NCLAT dismisses IT dept plea against Reliance Jio on demerger of tower, fiber units

NCLAT has dismissed petitions filed by Income Tax Department, which raised objection over approval granted to Reliance Jio Infocomm scheme to hive off its fiber and tower business into two separate units.

Ahmedabad-bench of National Company Law Tribunal (NCLT) had earlier this year granted permission to composite scheme of arrangement, through which two companies were proposed to be demerged -- Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd.

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This was opposed by IT department by challenging it before National Company Law Appellate Tribunal (NCLAT).

IT department has contended that by scheme of arrangement, transferor company Reliance Jio Infocomm has sought to convert redeemable preference shares into loans.

According to it, conversion of equity into debt is t only contrary to well-settled principles of company law but also would reduce profitability or net total income of transferor company, causing a huge loss of revenue to Income Tax Department.

However, NCLAT dismissed it by saying that NCLT has already dealt with issue.

"Mere fact that a Scheme may result in a reduction of tax liability does t furnish a basis for challenging validity of same.

"We are t inclined to interfere with Scheme of Arrangement as approved by Tribunal. Both appeals are dismissed," appellate tribunal said.

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Reliance Jio Infocomm submitted that it previously had separate units housing its optic fiber and tower infrastructure undertakings. Each of se units had distinct assets and liabilities and was involved in a separate business.

On April 2, Reliance Jio said that it has transferred control of its fiber and mobile tower units to two infrastructure investment trusts set up by Reliance Industrial Investments and Holdings Ltd (RIIHL).

optical fiber cable infrastructure unit, Jio Digital Fibre Private Ltd (JDFPL) has allocated shares worth Rs 500 crore to Reliance Jio Infocomm Ltd (RJIL) on March 31, 2019, according to a regulatory filing.

Also, mobile tower unit Reliance Jio Infratel Private Ltd (RJIPL) has allocated shares worth Rs 200 crore to RJIL, it added.

Both trusts have been set up by RIIHL, a wholly-owned subsidiary of RIL as a sponsor, and have been granted a certificate of registration as Infrastructure Investment Trust by market watchdog Securities and Exchange Board of India (Sebi).

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