Mumbai/ Delhi: The Income Tax Department is no longer in favour of appealing against an order of National Company Appellate Tribunal (NCLAT) which had approved the proposed demerger of Reliance Jio.

"The NCLAT verdict has relied on many judgements of Supreme Court. This makes it unclear whether tax department's objections would find acceptance by the apex court," said a tax department official.

While tax department is not in favour of challenging the NCLAT verdict, it is waiting for a final opinion from the law ministry, the official said. He did not comment on when the opinion is expected.

Reliance Jio had proposed hiving off its fiber and tower business into two separate units.

Reliance Jio Infocomm Ltd plans to hand its optic fiber undertakings to Jio Digital Fibre Pvt. Ltd. and transfer the tower infrastructure to Reliance Jio Infratel Pvt. Ltd as a going concern - at book value.

Under the proposed scheme, Reliance Jio Infocom seeks to convert the redeemable preference shares into loans.

The Ahmedabad-bench of National Company Law Tribunal (NCLT), on December 20, had granted permission to the scheme of arrangement, through which two companies were proposed to be demerged - Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd.

The tax department had then voiced concerns against the demerger as it was of the view that such a conversion of equity into debt would reduce the profitability of the transferor company--Reliance Jio Infocomm--which could result into revenue loss to the tax department.

The NCLAT on 24 December had dismissed objections raised by the tax department against the demerger of Reliance Jio Infocom.

The NCLAT, while dismissing the tax department's objections, had held that mere reduction in tax liability was not a basis for questioning the validity of scheme of arrangement. The NCLAT had relied on Vodafone-Essar tax avoidance case.

This decision of not appealing against the NCLAT verdict is also a part of the income tax department's overall plan and intention of reducing tax litigations. All cases for filing appeals would be chosen carefully.

Central Board of Direct Taxes (CBDT) chairman P C Mody, in a post-budget interaction on Wednesday, told industry representatives that the government intends to reduce tax litigation.

“To fulfill this desire, we had raised the monetary limits for filing appeals before various judicial forums. We have also issued a series of beneficial circulars whereby we have examined certain judicial decisions and issues and came to conclusion that those issues will not be contested further. We have issued those circulars to field formations. We will not be making any additions to those issues (cases). Whatever we have already filed, we would perhaps be withdrawing that also," Mody said.

He also said it was in this spirit of reducing tax litigation that the new direct tax dispute resolution scheme 'Vivad se Vishwas' has been rolled out.

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