nani palakhiwala memorial final.pdf

7/30/2019 nani palakhiwala memorial final.pdf

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Inspiring Will of Shri Nani A. Palkhivala

(16-1-1920 11-12-2002)

When I die ...

Give my sight to the man who has never seen a sunrise.

Give my heart to one who has known the agony of the heart.

Give my blood to a youth pulled from the wreckage of a car so that hemight live to see his grandchildren play.

Let my kidneys drain the poison from anothers body.

Let my bones be used to make a crippled child walk.

Burn what is left of me and scatter the ashes to the wind tolet the flowers grow.

If you must bury something, let it be my faults and my prejudices

against my fellowmen.Give my sins to the Devil.

Give my soul to the God.

If you wish to remember me, do it with a kind deedor word to someone who needs you.

If you do all lve asked, Ill live forever.

Nani A. Palkhivala


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Shri N. A. Palkhivala was born on January 16, 1920 in Mumbai. He took his M. A. degreewith Honours in English from the Mumbai University in 1942.

He was a Professor of Law at the Government Law College, Mumbai, for many years andwas appointed as the Tagore Professor of Law at the Calcutta University.

He was a Member of the First Law Commission of India (1955) and also of the SecondLaw Commission (1958).

In September 1977, Mr. Palkhivala was appointed Ambassador of India to the UnitedStates of America.

In April 1978 the Lawrence University, Wisconsin (USA), conferred on Mr. Palkhivala,the Honorary Degree of Law with the following citation :

...As Indias leading author, scholar, teacher and practitioner of constitutional lawyou have defended the individual, be he prince or pauper, against the state; you have

championed free speech and an unfettered press; you have protected the autonomyof the religious and educational institutions of the minorities; you have fought for thepreservation of independent social organisations and multiple centres of civic power....Never more did you live your principles than during the recent 18 month ordeal whichIndia went through in what was called The Emergency,.... Under the shadow of neartyranny, at great risk and some cost, you raised the torch of freedom....

Mr. Palkhivala was the author of The Law and Practice of Income Tax, which is thestandard reference book on the subject. In 1984, We, the People and We, the Nation

were published which contain extracts from his speeches and writings of over threedecades. This volume also includes extracts from his speeches on the Union Budget, andan incisive analysis of the public policies of India.

He has argued a number of landmark cases in the Courts of India and abroad.

Mr. Palkhivala successfully argued before the Supreme Court, the cases which afrmedthe Fundamental Rights of minorities to establish and administer educational andreligious institutions of their choice, and to choose the language in which educationshould be imparted.

Mr. Palkhivala had many activities outside the immediate sphere of his work. He was thePresident of the Forum of Free Enterprise, Chairman of The Leslie Sawhny Programmeof Training for Democracy, The A. D. Shroff Memorial Trust, The Lotus Trust, and theIncome Tax Appellate Tribunal Bar Association, Bombay and a Trustee of other charitabletrusts.

The Government of India awarded Shri N. A. Palkhivala with the Padmavibhushan on26th January, 1998.

He was also felicitated with the Life time achievement award by the Governor ofMaharashtra, His Excellency Shri P. C. Alexander at a function organised by the All India

Association of Industries (AIAI) on 15th April, 1999.

Honble Shri Atal Bihari Vajpayee, the then Prime Minister of India released acommemorative postage stamp in memory of late Shri N. A. Palkhivala on 16-1-2004in Mumbai.

Shri N. A. PAlkhivAlA A legeNd


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C o n t e n t s

About the All India Federation of Tax Practitioners ............................5

About Income Tax Appellate Tribunal Bar Association...................... 10

Messages ..................................................................................................11

List of Participating Colleges ................................................................24

Memoirs of the Late Shri N. A. Palkhivala ........................................26

6th Nani Palkhivala Memorial Research Paper Competition .............33

Synopsis of the Case Study ...................................................................62

Judges of the Competition ....................................................................64

Acknowledgments ..................................................................................66

Organizing Committee ...........................................................................67

Message from the General Secretary ....................................................70


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ABoUt ALL InDIA FeDeRAtIon oF tAX PRACtItIoneRs

1. Birh f th Fdrai

Inspired by the ideology to have a common platform for all those who practice taxation

laws, irrespective of their individual afliations and to enable them to share the benets

of their learning, experience and knowledge, eminent professionals from the elds of

Direct and Indirect Taxes conceived the idea of establishing an all India body for the tax

practitioners.

The seeds of Federation were sown at Mumbai at the First All India Conference on

Taxation organized by The Chamber of Tax Consultants, under the able Presidentshipof Shri B. C. Joshi, Advocate. This was the First historical conference by The Chamber

of Tax Consultants, Mumbai while celebrating its Golden Jubilee year. More than 852

delegates from all the parts of the country were present. It was at the opening ceremony

of this National Conference on 11-11-1976 that the doyens of the Professionals Christened

the Association in the presence of Former Chief Justice of India, Honble Justice J.

C. Shah and distinguished Jurist Shri N. A. Palkhivala. Shri N. C. Mehta, Chartered

Accountant, Mumbai, was appointed as Founder President and Shri P. C. Joshi was

appointed as Secretary General. The Federation has completed 34 years of its purposeful

existence.

2. objc

The cherished objects as enshrined in the Constitution of the Federation can briey be

stated as:

i. To provide an effective forum for the discussion of matters pertaining to tax laws,other laws, accountancy and their administration, for the collection, disseminationof information relating thereto, for the development of better understanding andco-operation amongst the members, tax administration, tax payers and all othersconcerned.

ii. To strive and work for independence of Quasi-Judicial Authorities, Appellate

Authorities, the Settlement Commissions, Tribunals, Authority for Advance Ruling,Courts, or other similar Authorities;

iii. To make representations, file petitions and appear before the Tax Authorities,Tribunal and Courts in the matters of public interest and cases of importance toprofessionals and assessees in general;

Ab AiftP


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iv. To design and arrange activities to enhance the image of the profession in thesociety;

v. To carry out activities to develop and promote high ethical standards for theprofessionals.

vi. To promote and encourage friendly feelings, fraternity, unity and co-operationamongst the members and to inculcate feelings of brotherhood in them;

vii. To publish journals, books, bulletins, pamphlets, leaets and magazines or anyperiodicals.

3. HeadOfceandZones

With the generous contributions by its members the Federation has been able to own,

establish, run a full-edged and a well equipped Head Ofce at 215, Rewa Chambers,

31, New Marine Lines, Mumbai 400 020. The total strength of National Executive

Committee Members is 55, headed by a National President, with a Deputy President,

Five Vice Presidents and Five Joint Secretaries, (one from each zone) apart from the

Secretary General, Treasurer and 43 of the elected body executive members. The Deputy

President takes over as the National President in the next term. The term is two calendar

years. Presently the President is Shri M. L. Patodi, Advocate, Kota and Shri S. K. Poddar,

Advocate, Ranchi is the Deputy President. Our eminent Past Presidents are Shri N. C.

Mehta, C.A., Mumbai (1978-83), Shri B. C. Joshi, Advocate, Mumbai (1984-90), Late Shri

L. M. Mahurkar, Nagpur (1991-93), Shri P. C. Joshi, Advocate, Mumbai (1994-96). Late

Shri Sukumar Bhattacharya, Kolkata (1997-99), Shri N. M. Ranka, Sr. Advocate, Jaipur

(2000-02), Dr. K. Shivaram, Advocate, Mumbai (2003-05) Shri V. Ramachandran, Sr.

Advocate, Chennai (2006 & 07) and Shri Bharatji Agrawal, Sr. Advocate, Allahabad (2008

& 09).

For efcient functioning, for ease of administration and to give wider representation,

the AIFTP is divided into ve zones namely Central Zone, Eastern Zone, Northern Zone,

Southern Zone and Western Zone. Each Zone is headed by a Chairman supported by Vice

Chairman, 2 Secretaries and Treasurer as Ofce Bearers. The term of the Zonal Ofce

Bearers and Managing Committee coincide with the terms of the National Executive

Committee.

4. Mmbr

The membership of the Federation includes Advocates, Solicitors, Chartered Accountants

and Tax Practitioners, practicing Direct or Indirect Taxes, from all States in the Country.

Its member enjoy a strong bond of fellowship leading to fraternal brotherhood amongst


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professionals. The Federation is the symbol and spirit of national integration. As oftoday the Federation is the only professional organisation of our country which has

115 Professional Associations, from 18 states as its afliated members and more than

4,700 individual as life members. Life membership Fee is Rs. 2,500/-. The membership

is spread in 26 States and 4 Union Territories. It also has on its roll, Associate and

Corporate Members. It is a unique association at the national level.

