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COMPANY LAW

Prof. Dr. DAYANANDH MURTHI CP

Tarun Naidu

2014032

Semester 7
FACTUAL MATRIX EXPLANATION

1. A note said to be written by Shri. V G Siddhartha (VGS) of CCD is doing the


rounds. Among others it was mentioned in the note about the attachment of Coffee
day shares by the Income Tax department. The authenticity of the note is not known
and the signature does not tally with Shri VGS’s signature as available in his annual
reports
2. The investigation in the case of Shri V G Siddhartha and Café Coffe day (CCD)
arose from the search in the case of a prominent political leader of Karnataka. It is
based on the unearthing of a credible evidence of financial transactions done by the
CCD in a concealed manner.
3. A person holding citizenship of Singapore was also covered in the search action.
He was found with unaccounted cash of Rs.1.2 crores and admitted that the cash
belong to Sh. V G Siddhartha.
4. In the Search action, after considering the evidences gathered by the department,
Shri. V G Siddhartha admitted the unaccounted income of ₹362.11 Crores and
₹118.02 Crores, in the hands of Shri. V G Siddhartha and M/s Coffee Day Enterprises
Ltd respectively in the sworn statement.
5. Shri Siddhartha, subsequently filed the Return of Income but did not offer the
above undisclosed income as admitted in the sworn statement in both the cases except
sum of around Rs.35 Crores in his individual case. Further one of the group company
M/s Coffee Day Global Ltd has not paid the Self-Assessment Tax of ₹14.5 Crores on
the returned income. M/s Coffee Day Enterprises Ltd did not offer the admitted
income in its part.
6. On 21st January, 2019, major newspapers had reported that Shri V G Siddhartha is
planning to sell the equity shares of Mindtree Ltd held by him and his company
immediately. Based on this report, an immediate verification of the facts were carried
out. It was found that the assesseesShri VG Siddhartha, M/s Coffee Day Enterprises
Ltd and M/s Coffee day trading Itd together held nearly 21% of shareholding in
Mindtree Ltd. It was also gathered that the deal for sale of shares are set to be
finalised in January 2019.
7. The tax effect along with interest and penalty based on the outcome of the search
action runs in to hundreds of crores. On the other hand, there was no application filed
by the assessees concerned before the assessing officer as required under the statutory
provision before transferring any assets when the Income tax proceedings are
pending.
8. In order to protect the interests of revenue, the provisional attachment of 74,90,000
shares of Mindtree Limited owned by Shri V G Siddhartha and M/s Coffee Day
Enterprises Ltd u/s 281B of the Income Tax Act was made(though they together held
2,29,31,518 shares). This action is a normal requirement to protect the interests of
revenue.
9. Subsequently, Shri Siddhartha filed a request letter to release Mindtree shares and
in turn offered other security of shares of M/s Coffee Day Enterprises Ltd against the
expected demand. This was accepted and the attachment of Mindtree shares were
revoked on 13.02.2019 with specific condition that the sale proceeds will be utilized
only for repayment of loans availed against the Mindtree Ltd shares by opening
escrow account and the remaining balance will be provided for attachment u/s 281B
against the tax liability to arise. The alternate attachment of 46,01,869 unencumbered
shares and 2,04,43,055 encumbered shares of M/s Coffee Day Enterprises Ltd u/s
281B was also made on 13.2.20 19 and 14.2.2019.
10. The assessees had transferred the Mindtree Ltd shares to M /s L&T Infotech Ltd
28.04.2019 and received around ₹3200 crores. Out of this consideration, the assessee
had repaid loan of around ₹3000 crores and paid expenses related to transfer of 154
crores and the balance of ₹46 crores was paid towards first instalment of Advance
Tax of estimated MAT liability of around ₹300 crores in the case of shares of M/s
Coffee Day Enterprises Ltd. As against the balance MAT liability of Rs.250 crores
and tax liability arising based on search findings to the tune of approx. 400 crores, the
provisional attachment made by the department is less than 40% of the likely tax
liability.
11. The provisional attachment was made to protect the interests of revenue out of the
income admitted by assesse based on credible evidence gathered in the search action.
The Income Tax department has acted as per the provisions of Income Tax Act.
MITIGATING STEPS TAKEN/ALLEGED ACTS OF INCOME TAX
DEPARTMENT

Asst. Commissioner of Income Tax, Central Circle 1(3) Bengaluru, Income Tax
Department, Ministry of Finance, Government of India jad ordered for the following
:-

1. Provisional attachment u/s 28lB of Income Tax Act,1961 for tax demand
likely to be raised by the Income Tax Department on the following
shareholders of the Company:

