16.‖ 53. According to provisions of Section 144C (10) of the Act, every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. Further Rule 13 of Income Tax (Dispute Resolution Panel) Rules, 2019 provides that after the issue of directions Under rule 10, if any, mistake or error is apparent in such direction, the panel may, Suo motu, or on an application from the eligible assessee or the assessing officer, rectify such mistake or error, and also direct the assessing officer to modify the assessment order accordingly. Invoking this rule, The learned assessing officer filed an application before the learned dispute resolution panel as per letter dated 17 August 2022 to rectify directions. Till to date, neither of the parties have informed about the fate of such rectification application. On carefully going through the application, we find that all the issues raised in the rectification application have already been considered by the learned Dispute Resolution Panel. Whether such mistakes are apparent or not that would be the sole jurisdiction of the learned Dispute Resolution Panel therefore, we are not authorized to comment on the same. 54. The Directions of the ld. Dispute Resolution panel are also not disturbed by invoking the provision of section 263 of the Act. 55. May it be so, However, we independently deal with the issues which have been raised in the present appeal hereinafter with respect to the compliance with the provisions of Section 2 (19 AA) of the act as Under. Page | 156 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 i. Demerger was introduced in The Income Tax Act by The Finance Act 1999 to specifically provide for income tax implication in case of a demerger so as to bring clarity about the taxation on capital gain and other concessions. The demerger is not defined under the companies act 1956 or 2013. Therefore, Income Tax Act provided that if demerger is carried out in certain fashion complying with certain conditions, there would not be any tax implication thereof. Accordingly, provisions of Section 2 (19 AA) of the act were introduced which provided that in case if the companies in the scheme of arrangement of demerger are companies, then if they satisfy the condition laid down therein i.e. u/s 2 (19 AA) of the act, the demerger would be tax compliant and liability of capital gain on transfer of the asset i.e. capital gain and other consequential issues such as carry forward of losses, set-off of tax credit will not arise. The demerger of the undertaking should be carried out pursuant to the provisions of the companies act and scheme of such arrangement between the company and its shareholders and creditors should be approved by the High Court/national company law tribunal. If a company, in a scheme of demerger, transfer is its undertaking/undertakings to another company comprising of all its assets and relatable liabilities as a going concern at the values appearing in the books of account of the transferor prior to the demerger and transferee company issues proportionate shares to the shareholders of the transferor or company then the demerger shall be considered as tax neutral. Then it is also entitled to certain tax concessions. Now the crux of the issue is that what is required to be transferred is an undertaking along with all its assets and relatable liabilities on going concern basis. ii. LD AO held for only one reason that what is transferred is not at all an ―undertaking‖ as ABNL was not carrying on any financial business prior to merger and therefore there could not have been any undertaking which is transferred on going concern basis. Then he held that it is a transfer of combination of assets and liabilities and does not constituted an ̳Undertaking‖. iii. Thus, the most important aspect of the issue is that there should be a transfer of one or more undertakings in the case of demerger. Explanation 1 to Section 2 (19 AA) defines undertaking as Under:- Page | 157 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 ―Explanation 1.—For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity.‖ Thus, it can be (1) a part of an undertaking, or (2) a unit or division of an undertaking, or (3) a business activity taken as a whole. iv. Honourable Bombay High court in P S Off shore Interland Services P Limited V Bombay Offshore suppliers and services [ 1992] 75 COMP CASE 583 (Bombay)[22-03-2009] had an occasion to deal with the issue that what is an undertaking with reference to the provision of the companies act. A question of interpretation of section 293(1)( a) of the Companies Act, 1956 (1 of 1956), and the word "undertaking" used therein arose. The issues was a ground that ̳a vessel ― where company had another two vessels , constitutes the ̳undertaking‘ of company and it cannot be disposed of without a general body resolution as required under section 293(1)(a) of the Companies Act. The Honourable High court held that: - “In my judgment, the expression "undertaking" used in this section is liable to be interpreted to mean "the unit", the business as a going concern, the activity of the company duly integrated with all its components in the form of assets and not merely some asset of the undertaking. Having regard to the object of the provision, it can, at the most, embrace within it all the assets of the business as a unit or practically all such constituents. If the question arises as to whether the major capital assets of the company constitute the undertaking of the company while examining the authority of the board to dispose of the same without the authority of the general body, the test to be applied would be to see whether the business of the company could be carried on effectively even after disposal of the assets in question or whether the mere husk of the undertaking would remain after disposal of the assets ? The test to be applied would be to see whether the capital assets to be disposed of constitute substantially the bulk of the assets so as to constitute the integral part of the undertaking itself in the practical sense of the term. Page | 158 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 Mr. Cooper, learned counsel for respondents Nos. 1 and 3, invited my attention to the judgment of the Mysore High Court in the case of Yallamma Cotton, Woollen and Silk Mills Co. Ltd., In re [1970] 40 Comp Cas 466. Narayana Pai J., sitting singly, held in the above-referred case that an "undertaking" was not, in its real meaning, anything which may be described as a tangible piece of property like land, machinery or equipment. It was held