5. Jural

The Federation publishes a monthly Journal covering the latest reported & unreported

decisions of the Supreme Court, High Courts and Income Tax Appellate Tribunals

including the articles, opinions and latest developments on direct and indirect taxes

by experts in the eld. The unique feature is that every quarter, it publish the gist of

important case laws published in 33 Tax Magazines from all over the country. The journal

is sent to members on an additional annual subscription of Rs. 400/- and Rs. 1,000/- for

three years and to Non-Members at Rs. 600/- per year and Rs. 1,500/- for three years.

6. Aifp tim

The Federation publishes a monthly newsletter called AIFTP TIMES which is sent to all

the members free of charge. This newsletter contains important notications, circulars

and other topical information apart from various activities of the Federation. Eastern

Zone also publishes AIFTP Times East.

7. Wbi/Library

The AIFTP website at www.aiftponline.org is an informative source for the members.

The website is regularly updated by a team of dedicated professionals. It has its library

at Mahalaxmi Income-tax ofce.

8. Rprai ad Publicai

The Federation has been making Representations to focus the grievances of trade,

industry and professionals. It regularly sends Pre and Post Budget Memorandums. Many

of the suggestions and the recommendations are accepted. The Kar Vivad SamadhanScheme, 1998 was suggested by our Federation. In order to get tax laws simplied and

rational has led more than 20 Writ Petitions in public interest. Representations are

made to the Central and State Governments and higher tax administration for redressal of

grievances and simplication of tax laws. It regularly publishes books in simple language

and question answer format at a low cost. It has published more than 24 books.


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9. Cvi & smiar

The Association Members jointly with the Federation organize National Seminars,

Conferences and Conventions in various parts of the Country to update its members.

More than 10-12 Seminars are organised in a year. The Zones are active in organizing

one day seminars, study circles, RRC, etc. in association with various local associations.

The aim is to cultivate the strong bond of fraternity amongst members and

professionals.

A unique feature of the Federation is that the faculties, chairmen, trustees, ofce bearers

and members of the National Executive and Zonal Committees pay a registration fee

and bear their own travel and stay expenses. They serve with dedication, devotion and

generously contribute to BUILD THE NATION. Since 1994, the Federation has installed

RANKA BEST TAX SEMINAR competition. Since 2005, The Ranka Charitable Trust has

installed Ranka Best Zone Chairman award. National Convention is held every second

year. Many Chief Justices of India, Judges of the Supreme Court and High Courts have

inaugurated the conferences, appreciated and applauded efforts and activities of the

Federation.

10. Rla f Cmmmraiv Pag samp i Mmry f shrin. A. Palkhivala

We are pleased that, as per the request of the Federation, Government of India hasreleased Commemorative Postage Stamp in Memory of Shri N. A. Palkhivala on 16th

January, 2004. The then Honble Prime Minister of India, Shri Atal Bihari Vajpayee

released the stamp.

11. nai Palkhivala Mmrial naial tax M Cur Cmpii &Rarch Papr Cmpii

For the development of the Tax Bar, we have started the Nani Palkhivala Memorial

National Tax Moot Court Competition and Research in Tax Laws in the banner of

Palkhivala Foundation at Mumbai, wherein every year students from more than 25

leading law colleges of India are participating in the competition and more than 50 LawColleges are participating in the Research Competition. Since 2009, Federation is also

organising Shri Rajaram Agrawal Memorial National Tax Moot Court Competition at

Allahabad.


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12. Fir Iraial tax CfrcAll India Federation of Tax Practitioners in association with Asia Oceania Tax Consultants

Association (AOTCA) has organized the First International Tax Conference at Mumbai

from 19th to 21st November, 2009, representing 14 countries wherein 105 delegates

enrolled, including 55 foreign delegates.

13. Achivm

Federation has voluntarily adopted the code of ethics in its Constitution for its members.

Ethics are a way of life. The Federation is afliated to the Asia Oceania Tax Consultants

Association, Japan. The Federation has organised a successful International Study Tour

in the month of May 2004 and May 2007.

Today, the Federation is considered a national integration of tax professionals of India.

We have many eminent professionals as our members, some have been elevated to be

Judges of the High Courts, Supreme Court and Tribunals. Most of the leading Senior

Advocates who practice on Direct, Indirect Taxes, many past Presidents of Institutes

of Chartered Accountants of India, Chairman and member of Bar Councils of various

states, leading Lawyers, Chartered Accountants and Tax Practitioners of our country are

esteemed members. We have great potential and ability to grow as a global association.

The Federation is making an honest attempt to develop a strong Tax Bar for our country,

which will be able to compete in International Tax Practice.


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Ab itAt

BAr ASSociAtioN

ABoUt InCoMe tAX APPeLLAte tRIBUnAL BAR AssoCIAtIon

The Income Tax Appellate Tribunal Bar Association was established on 18th November1965. Amongst those who held the ofce of President were Shri G. A. Gaitonde erstwhile

President of the Income Tax Appellate Tribunal and Shri N. A. Palkhivala who had the

longest tenure from the year 1967 till his demise in 2002. Thereafter Shri Y. P. Trivedi,

Sr. Advocate served as a President up to December, 2006, Shri S. E. Dastur, Sr. Advocate

served as a President from January, 2007 to December, 2008 and Shri Dinesh Vyas, Sr.

Advocate has been elected as President of the ITAT Bar Association, Mumbai in January,

2009.

The present strength of the ITAT Bar Association is 450. Its members include Advocates,

Chartered Accountants and Tax Practitioners practicing before the Income Tax Appellate

Tribunal.

The ITAT Bar Association has one of the most well-equipped law libraries in Mumbai.

More than 25 magazines and journals covering tax and allied subjects are available.

Its premises are fully air-conditioned. The library was initially funded by Shri Chunilal

Karsandas, a past member and has been subsequently supported by the D. M. Harish

Foundation. A magnanimous donation from Shri S. E. Dastur enabled the ITAT Bar

Association to set up a separate section on International Law dedicated to late Shri R.

J. Kolah.

The ITAT Bar Association plays an active role in matters of vital importance to the

Institution. It makes representations to the concerned authorities. The Income Tax

Appellate Tribunal has always enjoyed judicial independence. When there was a threat ofinterference from the Executive in the administration of justice, the ITAT Bar Association

filed a public interest petition before the Bombay High Court. The recent judgment

of the Supreme Court in ITAT vs. V. K. Agarwal (1999) 235 ITR 175 (SC) contempt

proceedings is the outcome of the Public Interest Petition led by the Association. On

another occasion, there was a move to shift the head quarters of the ITAT to Delhi. It

was mainly due to the representations and efforts of the ITAT Bar Association that the

Government was persuaded against taking this step and the headquarters continued

in Mumbai. Again, when there was a proposal to constitute 5 additional Benches of

Income-Tax Appellate Tribunal at Navi Mumbai it was the ITAT Bar Association which

strongly opposed and convinced the Government that setting up additional Benches at

Navi Mumbai was not in the interest of the tax payers or the Government. This wouldnot have been possible but for the PIL filed by the ITAT Bar Association before the

Bombay High Court. It is of signicance that not only did the Govt. accept this suggestion

but allotted additional space previously occupied by the All India Radio to the Income

Tax Appellate Tribunal so that the ve additional Benches now function alongside the

then existing 5 Benches on the same oor.


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meSSAgeS

The President of India, Smt. Pratibha Devisingh Patil, is happy to

know that the All India Federation of Tax Practitioners (AIFTP) and the

Income Tax Appellate Tribunal (ITAT) Bar Association in association with

the Moot Coutt Association of the Government Law College, Mumbai is

organising the 7th Nani Palkhivala Memorial National Tax Moot Court

Competition 2010 from October 7-9, 2010.

The President extends her warm greetings and felicitations to the

organisers and the participants and wishes the event every success.

Ofcer on Special Duty (PR)


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Honble Vice President of India is glad to know that the All India

Federation of Tax Practitioners (AIFTP) and the Income Tax Appellate

Tribunal (ITAT) Bar Association in association with the Government Law

College Moot Court Association, Mumbai is organizing the 7th Nani

Palkhivala Memorial National Tax Moot Court Competition from 7th to

9th October, 2010.

Vice President of India extends his greetings and good wishes to

the organizers and the participants and wishes the National Tax Moot

Court Competition all success.

Ahk Dwa

New Delhi

6th September, 2010


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To become a good advocate you need yourself equipped with the good presentation

skills. To improve your skills practice is required in presenting your case and arguing

which is a big challenge for a developing student at the college level. A student of law

cannot just stick only to the theoretical teaching and hence law institutions host Moot

Court Competitions.

