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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
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