by the court that an undertaking within the meaning of the above provisions was an activity which in commercial or in business parlance meant an activity engaged in with a view to earn profit. In this case, a dispute arose between the official liquidator of the company under liquidation and a secured creditor who was the mortgagee in respect of practically all the assets of the company and the question arose as to whether the security created was in respect of the "undertaking" and was liable to be treated as void for want of resolution of the general body of the company. It was held by the court that section 293(1)(a) of the Act was not applicable. During the course of the judgment, the learned judge referred to the meaning of the expression "undertaking" given in Webster's Dictionary as under (page 484): "An undertaking, according to Webster's Dictionary, only means something that is undertaken or a business, work or project which one engages in or attempts, or an enterprise." This judgment was approved by the Division Bench of the same High Court in International Cotton Corporation P. Ltd. v. Bank of Maharashtra [1970] 40 Comp Cas 1154 . A somewhat similar question arose in a different context in the case of R.C. Cooper v. Union of India [1970] 40 Comp Cas 325 (SC), necessitating discussion of the meaning of the word "undertaking" as interpreted in judicial decisions, Indian and English. The Honourable Mr. Justice A. N. Ray in his dissenting judgment (Note : The judgment is not a dissenting judgment on the meaning of the word "undertaking") observed at page 415 of his judgment that the expression "undertaking" meant a "going concern". The learned judge observed that the undertaking meant the entire organisation. It was observed by the learned judge, at page 417, that the undertaking was an amalgam of all ingredients of property and was not capable of being dismembered. It was further held on this aspect as under: "In reality the undertaking is a complete and complex weft and the various types of business and assets are threads which cannot be taken apart from the weft." It appears that the undertaking means a "unit", a business or a project. Each factory of a company may be considered as a separate undertaking. In the above-referred case, the Supreme Court was considering the meaning of the word "undertaking" as used in the Bank Nationalisation Statute of Page | 159 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 1969. The above-referred observation, though not directly an interpretation of section 293(1)(a) of the Act is of some assistance in finding out the true meaning of the word "undertaking" used in section 293(1)(a) of the Act. It appears to me that, for the purpose of section 293(1)(a) of the Act, all the capital assets of the undertaking taken together would be embraced by the expression "undertaking" as, otherwise, it would be very easy to defeat the legislative intention and avoid procurement of the consent of the general body when the legislative intention is clear that the directors cannot dispose of the entire or substantially the whole business of the company without the consent of the general body. If, after disposal of practically all the capital assets of a company, what remains is only the husk of the assets, it would be perhaps difficult to take the view that, merely, assets of the undertaking were disposed of and not the undertaking itself. It is, therefore, possible to take a view that the board of directors cannot dispose of "all the capital assets of the company" taken together which will denude the company of its business or will leave merely the husk left behind. In the present case, however, the first respondent-company owns three vessels and the vessel in question was acquired only in June, 1989, and the same is lying idle. The first respondent- company is carrying on its business with the help of the other two vessels. The company itself was a party to the transaction in respect of the disposal of one of its vessels in the ordinary course of its business for the reasons stated in the application seeking approval of the Director-General of Shipping signed by its vice-president. If the company had owned only one vessel and the result of the sale of the said vessel had been to wind up the company or to wind up the business of the company in entirety or substantially, different criteria would have applied. This is a case of a business decision taken by the board of directors of the company as far back as on 21st May, 1990, in respect of sale of one of its assets which was lying idle in respect whereof operational expenses were mounting. The various reasons given by the first respondent itself in the viability report and in the justification put forward in the application made to the Director-General of Shipping for approval of the sale of the vessel cannot be ignored while considering the question as to whether one of the three vessels by itself, without anything more, can be considered as an undertaking. It is impossible for me to treat merely one of the assets of the company as an "undertaking". Several judgments have been cited by Mr. Zaiwala on behalf of the petitioners as well as by Mr. Cooper on behalf of respondents Nos. 1 and 3 under the Industrial Disputes Act, 1947, where the question arose as to how the expression "industrial undertaking" was to- be interpreted in industrial law. Mr. Zaiwala relied on the judgment of our High Court in Page | 160 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 the case of National Union of Commercial Employees v. M. R. Meher, AIR 1960 Bom 22, and the judgments of the Supreme Court in S. G. Chemicals and Dyes Trading Employees' Union v. S. G. Chemicals and Dyes Trading Limited. [1986] 2 SCR 126 and Management of Hindustan Steel Ltd. v. Their Workmen [1973] 3 SCR 303. Mr. Cooper relied on the judgment of the Supreme Court in the case of Madras Gymkhana Club Employees' Union v. Management of the Madras Gymkhana Club Employees' Union, AIR 1968 SC 554, 563 (para 26). I am afraid that none of these judgments can be considered relevant for the purpose of interpreting and applying section 293(1)(a) of the Companies Act (1 of 1956), which has a different legislative mission to serve. Mr. S. D. Parekh, learned counsel appearing for the Indian Bank, invited my attention to the judgment of the. High Court of Calcutta in the case of Pramod Kumar Mittal v. Andhra Steel Corporation Ltd. [1985] 58 Comp Cas 772. In this case, the court had appointed a committee of management in a petition under sections 397 and 398 of