With Moot Court on your resume, an employer knows that you have been learning to

form and communicate legal arguments for a year or more; if youve already spent a lot

of time in law school on these tasks, thats less time the rm will have to invest in your

learning and more time you can spend practicing law.

Even if youre not thinking ofajob at a large rm, Moot Court can be quite useful as youllbecome increasingly more comfortable formulating arguments and expressing them in

front of judges. If you feel that your public speaking skills need some work, Moot Court

is a great place to hone them.

On a more personal level, participating in Moot Court can also provide a unique bonding

experience for you and your team and give you a mini-support system during law

school.

I am sure, as always, the 7th Nani A.Palkivala Memorial National Tax Moot Court

Competition, 2010 organised by All India Federation of Tax Practitioners and the Income

Tax Appellate Tribunal Bar Association in association with the Government Law College,

Mumbai will be a great success.

Justice Vijay Daga

September 12, 2010


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I am very happy to note that the 7th Nani Palkhivala Memorial

Moot Court Competition and the 6th Nani Palkhivala Research Paper

Competition are being organized from 7th to 9th October, 2010. Such

moot courts are necessary to encourage the aspiring lawyers to showcase

and hone their talents so that they are fully prepared when they enter

the legal profession. It is a step in the right direction and congratulations

are due to the Government Law College, Mumbai, a premier educational

institution for the study of Law, the All India Federation of TaxPractitioners and the Income Tax, Appellate Tribunal Bar Association,

Mumbai for taking interest in such events in the larger interests of the

legal profession in lndia.

I wish all the participants all the best. May the best team win.

R. V. eawar

President ITAT


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I am happy to note that the 7th Nani Palkhivala Memorial National Tax

Moot Court Competition is being organised from 7th to 9th October, 2010. Moot

Courts provide an excellent opportunity to law students who are aspiring to excel

themselves in the taxation branch as lawyers. Such training would enrich the tax

bar associations in future, in the form of having young and talented graduates into

its stream. Moot Court competition is being held under the auspices of All India

Federation of Tax Practitioners and ITAT Bar Association, in association with the

Government Law College.

It is noticed that the Moot Court competitions are held in a very

organised manner, by maintaining high standards, which would surely benet the

participants. I wish them all the very best.

Yours sincerely

D. Mamha

Vice President

08-09-2010


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Prciu L fr Yug Lawyr

The Income Tax Appellate Tribunal Bar Association is happy to associate with the

Government Law College in organising Nani A. Palkhivala Memorial National Tax Moot

Court Competition for the year 2010. Without doubt, Mr. Palkhivala is the best role

model for a young mooter and an aspiring lawyer. I had the great fortune and the proud

privilege of being associated as a junior to Mr. Palkhivala for a long period extending

over three decades. However, the family relations dated back to the early nineteen forties

when he and my father studied law in our own Government Law College at the same

time.

For Mr. Palkhivala, tax law was the main turf and the pitch where he played the game

of his life. It was not only his passion but also his bread and butter. It was tax law

with which he made his beginning and his big name. Next to his home and ofce the

maximum time of his life was spent in the courtrooms and corridors of the Income Tax

Appellate Tribunal in Mumbai. It is for his contribution to the growth and development

of tax laws that he will be remembered the most in India. In short, tax law was his

Karma Bhoomi.

For the benet of young mooters let me recall that extensive reading and ever-expanding

knowledge are the prerequisites of a successful lawyer and Mr. Palkhivala implemented

this principle in its totality. He extensively read not only law and constitutional law, but

also several other laws on a regular basis. He mastered the fundamental laws such as


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jurisprudence and interpretation of statutes. He once advised me that tax cases are betterwon with not-tax legal material and not just with tax material and I have followed this

advice with signicant benet in my practice. Mr. Palkhivala never studied a statutory

enactment in isolation on a stand alone basis but as a part of a broad legal network and

this brought out much wider and deeper meaning and understanding of that particular

enactment. A substantial part of his library and books which he gifted me over past few

years included law books from virtually every branch of law. The wide range of his law

books display the width of his mental horizon and the depth of his brilliant mind. This

is what a young lawyer should try to emulate.

Many precious lessons could be learnt from Mr. Palkhivalas legal career. In all his legalbattles, Mr. Palkhivala had a clear and consistent strategy. He would deeply analyse

the facts, compartmentalize the legal issues and on that basis would formulate the

proposition that he wanted the Court to accept. This intellectual ability with gifted and

persuasive advocacy worked as magic and did wonders year after year; whether it be

the Supreme Court or the High Courts or Tribunals all over India. His advocacy was

extremely convincing, based on respect for the Court and devoid of any arrogance and

more importantly, administered firmly but with humility. Many times in the Courts,

during the replies of the other side, he would give me precious hints on Court craft and

conduct, chief among them being never to offend the Judges and lose temper in the

Courts.

I am very happy to record that my legal journey began as a student at the Government

Law College and specially as the Secretary of our Moot Court Association in the year

1966-67 and has currently taken me to the Presidentship of the Income Tax Appellate

Tribunal Bar Association and which on the way, gave me the rare privilege of authoring

the Ninth Edition of Kanga, Palkhivala & Vyas The law and Practice of Income

Tax, which to start with, was the baby of Mr. N. A. Palkhivala, in whose memory this

National Tax Moot Court Competition is being held. I am sure that every young lawyer

will benet immensely and reach great legal heights if he follows in the footsteps of Mr.

Palkhivala. I wish a great success for Nani A. Palkhivala Memorial National Tax Moot

Court Competition, 2010.

September 29, 2010


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AIFTP has been very active since decades in organizing tax seminars, workshops

and other programmes of continuing education for tax practitioners and in creating

awareness among the tax payers of their rights and obligations. With an objective to

widen the scope amongst the future generation too, AIFTP is organizing the 7th Nani

Palkhivala Memorial National Tax Moot Court Competition jointly with Income Tax

Appellate Tribunal Bar Association and Government Law College, Mumbai. In the

globalised economy and cross-border commercial transactions, international taxation a

relatively less familiar subject, has assumed enormous dimensions and great relevance.

Therefore, the topic selected Crss-brder Business Rerganisatin - The

Indian Perspectivefor the competition is of wide importance where the students will

gain the experience by presenting papers with special reference to the proposed Direct

Tax Code. There is more and more interaction between professionals across the political

borders and these interactions give all of us opportunities to learn from each other andshare each others perspectives on problems. Action without vision is simply passing

time. Action with vision is making a positive difference. I am sure that the presentation

of research papers and discussion with the participation of the different Law Colleges

students and the experts of the topic, will certainly clear many lingering doubts and open

up new vistas of thought and action. I am sure that it would be a good experience to the

participants and they would be beneted with the experts comments too.

I send my good wishes for the success of the National Moot Court Competition

and hope it will contribute to more and more co-operation between the Law students

and senior professionals across the world.

M. L. Padi

National President, AIFTP

September 18, 2010


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HAs tHe nAnI A. PALKHIVALA MeMoRIAL nAtIonAL tAXMoot CoURt CoMPetItIon ACHIeVeD tHe DesIReD oBJeCtoF PRoMotInG YoUnG LAWYeRs to JoIn tHe tAX BAR AnDsPReAD tHe VALUe AnD etHICs FoLLoWeD BY sHRI nAnI A.PALKHIVALA?

2nd October being the birthday of Mahatma Gandhi, as a tribute to the father of ournation, we desired to hold the 7th Nani Palkhivala National Tax Moot Court Competition

on the said day. However, as we had our National Tax Conference in Chennai, we could

not hold the Moot Court Competition in Mumbai on the same day, therefore, we thought

of writing this message. 16th January, 2004 was a memorable day in the history of the

Federation. On this auspicious day the then Prime Minister of India, Honble Atal Bihari

Vajpayee, released a commemorative postage stamp in Mumbai which was dedicated to

Shri N. A. Palkhivala. In his speech the Prime Minister stated as under:-

In thse dark days, the battle r demcracy was ught by many peple

in many dierent ways. Many us in plitics under the leadership

Jayaprakash Narayanan ught it in prisns. But I have n dubt that ne

the inest battles was ught in the curt rms and that ighter was

Nani Palkhivala.

This great contribution of Shri Palkhivala for preserving the basic structure of the

Constitution of India will be remembered for ever. We as citizens of our country are

always indebted to Shri Palkhivala. This inspired us to hold the Palkhivala Memorial

National Tax Moot Court Competition through which we can spread awareness among

law students about the contribution of Shri Palkhivala to the development of our country.

