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Delhi High Court Approves The Scheme Of Demerger

13 Apr 2011

The Delhi High Court ("High Court") has delivered an important ruling In Vodafone Essar Ltd.("VEL") on the scheme of arrangement ("Scheme") involving transfer of the Passive Infrastructure Assets ("PIA") held by VEL and its various 100% subsidiaries ("Transferors / Petitioners") to another 100% subsidiary - Vodafone Essar Infrastructure Limited ("VEIL" / "transferee"). Various objections were raised by the Regional Director and the Revenue Authorities regarding the de-merger of the scheme.

Taxand India focuses on the details of the case:

  • Facts of the case
  • Objections of the Revenue Authorities
  • Contentions of the Transferors
  • Ruling of the High Court

Taxand's Take

The decision of the High Court is significant as it upholds the validity of a scheme without consideration and reiterates the eligibility of a corporate entity to transfer assets by way of a gift. Furthermore, the High Court has held that the avoidance of capital gains cannot be a reason for not sanctioning the scheme which is otherwise lawful or valid. However, it is important to note that the High Court has made a distinction with respect to a scheme resulting in avoidance of tax and a scheme the sole purpose of which is evasion of tax. It has held that the scheme, whose sole purpose is evasion of tax, would be an exception for according sanction.

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Mukesh Butani
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Taxand's Take Author