the Act. The committee of management disposed of certain assets, including plant and machinery, under orders of the court. Some of the interested shareholders challenged the said sale. It was held by the honourable Division Bench that the Dankuni unit of the company had remained closed for a period of five years. The honourable Division Bench of the Calcutta High Court rejected the application made to it for setting aside the sale on two grounds, namely, (i) that the committee of management appointed by the court was not subject to fetters imposed on the board of directors under section 293(1)(a) of the Act. Accordingly, reliance on this section by the petitioners before the court was misplaced. I am in respectful agreement with the view expressed by the High Court of Calcutta on the interpretation of sections 293(1)(a), 397 and 398 of the Act to this extent only. Secondly, it was held in this case that section 293(1)(a) did not apply to the proposed sale of the Dankuni unit of the company as it could not be considered as an undertaking because of its having remained closed for more than five years. With great respect to the honourable Division Bench of the High Court of Calcutta, I am unable to persuade myself to agree with this part of the enunciation of law. I respectfully differ. In my humble view, section 293(1)(a) makes no distinction whatsoever between a running undertaking and a closed undertaking. It is, however, not necessary to pursue this discussion further as having regard to the facts of this case, even if the vessel under sale constituted about 50 per cent. of the capital asset of the first respondent-company acquired in June, 1989 (the company having been incorporated in November, 1982), it is not possible for me to Page | 161 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 record even a prima facie finding to the effect that the transaction amounts to sale of the undertaking within the meaning of section 293(1)(a) of the Act. Mr. Aspi Chinai, learned counsel appearing for respondents Nos. 9 and 10, invited my attention to the meaning of the word "undertaking" from Words and Phrases Legally Defined by Butterworths, second edition, pages 240-241. The relevant extract from the various meanings of the expression "undertaking" given therein relied on by learned counsel reads as under : "Australia—'undertaking' is a word of variable meaning ... Basically the idea which it conveys is that of a business or enterprise ... The word 'undertaking', like the word 'business' ... will commonly embrace, when used dispositively, the property or some property which is used in connection with the undertaking and it may be too, the debts and liabilities, or some debts and liabilities, which have arisen in relation thereto." (emphasis supplied) For the sake of brevity, I am not extracting all the meanings of the expression "undertaking" given in the said standard work. I am in agreement with the meaning given in the above standard work to the effect that an undertaking means a business or an enterprise. It is, however, not possible for me to agree that the word "undertaking" as used in section 293(1)(a) of the Act can mean or embrace within itself even one of the several capital assets used by the owner in connection with the undertaking. To this limited extent, I disagree, having regard to the language used in section 293(1)(a) of the Act, its legislative history and its avowed object. At any rate, the assets in question must be substantially all (if not all) the assets of the undertaking so as to leave nothing of the business or the running concern in the business sense of the term after the asset intended to be disposed of is disposed of. It is impossible to accept the wider proposition that disposal of a single asset of the company (even a vessel) would mean disposal of the undertaking itself. If the asset to be disposed of is the sole capital asset of the company with the help of which the business of the company is run, the matter may be different. I have no hesitation in rejecting the submission of the petitioners that the vessel in dispute constitutes the undertaking of the first respondent- company. It is merely one of several business assets of the company. It could, therefore, be disposed of by the board of directors and no general body consent is required.” Thus it is clear that, if the assets are transferred which are a wholesome business unit, but not an individual assets, then only, Page | 162 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 it can constitute an ̳undertaking‘. Therefore, the crux of the issue is that the ̳undertaking‘ being demerged should constitute a separate business activity itself. If individual assets or liabilities or any combination thereof is transferred, if it does not constitute a business activity, it cannot be considered as an ―undertaking‖. v. Firstly whether there was a financial services business carried out by the merged entity or not is the primary issue. Further it also needs to be examined that assessee has transferred any part of the undertaking or unit or division of the undertaking constituting business activity. In this regard it is apparent that what is hived off is consisting of (1) fixed assets of ₹ 16.67 crores, (2) equity shares of Aditya Birla finance limited being 9.77% stake in that company of 6,12,73,146 equity shares valued at ₹ 1718.72 crores, (3) 8% compulsorily convertible redeemable preference shares of Aditya Birla finance limited of ₹ 10.21 crores, (4) fund based lending in the form of intercorporate deposit amounting to ₹ 13.63 crores, (5) small amount of deposits with the regulatory/statutory authorities and (6) investment in mutual funds amounting to ₹ 117.13 crores. This amounts to the total assets of Rs. 1876.38 crores. Along with these assets it has also transferred borrowings of ₹ 51.27 crores, current liabilities of 0.23 crores and deferred tax liability attached with the shares of ₹ 103.25 crores. Thus, along with the total assets of ₹ 1876.38 crores liabilities of ₹ 154.76 crores were also transferred which resulted in excess of assets over liabilities transferred of ₹ 1721.61 crores. It is undisputed that the principal business of the Aditya Birla Nuvo limited was not of financial services business but it was one of the business segments of that company. Past history of that company of its merger with Birla Global Finance Ltd also shows that it was carrying on Financial services Business. Therefore, out of the many business segments of Aditya Birla Nuvo limited one of the Page | 163 