When we started the Moot Court Competition in the year 2004, I as the President of the

All India Federation of Tax Practitioners and Shri Y. P. Trivedi as President of ITAT Bar

Association assured the then Principal of Government Law College, Mumbai, Mrs. P. R.

Rao and Prof. Sanjay Kadam, that we would organize the Palkhivala Memorial NationalTax Moot Court Competition for atleast five years. In my first message, I had stated

that by rganizing the Natinal Tax Mt Curt we intended t achieve

twin objects; rstly we will be remembering one of the greatest lawyer of

ur cuntry r his cntributin t the develpment law and preserving

the sanctity ur Cnstitutin and secndly, we are bringing awareness

All India Federation of Tax Practitioners

(Registered with Registrar of Society, Charity Commissioner & Income Tax Authorities)Regd. Office : 215, Rewa Chambers, 31, New Marine Lines, Mumbai 400 020.

Tel.: +91-22-22006342 Fax: +91-22-22006343

E-mail: [email protected] Website: www.aiftponline.org

Library : Mahalaxmi Chambers, Income Tax Office, 2nd Floor, Mumbai - 400 034.


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amngst the law students abut the values and ethics practiced by Shri

N. A. Palkhivala which will help t develp the Tax Bar InternatinalStandards.

Thereafter, successive Presidents of the Federation, Shri V. Ramachandran from Chennai,

Shri Bharatji Agrawal from Allahabad and Shri M. L. Patodi from Kota and similarly,

Presidents of the ITAT Bar Association, Mumbai Shri S. E. Dastur and Shri Dinesh Vyas

and the Committee Members of both the organizations have whole heartedly supported

the Palkhivala Memorial Tax Moot Court Competition. While inaugurating the 5th Nani

Palkhivala Tax Moot Court Competition Honble Justice F. I. Rebello, Chief Justice of the

Allahabad High Court, (Then as Judge of Bombay High Court) desired that we should

continue this educational programme year after year. I am pleased to state that with the

co-operation of our professional colleagues, Honble Members of ITAT and Judges ofthe Bombay High Court, this year we will be completing seven successive years of this

National Tax Moot Court Competition. We have tried to improve the competition year

after year. We have been informed by the students that this is one of the most prestigious

Moot Court Competitions in the country, wherein students representing all the leading

law colleges desire to participate. It gives immense satisfaction to all of us who are

associated with this educational programme to hear from students that this competition

has generated interest amongst law students to study tax law. We are pleased to state

that the Nani Palkhivala Memorial Tax Research Paper which was started in the year

2005, is getting a very good response year after year. This year, we have requested 121

Law colleges of our Country to contribute to the research paper on the subject ofCrss-

brder Business Rerganizatin The Indian Perspective

To the best of my information, the ITAT Bar Association, Mumbai and the All India

Federation of Tax Practitioners are the only professional organizations in the country

which have made a sincere attempt to develop the future Tax Bar by organizing a

National Tax Moot Court Competition and also by encouraging law students to write a

research paper on Direct Taxes. This is the only Moot Court Competition in our country

which is judged by tax professionals, members of the ITAT, judges of the High Court

and the Apex Court, and which is held in the court rooms of the ITAT. In the last seven

years, law students have had the opportunity of listening to the views of the judges of the

Apex Court, Chief Justices and other Judges of High Courts, Members of the Tribunal

and leading professionals. The best team, best speaker and second best team have also

had the opportunity of getting internships with leading Sr. Advocates and leading Law

Firms. Best research papers are published in the journal of AIFTP, www.itatonline.org

as well as in International Tax Magazines. We are pleased to state that for conducting

this educational programme for the last seven years an amount of around ` 52,00,000/-

(Rupees Fifty Two Lakhs) was spent. However, we are of the opinion that only a few

students are participating in this educational programme, though we desired that a


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larger number of law students participated. We will be happy to receive feedbacks from

students, professors and professionals, with innovative educational programmes wherea larger number of students will be more interested in and wherein at least more than

500 law students can participate and take advantage.

Whether we continue this Moot Court Competition or not, we desire to organize at

least one educational programme in a year dedicated in the fond memory of Shri Nani

A. Palkhivala for the benet of law students in association with law colleges and law

students which will benet a large section of law students.

I feel honoured and satised that I along with Professor Sanjay Kadam had the privilege

of being associated with all the seven Nani Palkhivala Memorial National Tax Moot Court

Competitions, interacting with law students and making an attempt to promote young

professionals to the tax practice.

Honble President Shri R. V. Easwar, Honble Vice President Shri D. Manmohan and

other Honble Members of the ITAT deserve special appreciation. Without their co-

operation and help, it would not have been possible to organize the Palkhivala Memorial

National Tax Moot Court Competition year after year.

This educational programme is the team work of the ITAT Bar Association and the

All India Federation of Tax Practitioners and Government Law College. We desire to

acknowledge the contribution of all those who have helped us directly or indirectly

in organizing this Moot Court Competition. We will be failing in our duty if we dont

acknowledge the support and contribution of Shri B. A. Palkhivala for organizing this

Moot Court Competition year after year.

We wish all the best to the General Secretary Mr. Raunak Shah, Assistant General

Secretary Mr. Rubin Vakil, and the committee members of the Moot Court Committee for

organizing this Moot Court Competition very sincerely and professionally. This experience

will denitely help them in their professional life.

Dr. K. shivaram

Chairman,

(Palkhivala Foundation & Research Committee)

(Past President)

2nd October, 2010


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From 1855 to 2010, these 156 years personify the genesis of an Institution which started its

journey as a series of lectures on law after court hours, to becoming one of the nest in eldof imparting legal education in India. This Institution par excellence, called, Government Law

College, Mumbai has, since its inception, played a pivotal role in shaping the legal psyche of

our Nation. Some of the greatest legal luminaries owe their success to this Institution.

Mooting has evolved as an integral part of the legal curriculum of the world. It provides an

opportunity for students to experience the feel of court room atmosphere. This exciting and

challenging platform where students present and argue their cases is an enjoyable method of

practical training. Apart from honing their advocacy skills, moot court training also builds condence

and character and equips law students with essential skills to survive in the real world.

The Moot Court Association of Government Law College has devoted itself solely to the cause

of promoting and encouraging the activity of Mooting. Each year, student members of the

Moot Court Association meticulously plan and organize City-level, State-level, National and

International moot court competitions.

A betting tribute to the legendary Late Mr. Nani A. Palkhivala, the Nani Plakhivala Memorial

National Tax Moot Court Competition has been successfully organized year after year by

the Moot Court Association of Government Law College in association with the All India

Federation of Tax Practitioners and the Income Tax Appellate Tribunal Bar Association. It is

the rst moot court competition in the country, based exclusively on the subject of Taxation

laws. I would like to extend my heartfelt gratitude to Honble Mr. Justice B. N. Srikrishna,

Former Judge, Supreme Court of India, Honble Mr. Justice P. B. Majmudar, Judge, Bombay

High Court and Honble Mr. Justice R. M. Savant, Judge, Bombay High Court for consenting

to preside over the Final Rounds of the Competition. I would also like to thank the HonbleMembers of the Income Tax Appellate Tribunal for granting us the permission to conduct the

Rounds of the Competition at the Income Tax Appellate Tribunal and for graciously sparing

time to judge the Rounds of the Competition. I would also like to extend my gratitude to

the All India Federation of Tax Practitioners and the Income Tax Appellate Tribunal Bar

Association whose constant encouragement and inspiring support has been integral to the

success of this Competition.

I would like to commend the perseverance and dedication of the members of the Moot Court

Association whose tireless efforts have ensured the success of this Competition, time and again.

In conclusion, I wish all the participating teams all the very best for the Competition and

hope they enjoy the hospitality and warmth of the students of Government Law College I amcondent that this competition will be a grand success and a rewarding experience for the

students.

Dr. sm. M. V. Kagalkar

Principal, Government Law College

from thePriNciPAlS deSk


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The Moot Court Association (MCA) of Government Law College,Mumbai is proud to host the 7h dii f h nai Palkivala

Mmrial naial tax M Cur Cmpii in association

with the All India Federation of Tax Practitioners and the Income Tax

Appellate Tribunal.

The MCA of Government Law College has always worked with the

objective of ensuring that aspiring law students are provided with a

platform to learn and procure practical knowledge concerning the various arenas of the

law. With the same perspective, the Nani Palkhivala Memorial National Tax Moot Court

Competition was initiated as a stepping stone by MCA.