(i) Coffee Day Enterprises Limited

(ii)V G Siddhartha

2. Prohibited for transfer or charge as per the number ofshares as following:

i. Coffee Day Enterprises Limited - 22,20,000 equity shares

ii. V G Siddhartha - 52,70,000 equity shares

Section 281B allows an assessing officer to provisionally attach an assessee’s


property if: he believes that any income of an assessee in a previous year has escaped
assessment. there is any pending proceeding against an assessee and; provisional
attachment of the property is necessary for the purpose of protecting the interests of
the tax department and such an attachment is approved by a designf the tax
department and such an attachment is approved by a designated authority above the
level of commissioner or a director. Any order issued by the assessing officer under
this section becomes ineffective after a period of six months from its issuance, unless
extended further by the prescribed authority. The income tax department had directed
provisional attachment of the shares held by Siddartha in Coffee Day Enterprises Ltd.
and Mindtree Ltd. under this section. According to stock exchange filings by Coffee
Day in January and February, the income tax department directed to provisionally
attach Siddhartha’s 2,04,43,055 shares in the company. Additionally, 52,70,000
shares of Mindtree held by Siddhartha were provisionally attached as well.
The order was passed by the revenue department subsequent to the tax notices under
sections 148 and 153A. These sections allow an assessing officer to direct an assessee
to furnish a revised return of his income for a previous year in a prescribed form if:
income of a previous year had escaped assessment and comes to the notice of the
assessing officer later;due to this, the assessing officer believes that reassessment or
recomputation of an assessee’s income for the previous years is necessary and the
assessing officer records reasons for it in writing. In its filing with the stock
exchanges on Jan. 26, Coffee Day had disclosed that the company and Siddhartha had
filed the revised returns with the tax department in accordance with the notices.

JUDICIAL APPROACH
EXPLANATION OF SECTION 281B OF IT ACT
In brief, Section 281B allows an Income Tax Assessing Officer to seize an asset
temporarily if he feels that it is necessary to do so for “protecting the interest of
revenue”. This provision allows for seizure right at the time of an assessment or
reassessment which has “escaped assessment”. Till the time that investigations are
pending the ownership of the asset is held in abeyance. That is the legal meaning of
the word ‘attachment’.To ensure that such attachments of sources of income, in this
case equity dividends, are not made at the whim of the Assessing Officer, it is
provided that at least four other senior authorities (including the Principal
Commissioner of Income Tax) consent to such an action. The duration for which the
asset can be kept in seizure at a time is 6 months. Further extension would again
require permission from higher authorities but the total duration cannot exceed two
years in any case.

This provision for turning an unsecured debt into a secured debt at the stage of
investigation caused a furore even when it was introduced in 1995 and then re-
enforced by a circular in 2004. There is a similar provision (Order 38, Rule 5) in the
Civil Procedure Code, 1908 which allows for attachment of assets in order to comply
with a judgement but courts have ruled in safeguards that mimic the situation in 281B.
Such orders for attachment enable drastic and extraordinary authority to a plaintiff.
They are to be used sparingly. Object of Section 281B of the Act is to protect the
interest of the revenue so that a dodgy assessee may not dissipate his assets without
discharging his obligation to the revenue, Section 281B of the Act cannot be read to
imply that the making of an order of assessment or reassessment would amount to the
conclusion of the proceedings that would extinguish the order of provisional
attachment notwithstanding the demand based on the assessment or reassessment not
being discharged. An order of provisional attachment, in other words, is not
coterminous with the order of assessment or reassessment being made; it will
continue unless expressly discharged or unless it runs out by efflux of the time
recognised in the relevant provision.
For the present purpose, the expression "during the pendency of any proceedings for
the assessment of any income" appearing in the opening limb of Section 281B of the
said Act would imply the period when the exercise of assessing the income is
undertaken and till the meaningful culmination of such exercise either upon discharge
of the demand by payment or the annulment of the assessment or the demand in
accordance with law. The mere issuance of the demand upon the assessment will not
render the order of provisional attachment made under Section 281B of the Act
ineffective immediately thereupon.
A Division Bench judgment of the Punjab and Haryana High Court rendered on
November 26, 2012 in CWP 22229 of 2012 (Motorola Solutions India Pvt. Ltd vs.
Commissioner of Income Tax, Faridabad). The issue that arose in such matter was
whether an order of provisional attachment could be made under Section 281B of the
Act prior to the assessee being in default within the meaning of the expression
"assessee in default" under such statute. The court held, at paragraph 13 of the
judgment, that the argument that "even after the passing of the assessment order,
provisional attachment order shall still remain in force for six months, does not merit
acceptance and is, thus, rejected."

CONCLUSION
The very purpose of an order of attachment is defeated if the attachment dissolves
upon the demand being made and not at a later time or upon the demand being
satisfied or dislodged in accordance with law.
There is no merit in the CDEL’s objections as the assessing officer had due authority
to pass the order of provisional attachment simultaneously with raising the demand
upon completing the assessment of the petitioner's income. Indeed, the concerned
official must be commended for having taken the right step in protecting the interest
of the revenue till such time that the demand is honoured

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