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 segments was of financial business services. Merely because in the return of income separate business of financial services has not been disclosed, it does not go against the assessee and we failed to concur r with the view of the lower authorities that Aditya Birla Nuvo Ltd did not have the financial service business as one of the business segment of the assessee. Further, assessee has also shown that in the return of income there are only 3 columns to mention the line of the business, however, in the tax audit report the assessee has given the detailed description of the business where financial serviceshas also been recognized as a business of the assessee In past as well as in the impugned assessment year. Further facts also show those in earlier years, the income arising from the lending in the form of intercorporate deposits have always been offered as a business income and accepted by the revenue as such. It is also to be noted that the merged entity was holding the financial assets of Rs 5853.37 crores, magnitude of the assets itself shows that there was a financial services business carried out by Aditya Birla Nuvo limited. vi. So far as the compliance with provisions of Section 2 (19 AA) of the act is concerned, all the property of the undertaking transferred by the demerged company immediately before the demerger, becomes the property of the resulting company by virtue of the demerger is also satisfied. vii. It is not the case of the revenue that i. some of the properties of the undertaking have not been transferred, or ii. some of the properties which are not the assets of the undertaking are transferred, if that be the case, naturally, in both the above situations, demerger did not satisfy the conditions u/s 2 (19AA) of the act. Thus loading of an asset to the undertaking and offloading an asset of the undertaking, both these situations will make the demerger non-compliant with the provisions of Section 2 (19 AA) Page | 164 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 of the act. In the present case,No such instances were pointed out before us. viii. It is also not the case of the revenue that assessee in the scheme of demerger has only transferred 9.77% stake in another company. It is not in dispute that it has transferred other assets and liabilities of an undertaking wherein the shares are also comprised in as part of assets of that undertaking. Had it been a mere transfer of shares, it could not have been said to be a transfer of an undertaking in view of the decision of the honourable Bombay High Court in case of principal Commissioner of income tax – 16 versus UTV software Communications Ltd [103 taxmann.com 12.] ix. Similarly all the liabilities relatable to that undertaking are also transferred in the form of borrowings of ₹ 51.27 crores and current liabilities of ₹ 0.23 crores. The liability of deferred tax of ₹ 103.25 crores also relate to the equity shares of Aditya Birla finance limited of ₹ 1718.72 crores of the investment. x. There is no dispute that all the assets and liabilities of the undertaking transferred at the book value which were appearing in the books of accounts before the demerger. xi. The resulting company has issued the shares to the shareholders of the demerged entity on a proportionate basis is also not in dispute. xii. The dispute is whether the transfer of the undertaking is made on a going concern basis or not. For this the, assessee company has shown that it has transferred fixed assets, along with the investments, interoperate deposits and investment in mutual funds along with their corresponding liability coupled with employees. All contracts, litigations were also transferred. It was not shown to us that what are those assets which were though part of the financial services business but not transferred to the resulting company. Further it is apparent that the financial services business is a business activity, which is Page | 165 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 capable of being run independently for a foreseeable future. It is also not the case of the revenue that subsequently the undertaking did not carry on the business on its own.Evidenceproves otherwise. xiii. Thus none of the individual assets or liabilities or any combination thereof which does not constitute an undertaking is transferred but, the financial services business constituted an undertaking and same were transferred on a going concern basis. xiv. In view of this we find that the findings given by the learned dispute resolution panel are sustainable to the extent that demerger complies with the conditions laid down u/s 2 (19AA) of The Act . 56. Now we come to the applicability of provisions of deemed dividend enshrined in Section 2 (22) of the act to the facts of present case. The learned assessing officer has held that prior to the transfer or alleged demerger; shares of Aditya Birla finance limited were the assets of the assessee and admittedly these assets were owned by the assessee and not its shareholders. The shares were transferred to Aditya Birla capital limited and compensation in lieu of such transfer would be receivable by the assessee only and payable to the assessee only and not to shareholders. However, as part of structuring of the transaction, this payment was made by issuance of shares of Aditya Birla capital limited to the shareholders of the assessee company. Therefore, assessee, by way of the scheme has undertaken sale of shares by the assessee to Aditya Birla capital limited, consideration of which should have been received by the assessee but instead of that the shareholders of the assessee company were allotted shares of Aditya Birla capital limited. Thus, instead of receiving the consideration for the sale of shares in the corpus of the assessee company, it directed these profits of the assessee arising on the sale of shares to Aditya Birla capital limited. Assessee directed that these profits are distributed amongst its shareholders and thus the assessee has Page | 166 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 distributed its profits amongst its shareholders which would be nothing but dividend distribution and accordingly the provisions of Section 2 (22) (a) of the act was invoked. 