The Nani Palkhivala Memorial National Tax Moot Court Competition has been held yearafter year, with a view that law students from various colleges across India, gather under

one shelter and garner inspiration and insights into the insurmountable contributions

made by Shri. Nani Palkhivala in the legal eld.

As the Chairman of the Moot Court Association, I have had the privilege to over-see the

previous six editions of this Moot Court Competition and it is with immense pride that I

say that this Competition has scaled newer heights with each passing edition.

I take this opportunity to express my deep gratitude to Dr. Shivram, Chairman, Nani

Palkhivala Foundation and Research Committee for his support and encouragement. I

would also like to thank the Honble Mr. Justice B.R. Srikrishna, Honble Mr. Justice

P.B. Majmudar, Honble Mr. Justice R.M. Savant for consenting to preside over the FinalRounds of this Moot Court Competition. I extend my gratitude to the President and

Members of the Income Tax Appellate Tribunal for generously granting us the permission

to conduct the Rounds of this Moot Court Competition in the Tribunal and also judge

the Rounds of the Competition. On behalf of the Moot Court Association, I would like

to sincerely thank the Principal of Government Law College, Dr. Mrs. M. V. Kagalkar for

her sincere cooperation and undying faith in us.

I wish the participating teams luck in their endeavor.

Their enthusiasm, commitment and thirst for knowledge, is the foremost reason for the

success of this prestigious competition, year after year.

Prf. sajay V. Kadam

Chairman, Moot Court Association

from the

chAirmANS deSk


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Amity Law School, Delhi

Army Institute of Law, Mohali

Campus Law Centre II, Faculty of Law, University of Delhi, Delhi

Dr. Ambedkar Government Law College, Chennai

Faculty of Law, University of Allahabad, Allahabad

GH Raisoni Law School, Nagpur

Government Law College, Mumbai

Gujarat National Law University, Gandhinagar

ILS Law College, Pune

Kerela Law Education Society, College of Law

NALSAR University, Hyderabad

National Law Institute University, Bhopal

National Law School of India University, Bangalore

National Law University, Jodhpur

PArticiPAtiNg

collegeS

Li f Paricipaig Cllg i h 7h nai PalkhivalaMmrial naial tax M Cur Cmpii, 2010


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New Law College, Bharati Vidyapeeth University, Pune

Pravin Gandhi College of Law, Mumbai

Rajiv Gandhi National University of Law, Patiala

Rajiv Gandhi School of Intellectual Property Law, IIT Kharakpur, West Bengal

School of Excellency in Law, Chennai

School of Law, Christ University, Bangalore

School of Law, Sastra University, Thanjavur

Symbiosis School of Law, Pune

The National University of Advances Legal Studies, Kochi

The West Bengal National University Of Judicial Sciences, Kolkata

University Institute of Legal Studies, Punjab University


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memoirS of the lAte

Shri N. A. PAlkhivAlA

Nani Palkhivala....

In his own words....


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NANI PALKHIVALA - THE AWE - INSPIRING ECONOMIST

We keep on tackling breezily fty-year

problems with five-year plans, staffed

by two-year ofcials, working with one-

year appropriations, fondly hoping that

somehow the laws of economics will be

suspended because we are Indians

Bad economics may temporarily be

good politics; but politics should be

behind a scal law, and not in front of

it

The best definition of inflation is the

simplest: When government spends more

than it gets, and labour gets more than

it gives, the empty feeling in your pocket is ination.

You can no more expect a nation to have economic strength and growth by mere

budgetary allocations than you can expect a child to grow up cultured and healthy

because his father has set apart amounts to be spent on his education and medical

care

The easy style of socialism mistakes Amiri Hatao for Garibi Hatao; it aims at levelingdown and not leveling up; it is content to satisfy the pangs of envy when it cannot

satisfy the pangs of hunger; and since it cannot create income or wealth, it plans for

poverty and equal distribution of misery.

Gross national happiness should have been given priority over gross national

product.

NANI PALKHIVALA - THE ASTUTE CRITIC

Among the nations of the world, India ranks very high in innate intelligence, butabysmally low in wisdom.

Indian democracy has reached its nadir because in our average politician we have a

sordid amalgam of lack of intellect with lack of character and lack of knowledge.

With Sohrab P. Godrej, at the launch of the book

Nani Palkhivala, Selected Writings. (1999)


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We, as a nation have some ne qualities,but a sense of value of time is not one of

them.

The bane of India is the plethora of

politicians and the paucity of statesmen.

We have too much government and too

little administration; too many public

servants and too little public service; too

many controls and too little welfare; too

many laws and too little justice

Today the university student is aware

that what he knows does not count in the

examination half as much as WHO he knows

A nation progresses gloriously when knowledge and power are combined in the same

individual. It faces a grave crisis when some have knowledge and others have power

We must get away from the fallacy of -the legal solubility of all problems.

NANI PALKHIVALA - THE TAX CONNOISSEUR

It is a truism, and like most truisms often forgotten, that taxes, like water, have a

tendency to nd the lowest level. In the last analysis, almost all taxes ultimately hit the

common man.

Every budget contains a cartload of

gures in black and white but the stark

figures represent the myriad lights and

shades of Indias life, the contrasting tones

of poverty and wealth, and of bread so

dear and flesh and blood so cheap, the

deep tints of adventure and enterprise

and mans ageless struggle for a brighter

morn.

With T. Sadasivam and Bharat Ratna recipient M.

Subbulakshmi at the Dadabhai Naoroji Memorial

Prize Funds function. (1994)

Delivering one of his legendary budget speeches to

the multitudes gathered at Brabourne Stadium.


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Our people, like any other, fall into three segments:

1. Those who would be honest, however

heavy the burden;

2. Those who would be dishonest, however

light the burden; and

3. Those (and they consti tute the

overwhelming majority) who are basically

not dishonest but the nature of whose

response to the law is conditioned by thequality of the law.

Our tax legislation ignores the first class, is

preoccupied with the second, and alienates the third.

There are several socialist countries in the world, but India is the only country where

income-tax and wealth tax can together amount to more than the total income.

NANI PALKHIVALA - THE CONSTITUTIONAL LEGEND

The constitution is not a jellysh; it is

a highly evolved organism. It has an

identity and integrity of its own, the

evocative Preamble being its identity

card. It cannot be made to lose its

identity in the process of amendment.

The Constitution was meant to impart

such a momentum to the living spirit of

the rule of law that democracy and civil

liberty may survive in India beyond our

own times and in the days when our

place will know us no more.

Leaving the Supreme Court with, from left,Ravinder Narain, Tehmton R. Andhyarujina

and Jimm

Nagesh feeding Nani a sl ice of cake at his 75th

birthday. To his left, M. R. Pai and M. A. Rane.

(1995)


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The Constitution is a part of the great heritage of every Indian. Its founding fathers

wanted to ensure that even while India remained poor in per capita income, it should

be rich in individual freedom.

Ours is a noble Constitution, worked in an ignoble spirit.

NANI PALKHIVALA - THE TRUE INDIAN

We have millions of Bengalis, millions of Maharashtrians, millions of Tamils but

very few Indians.

Democracy involves the co-operation of

all perceptive citizens in the active work ofrunning the country. It means payment to

the state, not only in taxes but in time and

thought...

It is unfortunate that our government

keeps the nations most outstanding men

out, standing.

The nagging question which will not

go away is - is India a collection of

communities or is it a nation? In otherwords, is India a state without a nation? Unfortunately, the most pronounced trait

of the Indian politician is to put himself rst, his own party second, and his country

gures nowhere in his calculations.

A democracy without discipline is a democracy without a future

A nations strength lies not so much in its wealth as in its character. A nation with a

future has to be a nation with character. It is when character saps that you have the

phenomenon of widespread evasion.

Perhaps there is no other country on earth which has in such ample measure all

enterprise and skills needed to create national wealth, and which takes such deliberateand endless pains to restrict and hamper its creation.

Receiving his Doctor of Laws from Will iam

G. Bowen, president of Princeton University.

(1978)


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reSeArch PAPer

comPetitioN

6h nai Palkhivala Mmrial RarchPapr Cmpii, 2010

The All India Federation of Tax Practitioners (AIFTP) and the Income Tax Appellate

Tribunal (ITAT) Bar Association in association with the Government Law College,

Mumbai is pleased to announce the 6th Nani Palkhivala Memorial Research Paper

Competition.

