Our Top 5 Blogs: July 2024 to September 2024

1. Buy-back of shares: Will recent changes in the tax laws end the party??

The document discusses the recent changes in the tax laws related to the buy-back of shares in India. It highlights the following key points:?

1. The Finance (No.2) Bill, 2024 seeks to amend the Income Tax Act, 1961 to treat any payment on the buy-back of shares as deemed dividend in the hands of the shareholders, irrespective of the "accumulated profits". This means the entire consideration would be deemed to be dividend.?

2. The deemed dividend would not be subject to capital gains tax, but the cost of acquisition would be treated as capital loss in the hands of the shareholder, which can be set off and carried forward against capital gains.?

3. Withholding tax on the payment of the buy-back consideration will be applicable, but there will not be any buy-back tax on the companies undertaking such buy-back.?

4. The recent tax changes have made the buy-back of shares less attractive for shareholders, as the currently available tax benefits have been withdrawn.?

Read the article at https://corporate.cyrilamarchandblogs.com/2024/08/buy-back-of-shares-will-recent-changes-in-the-tax-laws-end-the-party/

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2. NCLT rejects a scheme of merger citing public interest concerns?

The National Company Law Tribunal (NCLT) rejected a scheme of merger of three related entities, Hologram Holdings Private Limited, Swen Holdings Private Limited, and Sulphur Securities Private Limited, on the grounds that the merger was against public interest. The NCLT went beyond just analyzing the technical compliance of the merger scheme and delved deeper into the facts and reports submitted by the Ministry of Corporate Affairs (MCA) and the Income Tax Department (ITD).

The NCLT found that the transactions undertaken by Sulphur Securities were merely accommodation entries or paper transactions, and the real objective of the merger was to legitimize these paper transactions, artificially increase share prices, and use the merged company as a vehicle for tax evasion and money laundering. The NCLT concluded that the merger scheme was not aligned with the stated objectives and was not in the broader public interest.??

Read more: https://corporate.cyrilamarchandblogs.com/2024/08/nclt-rejects-a-scheme-of-merger-citing-public-interest-concerns/

3. Class Action Lawsuits: A New Horizon for Corporate Litigation??

The article discusses the class action lawsuit provisions under the Companies Act, 2013 in India. It covers the following key points:

1. The class of persons who may initiate a class action lawsuit, which includes members, depositors, and in some cases, preference shareholders.

2. The threshold requirements to initiate a class action lawsuit, such as the minimum number of members or depositors required.

3. The grounds on which a class action lawsuit can be filed against the company, its directors, auditors, or consultants, including actions that are prejudicial to the interests of the company or its members/depositors, or are fraudulent, unlawful, or wrongful.

4. The remedies that can be sought through a class action lawsuit, such as restraining the company from taking certain actions, declaring resolutions void, and claiming damages or compensation.

5. The penalties that can be imposed on the company or the applicants for non-compliance or filing frivolous/vexatious applications. 6. The evolution of class action suits in India, from the Code of Civil Procedure to the Companies Act, 2013.?

Complete article at: https://disputeresolution.cyrilamarchandblogs.com/2024/07/class-action-lawsuits-a-new-horizon-for-corporate-litigation/

4. Heirs not liable for personal contractual obligations: Supreme Court opines

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The Supreme Court of India recently ruled on the issue of whether legal heirs/representatives are liable to discharge contractual obligations that are personal in nature, when the contracting party (the deceased) was a sole proprietor. The key points are:?

1. Contractual obligations can be of two kinds - pecuniary/monetary/proprietary obligations or compensatory claims, and personal obligations.

2. For pecuniary obligations, the estate of the deceased would be liable. However, for personal obligations that require the skills or expertise of the deceased, the legal heirs/representatives are not liable.

3. The Supreme Court examined the jurisprudence around personal rights and duties, and held that personal duties are not inheritable or transferable to legal representatives.

4. Applying this to the case, the Supreme Court set aside the NCDRC order to the extent it imposed personal obligations under the Development Agreement on the legal representatives of the deceased sole proprietor.?

More Details: https://privateclient.cyrilamarchandblogs.com/2024/07/heirs-not-liable-for-personal-contractual-obligations-supreme-court-opines/

5. Delhi High Court grants tax-treaty benefits to Tiger Global’s Flipkart exit

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The Delhi High Court has granted tax treaty benefits to Tiger Global International, a private company incorporated in Mauritius, in its exit from Flipkart. The key points from the judgment are:?

1. The court held that the establishment of investment vehicles in tax-friendly jurisdictions like Mauritius cannot ipso facto lead to a presumption of tax evasion or treaty abuse. Multinational corporations often create subsidiaries and holding structures in different jurisdictions to facilitate cross-border investments and optimize their global tax strategy.?

2. The court upheld the grandfathering provision under the India-Mauritius tax treaty, which exempts shares acquired before April 1, 2017 from the Limitation of Benefits (LoB) clause. It also held that domestic tax laws cannot override treaty provisions.?

3. The court observed that the Mauritius entity was a significant entity with considerable economic activity, holding a Category 1 Global Business License and a Tax Residency Certificate from Mauritius. The presence of Tiger Global Group members on the board did not imply lack of independence.

?4. The court reiterated that the corporate veil can be pierced and treaty benefits denied only in cases of proven sham, fraudulent or colourable transactions, with the onus on the tax department to demonstrate clear and convincing evidence.

Read more: https://tax.cyrilamarchandblogs.com/2024/09/delhi-high-court-grants-tax-treaty-benefits-to-tiger-globals-flipkart-exit/