57. The learned counsel for the revenue and learned ASG heavily relied on the decision of the Honourable Delhi High Court in case of CIT versus Salora international Ltd 70 taxmann.com 92 (Delhi), specifically paragraph number 18, 27 and 30 of that decision. Thus it was argued that it satisfies the 4 tests. It was stated that (i) there is a distribution by a company as assessee has distributed the sale proceeds receivable against the sale of its assets i.e. the shares of Aditya Birla finance limited to the shareholders of the assessee, (ii) there is a distribution of accumulated profits as the sale proceeds had been received by the assessee company from Aditya Birla capital limited would have been a part of the accumulated profits, (iii) the distribution has entailed release of all or any part of the assets of the company as assessee has released its assessed in the form of shares of Aditya Birla finance limited, and (iv) distribution is made to its shareholders as the sale proceeds which are due and payable to the assessee company only and not to its shareholders, have been distributed to its shareholders. Therefore, the transaction squarely falls Under the definition of deemed dividend u/s 2(22)(a) of the act. 58. Countering the above submission, it was stated that there is no distribution by the appellant company as there is a transfer and vesting of the financial services business by the appellant to the Aditya Birla capital limited under the scheme of demerger. In case of demerger the shares are required to be issued only to the shareholders of Assessee Company. It was submitted that there is no other way in the demerger because it complies the provisions of Section 2 (19 AA) (iv) of the act wherein it is provided that the resulting company issues in consideration of the demerger its shares to the shareholders of the demerged company on a proportionate basis. It was further stated that the assessee has made adjustment in the amalgamation reserve which is a capital reserve which cannot be considered to be as an Page | 167 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 accumulated profits of the assessee company from which dividend could have been distributed. Thus, it was stated that there is no release by the appellant of any of the assets to the shareholders. In fact, there is no direct transaction between the assessee company and its shareholders but transfer of an undertaking by the assessee company in favour of an existing company and that existing company has issued share to the shareholders of the assessee company. Several judicial precedents relied upon were already placed before us in the form of written submission extracted earlier. It was also contended that the shares of Aditya Birla capital limited issued to the shareholders of the assessee company were not the assets of the assessee company earlier but those shares were issued by ABCL afresh. It was stated that distribution by itself presupposes existence of an asset. It was further contended that the deemed dividend provisions does not take within its ambit an indirect transfer of assets by the appellant to its shareholders. Assessee also submitted that there are specific exceptions carved out u/s 2 (22) by the finance act 1999, with effect from 1/4/2000 wherein clause (v) was inserted which provided that any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company is not considered as a deemed dividend. Assessee further submitted that provisions of deemed dividend are deeming fiction and if there is any ambiguity it needs to be resolved in favour of the assessee by placing reliance on the decision of the Honourable Supreme Court in case of Gopal & Sons HUF Vs CIT 391 ITR 1. Thus, it was submitted that there is no applicability of the provisions of Section 2 (22) (a) of the act in the present case. 59. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. The provisions of Section 2 (22) (a) provides that dividend includes any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. In the present case shares were issued Page | 168 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 under the scheme of demerger by the resulting company to the shareholders of demerged company. According to the provisions of Section 2 (19 AA) of the act, clause (iv) provides that the resulting company should issue its shares in consideration of the demerger, to the shareholders of the demerged company on proportionate basis, to qualify as tax neutral demerger. The resulting company has been defined u/s 2 (41A) of the act which means one or more companies to which the undertaking of the demerged company is transferred in a demerger and the resulting company in consideration of such transfer of undertaking issues shares to the shareholders of the demerged company. Therefore, here resulting company is Aditya Birla capital limited. Demerged company is also defined u/s 2 (19 AAA) of the act which means the company whose undertaking is transferred pursuant to a demerger to resulting company. Here the demerged company is assessee. In the present scheme, the Aditya Birla capital limited has issued in consideration of the demerger, shares of Aditya Birla capital limited to the shareholders of the Grasim industries limited on a proportionate basis. Thus, it satisfies condition provided u/s 2 (19AA) (iv) of the act. Further the exceptions to the deemed dividend as per the provisions of Section 2 (22) clearly says that dividend does not include any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company. [Exception (v) to Section 2 (22) of the act].Therefore, we do not agree with the contentions raised by the revenue< firstly for the reason that there is no distribution by the assessee to any of its asset to the shareholders and further the deemed dividend itself excludes the distribution of shares pursuant to demerger by the resulting company to the shareholders of the demerged company. Therefore, according to us in the above scheme of demerger, there is no applicability of provisions of Section 2 (22) (a) of the act. This are wrongly invoked. 60. Even otherwise circular number 5P dated 9/10/1967 provides as Under :- CIRCULAR: NO. 5-P, DATED 9-10-1967 Page | 169 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 1. A doubt has been raised in certain quarters whether the transfer by a subsidiary company of its assets to its parent company in a scheme of amalgamation may be held to result in a distribution of "dividend" by the subsidiary company to its parent company to the extent of its accumulated profits, within the meaning of the term "dividend" in sub-clause (a) or sub-clause (c) of section 2(22). 