The topic for this years Research Paper is:

Cross-border business reorganization The Indian Perspective

Comparative Study

Legal structuring

Tax implication (Direct tax)

Regulatory framework

Reference to Proposed Direct Tax Code

Students may refer to the following Publications as guidelines for the Research Paper:

International Fiscal Association Cahier 2010

Mergers and Acquisitions by Bombay Chartered Accountants Society

CCH/Butterworths Publications

Income Tax Act, 1961

Each article can be authored by a maximum of two authors. The entries will be judged

by a panel of eminent judges. The three best articles will be awarded cash prizes, along

with a certicate of merit and a medal. The winning research paper will be published in

the AIFTP Journal, on the ITAT website and in other leading tax magazines.

We are extremely pleased by the wide participation that the Research Paper Competition

has been receiving year on year and even this years edition of the Competition has

received 30 entries.

Wir f h Rarch Papr Cmpii

1 Plac Aniket Singhania, Vaibhav Shukla (ILS Law Collge, Pune)

2d Plac Gautam Ahuja, Shubra Sharma (ILS Law College, Pune)

3rd Plac Bhargavy Ramesh, Shreyas B. Bhushan (National University of

Advanced Legal Studies, Kochi)


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WiNNiNg

reSeArch PAPer

croSS-Border BuSiNeSS

reorgANizAtioN

the iNdiAN PerSPective

b :

An Snana&

vaba Sa


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IntRoDUCtIon

Economic Liberalization in India started from 1991 which aimed at integration of

national economy with market oriented globalised economy. The real opening of

the economy started with the industrial policy 1991 whereby continuity with change

was emphasized and main thrust was on relaxation in industrial licensing, foreign

investments, transfer of foreign technology, joint ventures etc.

Historically, capital has own to countries offering better returns, protection and certainty

in terms of policies and regulations. Recently, emerging markets are not just experiencing

outbound deals; there is also a lot of hindrance by western rms in acquiring targets in

these markets.1This will be the century of the emerging market, Goldman Sachs, Chief

Financial Ofcer, David Viniar, told investors. The whole concatenation depicting a shift

of economic activities and capital ow constitutes the much talked about abstraction

known as Globalization. Globalization is one of the serious challenges for tax policy

makers, as the consequences of globalization are not restricted by the physical boundaries

of countries and domestic legislation. With globalization Indian companies are looking

forward to drive cost lower, innovate speedily and increase their international presence,

which may help insulate from the vagaries of domestic market and to spread the risk.

United Nations Conference on Trade and Development (UNCTAD) Report on World

Investment prospects survey 2009-11 states India would continue to remain among

the top five attractive destinations for foreign investors during the next two years.

2

Contemporaneous economic reforms by the Indian government and restructuring by

Indian companies to attain global scale have resulted in sharp rise in merger and

amalgamation activity in recent years. Progressive deregulation in sectors such as

banking, insurance, power, aviation and housing, and policy rationalization in others,

such as broadcasting, telecommunications and media, coupled with the governments

decision to exit non strategic areas through divestment/ disinvestment has further

triggered cross border business reorganization.

According to survey, India is one of the top four markets for cross border reorganization.

The top four includes greater China (49%), North America (29%), South East Asia

1 Changing directions: Cross Border acquisition by emerging market rms in New York Times Dated March 15th2010; Corporate deal makers head to emerging markets published in New York Times on March 3rd 2010.

2 http://www.forum4nance.com/2010/03/03/foreign-cos-fees-for-work-sent-to-india-not-taxable-aar/aar


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(27%) and India (22%). However Asian bidders are concerned by issues of bribery

and corruption and undisclosed liabilities in India.3 The World Investment Report

2000categorically states that most of the growth in international production has been

through cross border M&As rather than Greeneld Investment.4

ReCent CRoss BoRDeR ReoRGAnIsAtIon:

Cross Border M&A totals US$ 84.5 billion for year to- date 2010, a 79% increase over the

same period last year. By number of deals, cross border transactions are up just 6% for

the year. A $10.7 billion bid for Zain Africa by Indian based telecomm provider, Bharti

Airtel and Norwegian Fertilizer producer Yara Internationals proposed acquisition of US

based Terra industries contributed to the cross border total, which accounts for 32% ofworld wide activity, compared to 24% last year at this time.5 Indias Reliance Industries

sweetened its November offer to take control of Lyondell Basell industries to US$ 14.5

billion.6 Last year Ford decided to put two iconic British brands Jaguar and Land Rover,

on sale and Tata motors emerged as the preferred buyer. Tata motors will nally have

access to the global market despite the ten year presence in the domestic car market.

Tata Steel acquired the UK based Corus group for a reported US $ 12,000 million.7

MeAnInG:

In words of Justice Chandrachud; corporate reorganization is one of the means that can

be employed to meet the challenges which confront business. A Cross border business

reorganization is an arrangement between organizations in different countries. Such

corporate combinations play an important role in the global economy as they facilitate

free ow of capital across borders , enhance competition and globalised business.

3 www.mergermarket.com/pdf/MercerKroll Asian Cross border report Aug 2010.pdf

4 See World Investment report- Cross Border Merger, Acquisitions and Development (2000), United Nations(Geneva).

5 Developing Nations Setting Torrid Pace for Mergers by Heather Timmons and Vikash bajaj published March 03,2010 in New York Times. http://www.nytimes.com/2010/03/04/business/global/04emerge.html?_r=1&dbk

6 Reliance said to raise Lyondell Bid to US $ 14.5 Billion (Update 4) By Jonathan Keehner and John Duce-February 2nd 2010 05:25 EST

7 Piya Singh Making Corus Work, http://www.businessworld.in/index.php/TATA-CORUS.html


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Merger, Amalgamation, Acquisition, Joint Venture, Takeovers and Slump sale of assets

are few methods of cross border reorganization. In common parlance, amalgamation is a

corporate legal process by which one company is absorbed into another company or two

or more companies are amalgamated into a new entity. A merger on the other hand is

fusion or absorption of a company into another. For Indian tax purposes, both the terms

amalgamation and merger are used synonymously.

International M&A may often necessitate the transfer of shareholding interest of foreign

holding companies in its Indian subsidiary or Joint Venture companies. The multinational

trade agenda and WTO have been facilitating easy and free ow of capital technology and

money across the world, thereby enhancing cross border reorganization.

ReGULAtoRY FRAMeWoRK:

Indian legal system regulates and governs various aspects of a cross border reorganization

by a set of laws. The relevant laws that may be implicated in a cross border M&A are the

Companies Act, 1956, the Foreign Investment policy of the Government of India along

with the press notes and claricatory circulars issued by the department of investment

policy and promotion; Foreign Exchange Management Act, 1999 (FEMA) and regulations

made thereunder, including circulars and notifications issued by the RBI from time

to time, the Securities and Exchange Board of India Act, 1992 and regulations made

thereunder (SEBI laws) ; Income Tax Act, 1961 and the Competition Act, 2002 etc.8

CoMPAnY LAW:

Cross border M&A, both the amalgamating company or companies and the amalgamated

(i.e. survivor) company are required to comply with the requirements specied in Section

391-394 of the Companies Act, which, inter alia, require the approval of a High court

and of the Central government. Section 394 and 394A of the Act set forth the powers

of the High Court and provide for the court to give notice to the Central Government in

connection with amalgamation of companies.9

8 Sridharan & Pandian, Guide to Takeover and Mergers, 2nd Edition, 2006, Wadhwa Publications.

9 A.Ramaiya, Guide to the Companies Act, 16th Edition, 2006, Wadhwa and Company, Nagpur.


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Pursuant to Section 394(4)(b) of the Companies Act the transferee company must be a

company within the meaning of the Companies Act (i.e. an Indian company); however, a

transferor company may be any body corporate, whether a company within a meaning

of Companies Act or not. A body corporate includes a company incorporated outside

India.10

As to the approval of the shareholders under Section 372A, if the investment by the

Indian company in the foreign company exceeds 60% of the paid up share capital and

free reserves of the Indian company or 100% of free reserves of the Indian company,

whichever is more, than the Indian company is required to obtain the prior approval of

the shareholders vide a special resolution.11

Some cases have held that the transfer of shares in accordance with a scheme undersection 391-6 of the act does not constitute a transfer for the purpose of the act. 12 In

the case of Moschip Semiconductor technology Limited13, the High Court of the state

of Andhra Pradesh, dealing with the amalgamation of an Indian company (as the

transferee) and a foreign company governed by the laws of California (as the transferor),

held that, under Section 1108 of the California Corporation Code and in contrast to the

provisions of Indian law, the surviving company could be either a domestic company

or a foreign company. In the above matter, the court observed that in these days of

liberal globalization, a liberal view is expected to be taken enabling such a scheme of

arrangement for amalgamation between a domestic company and a foreign company and

there is every need for suitable modication of the law in that direction. The court alsostated that a scheme involving a foreign and an Indian company would be subject to laws

of both the countries. Notwithstanding the High Courts dicta, currently in a merger or

amalgamation of an Indian company and a foreign company, the transferee company (i.e.

surviving entity) must be an Indian company.

