The Adani Group is now seeking to exercise such rights but NDTV is claiming that such conversion is barred by the income tax authorities.
VCPL cleared in a statement that the restrictions of Income Tax authorities only apply to NDTV holdings held by RRPR Holdings Pvt Ltd, which is a promoter of NDTV. The restrictions do not stop RRPR to allot the due share to VCPL.
"The IT orders have been issued against RRPR only and for the purpose of securing RRPR's continued ownership over the said NDTV shares. The IT orders have not been issued against Prannoy Roy and Radhika Roy individually and do not relate to their equity ownership in RRPR," it said, citing a reply received from VCPL.
Against this background, "the suggestion that Prannoy Roy and Radhika Roy will need prior approval of the Assessing Officer under Section 281 of the Income Tax Act, 1961 is wholly misconceived and has no basis."
"It is clear that RRPR will remain the absolute owner of the said NDTV shares even after RRPR has completed the steps required under the Notice and hence, the question of any prior approval of the Assessing Officer does not arise," it said.
The statement also added the RRPR should start all necessary steps to convert the warrants into equity and should also "cease and desist" from "repeating the misconceived and misleading statements".
Experts on Taxation like Nangia Andersen LLP Partner Vishwas Panjiar also seem to back Adani's claim and they asserted that NDTV's position appears to be a flawed interpretation of Section 281of the Income-tax Act, 1961.
"Section 281 is triggered in a case when there is a transfer of an asset or when a charge is created on an asset whereas in the present case, new shares in RRPR have been issued (resulting in passing on 99.5 percent shareholding in RRPR to Adani)
"... hence no transfer has taken place by either Roys so as to trigger provisions of section 281 (though Adani has the right to acquire entire equity shares held by the Roys in RRPR, this transfer does not seem to have been effectuated as yet)," Panjiar said.
Similarly, Sudit K Parekh & Co LLP Partner Anita Basrur claimed that Section 281 is invoked when there is a transfer of an asset or a charge is created on an asset.
"In the present case, the warrants held by VCPL are being converted to equity shares of RRPRH. There is no transfer but new shares are being issued. This does not trigger provisions of Section 281," she said.
Senior Partner at AMRG & Associates Rajat Mohan said that the 2017 attachment order which restricted NDTV from transferring said shares, never restricted RRPRH from carrying out restructuring by converting previously issued share warrants.
"The tax position adopted by NDTV seems to be on a wrong footing as every private company enjoys a separate legal entity status. Therefore, any capital restructuring of RRPRH would not need permission from the income tax department under section 281.
"Also, there has been no jurisprudence available under section 281 that approves the lifting of the corporate veil to restrict the indirect transfer of assets," Mohan added.
Ashok Shah, partner at NA Shah Associates stated that Section 281 does not declare share transfer void ab initio. The section basically protects the interest of revenue on the collection of income tax.
"This section provides that if any taxpayer creates a charge or parts with possession of any asset (by way of sale, mortgage, gift, exchange, etc) in favor of any person during the course of pendency of any proceedings under Income-tax Act or after completion of the proceedings but before service of notice, then such transfer is void as against claim in respect of tax payable as a result of the completion of proceedings.
"It also further provides that such transfer is not void if the transfer is for adequate consideration and without notice of pendency of proceedings or with the previous approval of the tax authorities," Shah added.
In 2017, the Income Tax Department "provisionally attached" shares held by RRPR in NDTV until the resolution of a tax dispute. On the basis of this order, the NDTV was claiming that Adani Group will need consent from tax authorities before moving to convert the warrants into equity shares.
With Inputs from PTI.