2. Under sub-clause (a) of section 2(22), "dividend" includes any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. This provision is attracted only where (a) a company distributes its accumulated profits to its shareholders, and (b) such distribution entails the release by the company to its shareholders of all or any part of its assets. However, where a company transfers its assets to another company in a scheme of amalgamation, such transfer may not be regarded as a "distribution" by the company of its accumulated profits to its shareholders even though its accumulated profits are embedded in the assets so transferred by it. This will be clear if one considers a case where, before the amalgamation of two companies, only a part of the shares of the amalgamating company were held by the amalgamated company and the remaining part by other shareholders in such a case the other shareholders will not receive any part of the assets transferred by the amalgamated company to the amalgamating company. 3. Under sub-clause (c) of section 2(22), "dividend" includes any distribution made by a company to its shareholders on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. This provision is attracted only in a case where a company goes into liquidation and not where it merges with another company in a scheme of amalgamation without going into liquidation. 4. The Board are, therefore, of the view that the provisions of sub-clause (a) or (c) of section 2(22) are not attracted in a case where a company merges with another company in a scheme of amalgamation. 61. According to paragraph number 2 of the above circular it is categorically held that where a company transferred assets/another company in a scheme of amalgamation, such transfer may not be regarded as a distribution by the company of its accumulated profits to shareholders even though its accumulated profits are embedded in the assets transferred by it. This is specifically with reference to the provisions of Section 2 (22) (a) of the act dealing with deemed dividend. Though the circular specifically deals with the issues of amalgamation however the principle laid down in this circular equally Page | 170 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 applies to the issue of demerger. It is also required to be noted that this circular was issued on 9 October 1967 where the provisions of demerger were introduced in income tax by the finance act 1999. In the case of demerger also there is a transfer of undertaking from demerged company to resultant company and in consideration of transfer of such undertaking, resultant company issues proportionate shares to the shareholders of demerged company. Therefore in substance the circular says that in case of corporate reorganization, if it is otherwise compliant with the law, the provisions of deemed dividend does not apply. This is also one of the reasons where the issue of demerger was kept out of deemed dividend u/s 2 (22) of the act by subclause (v) of Section 2 (22) which provides that the dividend does not include any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company, whether there is reduction of capital in the demerged company or not. It is also to be noted that the exemption only covers the issue of distribution of shares and not any other assets. In the present case, there is only distribution of shares; no other assets are distributed by the resultant company to the shareholders of the demerged company. 62. It is further to be seen that the circular was issued in 1967, the provisions of demerger were introduced in finance act 1999, therefore, irrespective whether the demerger qualifies u/s 2 (19 AA) of the act or not, the provisions of this circular still can be applied so far as applicability of deemed dividend u/s 2 (22) (a) in case of demerger is concerned. 63. Hence the orders of the lower authorities holding that in the present scheme of demerger, Assessee Company has distributed its assets to its shareholders are not sustainable and hence quashed. 64. As we have already held that, there is no deemed dividend chargeable to tax in the hands of the shareholders of the assessee company pursuant to the scheme of demerger, where the shares have been issued by Aditya Birla capital limited to the shareholders of the Grasim industries limited, consequent issues of any computation of such Page | 171 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 deemed dividend, payment of dividend distribution tax and interest thereon does not arise. 65. In view of our above findings, ground number 2, 4 and 5 of the appeal of the assessee are allowed. 66. Ground number 1 is general in nature, therefore, same is dismissed. 67. Ground number 6 challenging the issue of principle of natural justice also becomes redundant and hence dismissed. 68. Ground number 7 is with respect of levy of interest u/s 115P of the act, in view of our earlier findings, does not survive and therefore same is dismissed. 69. The last issue that remains is ground number 3 of the appeal where the assessee has challenged that the learned assessing officer does not have any authority to go behind and alleging doubt on the genuineness of the scheme of arrangement approved by the national company law tribunal. The claim of the assessee is that the learned assessing officer has alleged that the scheme of arrangement entered into by the appellant for demerger of financial services business to the resulting company as approved by the national company law tribunal was not genuine and further the learned assessing officer does not have any authority of going behind and doubting the entire business of the scheme of arrangement approved by the national company law tribunal and alleging that the issuance of the share by the resulting company to the shareholders of the appellant is an indirect exercised by the appellant of distributing the proceeds of the transferred undertaking to the shareholders of the appellant. 