10 Section 394(4) of the Companies Act specifically states that the transferee company shall be a company asdened under the companies act and the transferor company can be a body corporate, which includes a foreigncompany.

11 An arrangement includes a reorganization of the share capital of the Company by the consolidation of shares ofdifferent classes, or by the division of shares in two shares of different classes or by both those methods. [Section390(b) of the Companies Act, 1956.]

12 CIT v. Rashiklal Maneklal, 177 ITR 198; CIT v. Amin, 106 ITR 368, CIT v. MCTM Corporation, 22 ITR 524.

13 1 Company Law Journal 307 (2005)


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The Companies bill, 2009 seeks to bring significant changes with respect to mergers

and acquisitions. The proposed changes deal with the creation of a single forum for

the approval of M&As shortening the merger process between two small companies

or between the holding company and its wholly owned subsidiary company, merger

of Indian companies with foreign companies and vice versa where the consideration

may be discharged by way of cash or through Indian depository receipts or any

combination thereof, etc. The bill has introduced the concept of purchase of minority

shareholding in the company. Where an acquirer, who has acquired 90% or more

shareholding in the company, desires to acquire balance shareholding in the company,

the bill provides for notifying the company of the acquirers intention of acquiring the

remaining shareholding in the company, and sets out the process for acquisition of

the balance shareholding in the company. The bill has also introduced the concept ofregistered valuers for all valuations required to be done under any of the provisions

of the bill.

seCURItY LAWs:

If the issuing company is a listed company and makes a preferential allotment of shares

to the acquirer, such an allotment would generally be exempt from the Public Offer

provision of the SEBI (Substantial Acquisition and Takeovers) regulations, 1997 (SEBI

Takeover Code) provide that the disclosure requirement as prescribed in Regulation

3(1)(c) of the SEBI Takeover Regulations are fullled. The listing Agreement requiresinter alia ling of the scheme of arrangement with the Stock Exchange prior to ling

application with the High Court for seeking approval of the scheme of arrangement.

Further upon completion of the acquisition and within 21 days from the issuance of

shares to the shareholders of the target company, a detailed report in the prescribed

format would have to be led with SEBI. If the Indian company that is issuing its shares

to the shareholders of the foreign company as consideration for acquiring shares of the

foreign company is listed on the Stock exchange in India, then it will be required to

comply with the guidelines for preferential allotment under the SEBI (Disclosure and

Investment Protection) Guidelines, 2000. Securities Exchange Board of India (Issue of

Capital and Disclosure Requirements) Regulations, 2009 deals with the issue of specied

securities and preferential allotment regulations.

After a global merger between Eaton Industries Inc.(EII) and Aeroquip Vickers(AVI) ,

EII came to hold 51% shares in Vickers system international limited (VSIL), a publicly


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listed companies incorporated in India. It was held in Eaton Industries case 14 that the

SEBI Takeover Code would not get triggered since there was ample proof to suggest that

there had been a merger of EII with AVI under the laws of the state of Ohio in the US

and indirect acquisition of controlling interest of VSIL was purely a fallout and incidental

to the global restructuring arrangement.

SEBI has directed, vide Circular dated 15th April, 2010, the modication of the listing

agreement focusing on certain deviations from accounting standards commonly carried

out as part of scheme of mergers.15

Japanese drug maker, Daiichi Sankyo Companies Limited, which owns Indias biggest

drug firm, Ranbaxy Laboratories Limited, has won the open offer price war with

Hyderabad based Zenotech Laboratories Limited in a Supreme Court. Indias ApexCourt has struck down ruling by the Securities Appellate Tribunal (SAT), thus allowing

DAIICHI to launch an open offer for a 20% stake in Zenotech at Rs. 113.62 per share.16

The Takeover Regulations Advisory committee under the chairmanship of C. Achuthan,

in its report to the SEBI17, has proposed sweeping changes on critical issues, including the

open offer trigger, offer size, indirect acquisition, exemption from open offer obligations,

calculating the offer prize and competing offers.18 The renewed Takeover Code would have

certain changes such as increasing the period for making a competing bid, prohibiting

acquirers from being represented in the board of Target Company, and permitting any

competing acquirer to negotiate and acquire the shares tendered to the other competing

acquirer, at the same price that was offered by him to the public.19

Vedantas Takeoveroffer for Cairn energy has raised some questions because it comes in wake of impending

changes to a SEBI Takeover Regulations that may make it potentially difcult for the

acquirers to structure transactions.20

14 http://www.sebi.gov.in/satorders/Eaton.html

15 http://www.sebi.gov.in/circulars/2010/cfddilcir01.pdf

16 http://www.tadingmarkets.com/news/stock-alert/dskyf_rbxlf_sc-clears-daiichi-s-offer-for-zenotech-1031135.html

17 Report Of The Takeover Regulations Advisory Committee under the Chairmanship of Mr. C. Achuthan, July 19,2010 www.sebi.gov.in/commreport/tracreport.pdf

18 Indian Takeover Regulation- under reformed and over modied by Sandeep Parekh W.P.NO. 2009/11/06published on November 2009, IIM Ahmedabad.

19 Decoding the New Takeover Code by Shobhana Subramanian posted on July 20, 2010 at the FinancialExpress.

20 New Takeover Code: Is it achievable for corporate india? published on july 20, 2010 Source: CNBC-TV18 11:10pm


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tAXAtIon:

The tax law consists of the body of rules of public law that affect the activities and

reciprocal interest of a political community and the members opposing it as distinguished

from relationships between individuals in the sphere of private law.21

The first step in any reorganization activity is to explore leveraging local country

operations for cash management and repatriation advantages, the companies should also

be looking at the availability of asset basis set up structure for tax purposes and keeping

a keen eye on valuable tax attributes in M&A targets, including the net operating losses,

foreign tax credits and tax holidays.

As per the provisions of the IT Act, capital gains tax would be levied on such transactionswhen capital asset are transferred. From the denition of transfer it is clear that if

merger, amalgamation, demerger or any sort of restructuring results in transfer of capital

asset, it would lead to a taxable event.

The various ways of restructuring which has tax implication is explained herein:

Sale shares:

Capital gains and security transaction tax- the sale of shares is subject to capital gains

tax in India. Additionally, Securities Transaction Tax (STT) may be payable if the sale

transaction for the equity shares is through a recognized stock exchange in India. The

STT has to be paid by the purchaser/ seller of the securities. Nonresident investors are

entitled to benet from currency uctuation adjustments when calculating long term

capital gains on a sale of shares of an Indian company purchased in foreign currency. In

case the transaction is liable to STT, long term capital gains arising on transfer of equity

shares are exempted from tax.

Transfer taxes: the transfer of shares (other than those in dematerialized form) is subject

to transfer taxes i.e. stamp duty.

21 Basic Principle of Income tax law by Justice R. K. Abichandan.


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Sale Assets:

slump sal:22 The sale of a business undertaking23 is on a slump sale basis when

the entire business is transferred as a going concern for a lump sum consideration.

Consideration in excess of the net worth of the business is taxed as capital gains. A slump

sale is generally not subject to Vat or sales tax in India, as the sale is of entire business

and not of individual assets or goods. This position has been upheld by various courts

in India.24 Transfer taxes: the transfer of assets by way of a slump sale would attract

stamp duty.

Imizd al: This happens when individual assets or liabilities of a business are

transferred for a separately stated consideration.

Capial A: The tax implication for the transfer of capital assets (including net

current asset other than stock in trade) depend on their eligibility for depreciation. In

a case of asset on which no depreciation is allowed, consideration in excess of the cost

of acquisition and improvement is chargeable to tax as capital gains. In case of asset

on which depreciation has been allowed25, the consideration is deducted from the tax

return down value of the block of assets, resulting in a lower claim for tax depreciation

subsequently. If the unamortized amount of respective block of assets is less than the

consideration received, or the block of asset ceases to exist (i.e. there are no assets of

that category), the difference is treated as short term capital gains. If all the assets in a

block of assets are transferred and the consideration is less than the unamortized amount

of the block of assets, the difference is treated as a short term capital loss and could be

set off against capital gains arising in upto 8 succeeding years.

sck i trad: Any gains or shortfalls on the transfer of stock in trade are considered

as business income or loss. Business losses can be set off against income under any head

of income arising in that year. If the current year income is not adequate, business losses

can be carried forward to set off against business prots for eight succeeding year.

22 Section 2(42C) of Income Tax Act, 1961.

23 Explanation 1 to section 2(19AA) of Income tax Act, 1961 denes the term undertaking in the context of mergerto include any part of an undertaking, or a unit or division of an undertaking or a business activity taken asa whole, but does not include individual asset and liabilities or any combinations thereof not constituting abusiness activity.

24 Shri Ram Sahay v. CST (1963) 14 STT (ALD), Coromandel fertilizers Limited v. State of A. P. (112 STC 7)

25 Section 50 of Income Tax Act, 1961


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Iagibl (Gdwill ad Brad amg hr): The tax treatment for

intangible capital assets would be identical to that of the tangible capital asset, as already

discussed.

trafr ax: It would be identical to those under slump sale with respect to itemized

sale.

Liabilii: Gains or transfer of liabilities are taxable as business income in the hands

of transferor.

Merger and Amalgamatin:

Under the Income Tax Act, 1961 a non resident is taxed in India, inter alia, on income

that is deemed to accrue or arise in India. This deeming provision in Section 9(1) is

intended to tax income earned by a non resident through business connection in India

or through any asset or source of income in India of thorough the transfer of any capital

asset situated in India. The current legislation provides for taxation of gains arising

out of transfer of the legal ownership of the capital asset in the form of sale, exchange,

relinquishment, extinguishment of any right wherein or compulsory acquisition under

any law. Section 926 deems gains arising from transfer of capital assets situated in India

to accrue or arise in India. In the cross border transfer involving transfer of shares

normally the situs of the capital asset provides the safe guide to decide as to which of

the contracting states has the power to tax such income subject to the relevant tax treaty.

India may have treaties with any of the country under Indian tax laws. 27

26 Section 9 of the Income Tax Act, 1961 income deemed to accrue or arise India.

27 Section 90 of Income Tax Act, 1961 : AGREEMENT WITH FOREIGN COUNTRIES

(1) The Central Government may enter into an agreement with the Government of any country outside India -

(a) For the granting of relief in respect of income on which have been paid both income-tax under thisAct and income-tax in that country, or

(b) For the avoidance of double taxation of income under this Act and under the corresponding law inforce in that country, or

(c) For exchange of information for the prevention of evasion or avoidance of income-tax chargeableunder this Act or under the corresponding law in force in that country, or investigation of cases of

such evasion or avoidance, or

(d) For recovery of income-tax under this Act and under the corresponding law in force in that country,and may, by notification in the Official Gazette, make such provisions as may be necessary forimplementing the agreement.

(2) Where the Central Government has entered into an agreement with the Government of any country outsideIndia under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation,then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply tothe extent they are more benecial to that assessee.


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The DTAA provides for the chargeability based on receipt and accrual, residential

status. As there is no clear denition of income and taxability thereof which is accepted

internationally, an income may become liable to tax in two countries. If the two countries

do not have DTAA, domestic law of the country will apply. In case of India Section 91 of

the IT Act will apply The Income Tax ofcer has the power to determine the reasonable

amount of prot accruing or arising in India if it appeared to him that a resident has

transferred his Indian source income. Article XXIV of GATT specifically recognizes

regional arrangements as an exception to the multilateral system. The concept of levy of

tax on a transfer of benecial ownership in a cross border transfer is not provided for

in the current tax legislation, but the revenue authorities are of the view that in a cross

border transaction the value of the transaction includes valuation for the Indian entity as

well and, accordingly, the overseas entity which has a business connection in India.

Amalgamation is merger of one or more companies with another or merger of two or

more companies to form a new company, in such a way that all assets and liabilities of

the amalgamating company becomes assets and liabilities of the amalgamated company

and shareholders not less than 75% in value of the shares in the amalgamating company

or companies become the shareholders of the amalgamated company.28

In the case of Commissioner of Income tax v. Mrs. Grace Collis & Another 29 the supreme

court has held that, extinguishment of any right in any capital asset under the denition

of transfer would include the extinguishment of the right of the holders of shares in an

28 Section 2(1B) of the ITA denes amalgamation as, Amalgamation in relation to one or more companies meansthe merger of one or more companies with another company or the merger of two or more companies to formone company (the company or companies which so merge being referred to as the amalgamating companyor companies and the company with which they merge or which is formed as a result of the merger, as theamalgamated company) in such a manner that:

(i) All the property of the amalgamating company or companies immediately before the amalgamation becomesthe property of the amalgamated company by virtue of amalgamation.

(ii) All the liabilities of the amalgamating company or companies immediately before the amalgamation becomethe liabilities of the amalgamated company by virtue of amalgamation.

(iii) Shareholders holding not less than three-fourths in value of the shares in the amalgamating company orcompanies (other than shares held therein immediately before the amalgamation or by a nominee for theamalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue ofthe amalgamation otherwise than as a result of the acquisition of the property of one company by anothercompany pursuant to the purchase of such property by the other company or as a result of distribution ofsuch property to the other company after the winding up of the rst-mentioned company.

29 (2001) 248 ITR 323 (SC)


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amalgamating company, which would be distinct from and independent of the transfer of

capital assets itself. Hence, the right of the shareholders of the amalgamating company

in the capital asset i.e. the shares, stands extinguished upon the amalgamation of the

amalgamating company with the amalgamated company and this constitutes a transfer

under section 2(47) of the IT Act.

Benets of taxation in respect to cross border mergers and amalgamations under Income

Tax Act, 1961:

No tax is to be charged on capital gain arising on scheme of amalgamation.

Section 47(vi): Any transfer in a scheme of amalgamation, of a capital asset by the

amalgamating company to the amalgamated company is an Indian company.

Section 47(via): Any transfer in a scheme of amalgamation, of a capital asset being a

share or shares held in an Indian company, by the amalgamating foreign company to the

amalgamated foreign company if :

(i) At least 25% of shareholders of the amalgamating foreign company continue toremain shareholders of the amalgamated foreign company.

(ii) Such transfer does not attract tax on capital gains in the country in which theamalgamating company is incorporated.

Section 47(vii) : any transfer by a shareholder in a scheme of amalgamation, of a capital

asset being a share or shares held by him in the amalgamating company if :

(i) The transfer is made in contravention of the allotment to him of any share orshares in the amalgamated company.

(ii) The amalgamated company is an Indian company.

Section 79: carry forward and set off of losses in case of a company not being the

company in which the public are substantially interested, no loss incurred in a any year

prior to the previous year shall be carried forward and off against the income of previous

year unless

(a) on the last day of the previous year the shares of the company carrying notless than 51% shares of the voting power were benecially held by persons who

benecially held shares of the company carrying not less than 51% of the votingpower on the last day of the year or years in which the loss was incurred.

Section 72A(2) : provisions relating to carry forward and set off accumulated loss and

unabsorbed depreciation allowances in amalgamation or demergers.


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No tax exemption is provided under the IT Act, 1961, in case of amalgamation of an

Indian co. into a foreign company wherein the resultant amalgamated company is a

foreign company. The test of residence is based on either place of effective management

or place of central control and management. It is therefore argued that a company

incorporated outside India will be treated as resident in India if its place of effective

management is situated in India.

With the Ruling in the case of CIT v. Visakhapatnam Port trust30, the Judiciary

reemphasized the importance of international tax jurisprudence aligned with OECD

standard modules, while interpreting tax matters in Indian courts. In Deputy

Commissioner of Income Tax v. ITC31 it was held that interpretation of a DTAA must be

in consonance with the principle of international law.

DIReCt tAX CoDe:

The Finance Act 2007 and 2008 have brought amendments to provisions of income

tax with retrospective effects in order to increase tax revenues from cross border M&A

transactions.32 The growing international transaction has led to numerous tax disputes in

the world. So international tax jurisprudence requires legitimate tax planning.33 In 1935,

the House of Lords famously observed in IRC v. Duke of Westminster34 that every man

is entitled to order his affairs in order to minimize his liability to tax. It was ruled that

while tax avoidance is legal, tax evasion is not. Traditionally, India followed Westminster

rule that tax avoidance is legal and that a citizen is entitled to the benet of the letter

of the law, even if result is manifestly contrary to its spirit. This seems rather well

established, until Justice Chinappa concurring opinion in Mc Dowell v. CTO that the

ghost of the duke of Westminster must be exorcised and that any device intended to

avoid tax liability is illegal.

30 (1983) 144 ITR 146 (A.P.)

31 ITA No.s 970, 971 and 973/Cal/1998

32 K.R.Girish and Himanshu Patel, KPMG, Deals: India wants more taxes from cross-border M&A, February 19,2008, International Tax Review.

33 The

nani palakhiwala memorial final.pdf

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