70. The submission of the appellant is that the order of the learned assessing officer has destroyed the verdict of the sanctioned scheme by the national company law tribunal and by holding that that assessee has not transferred the financial services business undertaking of the merged entity to the Aditya Birla capital limited as a going concern is nothing but an attempt to rewrite a sanctioned scheme which is not permissible. It was the claim that once the scheme has been approved by the national company law tribunal, revenue cannot set to overreach Page | 172 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 or depart from the explicit provisions of the scheme. It is argued that the terms of the scheme are binding on the AO and it is not open to proceed on the basis that the scheme was effected solely with a view to transfer the shares of Aditya Birla finance limited in a circuitous transaction. The learned senior advocate further submitted that the scheme on its approval by national company law tribunal attains binding force not only inter se the transferor and the transferee companies but in rem. For this proposition he relied upon the decision of the Honourable Supreme Court in Dalmia power Ltd versus ACIT 112 taxmann.com 252, decisions of the coordinate bench in case of Electrocast sales India private limited versus DCIT 170 ITD 507 (Kol), ITO versus Purbanchal power Co Ltd (ITA number 201/2010) (Kol). It was submitted that once the scheme is approved it cannot be disregarded or its terms sought to be differed from or modified by the revenue. He further relied upon the decision of Honourable Bombay High Court in case of Sadanand Varde versus state of Maharashtra (115 taxman 407), Vodafone Essar Gujarat Ltd versus CIT (24 taxmann.com 323). Thus it was stated that the arguments of the revenue to the extent those are contrary to the scheme are not sustainable in law. The learned senior advocate further referred to the provisions of Section 180 of The Companies Act 2013 and submitted that same does not come to the rescue of the revenue as it deals with the powers of the board and does not deal with the schemes of merger and demerger approved by NCLT. It was also submitted that the reliance placed by the learned lower authorities on the decision of Indo Rama textile Ltd (2012) 23 taxmann.com 390 particularly on paragraph number 47 to argue that whether the demerger is a tax compliant demerger or not is to be determined by the tax authorities post demerger for the reason that the learned assessing officer is trying to rewrite the scheme to hold that arrangement is not a tax compliant demerger. It was further stated that only opportunity to object a scheme is before the scheme is sanctioned by the National Company Law Tribunal. He further submitted that a notice on 3/3/ 2017 was issued under the provisions Page | 173 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 of Section 230 (5) of The Companies Act 2013 to submit its representations within 30 days and no representation was made. He further referred to circular number 1/2014 issued by the Ministry of corporate affairs on 15 January 2014 which provides that regional director shall invite comments from the income tax department and if no comments are received, it may be presumed that the income tax Department has no objection. He further referred to instruction number 279 dated 11 April 2014 of The Central Board Of Direct Taxes wherein it has been categorically stated that only opportunity available to the Department to object to the scheme of amalgamation, if it is found to be prejudicial to the interest of the revenue, is at the stage of sanctioning of the scheme only. He further referred to the decision of the Honourable Bombay High Court in Director of Income Tax versus Besix Kier Dabhol SA (210 taxman 151) to submit that revenue cannot recharacterize a transaction. He also submitted that the reliance placed by the revenue in case of CIT versus salora international Ltd (386 ITR 580) does not apply to the facts of the case as in the present case there is no consideration paid by the assessee directly to the shareholders and therefore it is distinguishable on the facts. 71. The learned Additional Solicitor General categorically submitted that revenue is not challenging or seeking to reopen the scheme which has been approved by the NCLT but revenue is merely examining the tax implication of the scheme of arrangement. It was stated that such an exercise would be in the exclusive domain of the tax authorities. He submits that tax authorities are merely examining the scheme to identify the true nature of the transaction and impose tax accordingly. He further stated that in the order of the National Company Law Tribunal dated 1 June 2017, while approving the scheme, NCLT itself noted that Grasim industries limited undertakes to discharge the income tax/service tax and other taxes, if any, in accordance with the law after implementation of the scheme. Hence the assessee having undertaken to do so to discharge its tax liabilities arising out of the Page | 174 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 scheme now cannot seek to resile therefrom. It was stated that even otherwise, the assessee would be liable to pay the tax statutory payable upon the said transaction/scheme. He relied upon the decision of the Honourable Delhi High Court in case of Salora international Ltd (supra) and Indo Rama textile Ltd (supra) and Honourable Gujarat High Court in case of Vodafone Essar Gujarat Ltd (supra). 72. We have carefully considered the rival contentions and perused the orders of the lower authorities as well as the several judicial precedents relied upon before us. We have also carefully considered the direction of the learned Dispute Resolution Panel wherein as per direction dated 30 June 2022 in paragraph number 25.9 this issue has been dealt with. The learned dispute addition panel agreed with the learned assessing officer that the approval of NCLT does not preclude revenue from examining the scheme for tax compliances. We do not have any hesitation in upholding the finding of the learned dispute resolution panel that it is the duty of the learned assessing officer to examine the impact of the scheme for tax purposes. It is not the case of the learned assessing officer and as confirmed by the learned Additional Solicitor General, that there is any attempt by revenue to rewriting the scheme of merger and demerger, but it merely doing an exercise of determining the true and correct taxliability of the assessee under the income tax act. It is also the fact that the order of the learned National Company Law Tribunal has not examined the tax liability of the assessee pursuant to the above scheme but has merely approved the scheme. The determination of the tax liability on the basis of the scheme of composite merger and demerger approved by the learned national company law tribunal, looking at all the terms and conditions laid down therein, is the statutory duty of the assessing officer. The order of the National Company Law Tribunal does not says that if any tax liability arises in the hands of the assessee that cannot be examined by the assessing officer. The dispute between assessee and revenue is the claim of the assessee that the learned assessing officer is rewriting the scheme which is already approved by Page | 175 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 national company law tribunal. We do not agree with the contention of the assessee. We have not been shown that there is any attempt by the learned AO to tinker with the scheme approved by NCLT. He is merely examining that according to the terms and condition of the scheme, the assessee fulfils the conditions of demerger for tax neutrality u/s 2 (19 AA) of the act as well as the chargeability of deemed dividend in the hands of the shareholders of the assessee company. According to us, he is duty-bound to do so. None of the decisions cited by the learned senior advocate held that the revenue does not have an authority to compute the tax liability of the assessee in pursuance to the scheme of corporate reorganization approved by the National Company Law Tribunal. Further, the object of the representation before the National Company Law Tribunal is only with respect to the scheme, if it is to defraud the revenue. Naturally, any scheme which is framed for with the object of defrauding the revenue cannot be approved by the NCLT. The circular of Ministry of corporate affairs as well as the instructions of central board of direct taxes are also conveying the same intent that if revenue has any objections to the scheme, it should make available its view before the NCLT. However, both these above instructions and circular does not prevent the assessing officer in applying the provisions of the income tax act to the return of income of the assessee filed in compliance with the scheme approved by National Company Law Tribunal. The ld. Special Counsel has also placed before us decision of NCLT in Panasonic India Pvt Ltd V Panasonic Life Solutions India P Ltd in CP (CAA) no.8/ CHD/HRY/2021 dated 19/5/2022 where in para no 7.15 even NCLT has agreed that even if a proposal of a scheme of amalgamation is approved by the Adjudicating Authority, it is clarified that no provision of such a scheme can override the existing provision of the Act. In any case, the issues may come up before the ld. AO at time of the assessment of those companies, and the department can analyze the scheme and is entitled to take any decision as per the provisions of the Income Tax Act on issues including issues in NCLT order. That Page | 176 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 decision also noted that Transferee Company has deposited anundertaking before court/NCLT also to that effect. 73. In commentary of Kanga , Palkhivala and Vyas in ―the Law and practice of income tax ―it has been observed that provisions relating to the taxation of the companies involved in the demerger and their shareholders are applicable only if the demerger fulfils the conditions provided u/s 2 (19 AA) of the act, 1961. Mere sanction of scheme is by High Court of demerger under the companies act 1956 is by itself not sufficient. 74. Hon Bombay High court in Casby CFS P Ltd in re [ 2015] 56 taxmann.com 263 (Bombay)/[2015] 231 Taxman 89 (Bom.) has alsoheld asunder: - ―39. According to the Petitioners, since the Regional Director has stated that the tax issues arising out of the Scheme shall be subject to the final decision of the Income Tax Authority and the approval of the scheme will not deter the Income Tax Authority from scrutinizing the Income Tax Returns filed by the Petitioners and the decision of the Income Tax Authority is binding on the Petitioners and since the Petitioners have accepted this position in their Affidavits in Reply, nothing survives in the objections of the Regional Director. In other words, according to the Petitioners, the objections of the Regional Director do not survive once the Petitioners accept that it will be open to the Income Tax Authorities to deal with the tax issues arising out of the scheme regardless of the approval of the scheme by this Court. XXXXXX 42. In my view the contentions of the Regional Director in this regard deserve to be accepted. The distinction between para 6(c) and 6(e) of the first affidavit of the Regional Director is apparent. As rightly pointed out by the Regional Director para 6(e) deals with the situation Page | 177 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 that arises in the event of the Court sanctioning the scheme. According to the Regional Director if the Court sanctioned the scheme, then the tax issues that may arise from the amalgamation must be left open for the Income Tax Authorities to decide. In other words according to the Regional Director, the sanction of the scheme should not prevent the Income Tax Authorities from scrutinizing tax returns filed by the Petitioners after giving effect to the amalgamation. In other words the Petitioners should not escape the liability, if any, to taxation upon giving effect to the amalgamation. This is very different from the contention raised by the Regional Director in para 6(c) of his first affidavit as elaborated in his third affidavit to the effect that the scheme itself should not be sanctioned in view of the retrospective appointed date being contrary to the provisions of the Income Tax Act. As such it is not possible to accept the contention of the Petitioners that para 6(e) of the first affidavit of the Regional Director read with para 6 of the Affidavit in Reply of the Petitioners is a complete answer to the objection of the Regional Director.‖ This judgment also supports the case of revenue instead of Assessee. 75. Thus, in present case the ld. AO has not exceeded his jurisdiction and has also not ceded his jurisdiction. Accordingly, ground no 3 of the appeal of assessee is dismissed. 76. Accordingly, appeal of assessee is partly allowed. 77. Coming to the appeal of the revenue, where the only issue is computation of deemed dividend in ground number 1 – 5 of the appeal, in view of our finding in appeal of assessee, that there is no deemed dividend chargeable to tax in the impugned case, these grounds also do not survive, hence, are dismissed. 78. In the result Appeal of Ld. AO is dismissed. Page | 178 ITA Nos. 1935/MUM/2020 & 41/MUM/2021 Grasim Industries Ltd. 2018-19 79. Accordingly appeal of assessee is partly allowed and appeal of ld. AO is dismissed. 80. As appeal of assessee is disposed of by this order, SA No 135/M/2021 becomes infructuous and hence, dismissed. Order pronounced in the open court on 30 November 2022 Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASH ANT MAH ARI SHI) (JUDICI AL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 30 th November 2022 Dictated on Dragon software Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai