Income Tax department has alleged that NDTV concealed material facts from the High Court, including its move to reduce its capital, merger between two subsidiaries and mortgaging property worth Rs50 crore without the I-T dept's knowledge
Updated 11 June 2014
On 6 May 2014, The Delhi High Court judge, Justice Sanjeev Sachdeva issued a notice to the National Stock Exchange (NSE), BSE and market regulator Securities and Exchange Board of India (SEBI) following a submission by the Income-Tax (I-T) department in its Rs450 crore tax demand from New Delhi Television Ltd (NDTV). In its submission the I-T department has alleged that NDTV concealed material facts from the High Court, including a move to reduce capital to Rs351.96 crore from Rs507.70 crore. The tax department also objected to the merger between NDTV's two subsidiaries and the company's property mortgage worth Rs50 crore without the I-T department's knowledge.
The notice said, “...the Disputes Resolution Panel (DRP) -II has passed an order on 31 December 2013 and a demand has been raised by the Assessing Officer on 21 February 2014 of about Rs450 crore. It is noticed that the no objection/approval of BSE, NSE has been received on 4 September 2013 prior to the order of DRP-II. In my view, it would be in the interest of justice to issue notice to BSE, NSE and SEBI.” The notices are returnable on 24 September 2014.
In the submission dated 6 May 2014, the I-T department alleged that NDTV's move to reduce its capital was proposed with 'malafide intention of defrauding' the revenues of its legitimate tax dues.
NDTV had filed for a reduction of capital from Rs507.70 crore to Rs351.96 crore under sections 100 to 104 of the Companies Act, 1956. The I-T department alleges that the proposal did not disclose a crystallised tax demand of about Rs450 crore. "...reduction of share capital against accumulated losses and no payment made to the shareholders will result in erosion in the value of the investment held by the shareholders and ultimately may result in capital loss in the hands of shareholders," the I-T department alleged in its submission.
"...the facts and circumstances of the case necessitate piercing the corporate veil for ascertaining the real purpose underlying the reduction of share capital as the same has been actuated with an intention of defrauding the revenue and thwart the recovery of taxes," the tax department alleged in its submission before the Delhi HC.
On 7 February 2014, NDTV informed BSE that its board of directors has in-principle approved merger between NDTV Labs Ltd with NDTV Convergence Ltd, its subsidiaries.
Responding to this, the I-T department alleged, "NDTV Convergence owns brand NDTV.com, which is valued at about Rs1,000 crore, while NDTV Labs is a loss making company. The announcement of this proposed merger has also not been disclosed by the Petitioner (NDTV). It reinforces that the Petitioner (NDTV) company has not disclosed material facts before the Court while seeking approval of capital reduction. This establishes that the Applicant company (NDTV) has not approached the Court with clean hands."
Opposing the petition filed by NDTV in the HC, the I-T department said, "...the petitioner has sought to utilize its surplus funds lying in the share premium account towards an entirely non-essential activity, which is dressing up of its Balance Sheet by adjusting surplus funds against accumulated losses. Thus the petitioner's (NDTV) ability to pay off the crystallized demand would be adversely affected and prejudice the right of the I-T department to recover the legitimate dues due to the department and would be against the public interest."
"...it has come to the knowledge of the Objector (I-T dept) that during the pendency of the assessment proceedings, the Petitioner (NDTV) has mortgaged its properties 1) Plot No FC-10, Sector 16A, Noida and 2) Second Floor, W-17, Greater Kailash-I, New Delhi, worth Rs50 crore to Syndicate Bank. The transfer is void in view of provisions of Section 281 of the Income Tax Act."
The I-T department also accused the company of using 'pre-mediated colourable device' and 'round tripping' to evade taxes. "...the Applicant Company (NDTV) has used the colourable device of incorporating foreign subsidiaries, entering into sham transactions of issue of shares through these subsidiaries and introduction of money into its account books while subsequently buying back the shares at extremely low prices, which resulted in booking of losses by third parties and laundering of money in the case of petitioner company (NDTV). During the assessment proceedings for AY2009-10 in the case of petitioner company (NDTV), the corporate veil was lifted and the income was taxed in the petitioner company's (NDTV) hands and this action of the Assessing Officer was confirmed by the Dispute Resolution Panel (DRP), which also further enhanced the additions. The Income Tax Appellate Tribunal (ITAT) has also not granted stay to the petitioner company (NDTV) as requested by it. The Objector (I-T dept) further submits that if instead of using colourable device, the assessee company (NDTV) had introduced money into its account books, the same would have attracted tax under the provisions of I-T Act, 1961. Thus by way of the said pre-mediated colourable device, the tax has been evaded, which is clearly against the public interest. Further, there are serious allegations of 'round tripping' for the purpose of evasion of taxes, in the cases of the petitioner company (NDTV) for the assessment year 2010-11 and 2011-12, which are being investigated."
As reported by Moneylife in the past, financially beleaguered NDTV India pulled off a coup by getting deep-pocketed ‘strategic’ investors and top-flight private equity investors to abandon their stiff standards and pick up big chunks of its equity. In April 2011, DE Shaw group, a $20 billion investment and technology development company, picked up a 14.2% stake in NDTV providing an exit to Goldman Sachs, another blue-chip investor, which probably exited at a loss. After this, NDTV acquired a significant investor—Abhay Oswal, who owned nearly 15% of its equity but seems to have no presence on NDTV’s board of directors. Mr Oswal happens to be the father-in-law of Navin Jindal, an industrialist and Congress leader.
But this was not the only investment NDTV had swung. In March 2011, it sold a 49% stake in NDTV Lifestyle Holding Pvt Ltd, to Malaysia’s Astro All Asia Networks for $40 million. Here, too, Astro All Asia was stepping in after NDTV terminated a previous agreement with Scripps Networks to sell a higher stake.
As Moneylife reported, Prannoy Roy-led NDTV, was served a Rs450 crore demand notice by income tax (I-T) in February this year but did not inform the BSE or National Stock Exchange (NSE) about this, which is an alleged violation of listing norms.
UPDATE: This article has been updated on 11 June 2014.
For the sake brevity, we have removed references from this article to matters other than the I-T department's submission in the Delhi HC in the NDTV case.
After four days, on 10 June 2014, Ajay Mankotia, president for corporate planning & operations at NDTV, responded to our queries. Officials from BSE and NSE still have not responded to our mails sent on 5 June 2014. We would incorporate their views as and when we receive it.
Here is the response provided by NDTV...
I-T department claims that NDTV had filed for reduction of capital from Rs507.70 crore to Rs351.96 crore under sections 100 to 104 of the Companies Act, 1956.
NDTV's Response: The proposal for reduction of capital (Securities Premium account) under section 78 read with sections 100 to 104 of the Companies Act, 1956 (“the Act”) was duly approved by the board of directors of NDTV on 19 March 2013 pursuant to which all relevant approvals were sought by the Company. NDTV had, after receiving all requisite approvals, filed a petition for approval of the proposal before the Delhi High Court on 9 December 2013. The purpose of the above mentioned proposal is solely to give a true and fair view of the financial statements of the Company to its shareholders.
I-T department alleged that the proposal does not disclose a crystallized tax demand of approx. Rs450 crore.
NDTV's Response: As on the relevant date, on which the abovementioned reduction of capital had been approved by the board of directors of NDTV, there was no tax demand of approx. 450 Crore pertaining to the assessment year 2009-10 (Financial Year 2008-09). Further, even as on the date of filling of the petition before the Delhi High Court, such a liability did not exist. Therefore, the question of disclosing any such liability does not arise. In fact, even as of date, tax demand of Rs.450 crore alleged by the tax authorities is not enforceable against NDTV. The alleged demand has been challenged and is presently sub-judice before the appellate authorities, i.e., before the Income Tax Appellate Tribunal (“ITAT”). Further, the ITAT has already granted an interim stay on the alleged tax claim made by the authorities on payment of Rs. 5 crore only, which further substantiates that there is a strong prima facie case made out by NDTV that the tax claims are incorrect, illegal and devoid of any merit. Accordingly, there was no requirement for NDTV to disclose such a claim, which was neither enforceable nor binding and payable upon the Company, as of date. Therefore, any disclosure of the same, as alleged or otherwise, is not required.
I-T department claims that mortgage of Rs50 crore of property allegedly not disclosed.
NDTV's Response: The allegation that a charge of Rs50 crore was created and not disclosed by NDTV is an incorrect and baseless allegation. NDTV has throughout and always made all necessary legal compliances to relevant authorities.
The I-T department claims, information to the BSE on 7 February 2014 about merger of NDTV Labs with NDTV Convergence. NDTV convergence allegedly owns the brand NDTV.com, which is allegedly valued at Rs1,000 crore while NDTV Labs is a loss making Company. The proposed merger has allegedly not been disclosed by the Company although it is material information, in the application for reduction of capital.
NDTV's Response: The proposed merger of NDTV Labs Ltd with NDTV Convergence Ltd is only in the process of being initiated and at this moment remains a proposal. Any reference to the same as requiring disclosure to the Income Tax department is unwarranted and premature. Further, the merger of NDTV Labs with NDTV Convergence and Capital Reduction process of NDTV, are two separate processes and absolutely unrelated. It may be noted that the said merger does not impact the process of Capital Reduction of NDTV itself in any manner and, hence, is neither material information, nor required to be disclosed in the application for reduction of capital, filed by NDTV before the Delhi High Court.
Lastly, the Company will abide by the process specified for the merger, including a reference to the Income Tax Department, at the relevant stage, when we take a decision to go ahead with the proposal.
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Anjali Damania and Preeti Menon have resigned from AAP. However, the party says both have resigned only from their posts and not from AAP
Activist-turned-politician and Aam Aadmi Party (AAP) leader Anjali Damani has resigned from the party, ahead of the state Assembly elections.
"Dear colleagues, with a heavy heart, I am ending my association with AAP," Damania said in a letter addressed to AAP colleagues, issued Wednesday evening.
Damania, who unsuccessfully contested the recent Lok Sabha elections against BJP leader Nitin Gadkari from Nagpur, said, "My greatest regards for Arvind (Kejriwal), who is like an elder brother. All I want to request is that please do not have conspiracy theories over my exit."
The state party convener said she will never compromise on her values.
Damania, however, refused to state any reasons on her sudden decision to quit the party, and said she only wished the "best" for AAP.
"Kindly excuse me, I do not wish to state anything except that I care a lot for my party and my best wishes are always with it," she said.
Reacting to the exit of Damani, AAP leader Mayank Gandhi told PTI that lack of communication at various levels and complaints against AAP committee members by party workers pushed Damania into tendering her resignation.
"Minor organisational issues like complaints against the behaviour of committee members by AAP workers and lack of communication at various levels were irritating Anjali (Damania) and Preeti (Menon). They could not focus on the major reasons for which they had joined politics. Hence, she decided to quit," Gandhi said.
There were reports about resignation of Preeti Sharma Menon, the party's spokesperson for Maharashtra. However, Menon denied reports about her resignation from the party.
"We have been able to convince her that a structure will be created for organisational issues and she should focus on what she is good at (taking up corruption-related issues). She (Damania) intends to meet all volunteers Thursday evening to exhort them to refocus on our original goals of systemic change," Gandhi added.
Damania stood at the fourth position from Nagpur Lok Sabha seat during the recent election by securing 69,081 votes.
Gadkari won from the seat, with 5.87 lakh votes to his credit, by defeating seven-term MP Vilas Muttemwar of Congress.
Acknowledging that a previous law did not go far enough, the Defense Department said it needs to expand rules to protect service members from high-cost lenders
The Department of Defense, attempting to thwart the ever-changing tactics of high-cost lenders, plans to dramatically broaden a federal law that sought to protect service members by capping the interest rate on loans made to troops.
When the Military Lending Act was enacted in 2007, it narrowly focused on how much interest lenders could charge on two types of loans: payday and auto-title. But as ProPublica and Marketplace reported last year, high-cost lenders easily circumvented the law, peddling credit from stores that often line the streets near military bases. In a newly released report to Congress, the Defense Department acknowledged that the law has proven inadequate and said it is working on new, "more comprehensive" rules.
The report, completed in April, said a survey of service members found the use of high-cost loans is widespread. Under current rules, the Military Lending Act (MLA) caps certain categories of loans at a 36 percent annual percentage rate. But the Defense Department's survey found that 11 percent of service members reported taking out a loan above that limit in the past year.
Service members are prime targets for high-cost lenders, the report says. They often aren't financially savvy—"generally high school graduates who may have started college." They're young: 43 percent of service members are 25 years old or younger. And they tend to start families earlier, adding to their financial pressures. From the results of the survey, the Defense Department estimated that up to a quarter of service members "may face emergency financial short-falls and indicate difficulties managing their finances and avoiding problems with credit."
In response to crackdowns by federal and state regulators, high-cost lenders have been busy transforming their offerings over the past several years. Instead of the typical payday loan, which carries an annual rate above 300 percent and is due in full after two weeks, lenders have increasingly been offering installment loans that last several months. They, too, can have sky-high annual rates, but the rate on installment loans isn't capped under the MLA. Neither is the rate for open-ended credit: a lender can legally offer a credit line with a 300 percent APR to a soldier.
Because they're not covered by the MLA, installment lenders are also free to lard loans with nearly useless insurance products that serve mainly to boost the cost of the loan. The report notes that if the MLA were extended to cover installment loans, these types of add-on products would be limited. Under the MLA, the Defense Department has the power to define what sorts of loans are covered.
"[W]ithout revising the definitions of credit in the MLA to encompass installment and open end credit, the MLA will lose its effectiveness," the report says. But if the DoD simply prohibited installment loans with an APR above 36 percent, lenders might find another type of loan to circumvent the law. Accordingly, the Defense Department concludes, "The complexity of the marketplace appears to be better accommodated with a more comprehensive approach." As indicated in the report, such an approach would ban any loans above 36 percent, perhaps with a few special exclusions.
Meanwhile, the situation is very different for high-cost loans targeted at everybody else. There is no federal law limiting high-cost loans to civilians, but the Consumer Financial Protection Bureau is working on new rules for payday lenders that will affect all consumers. "I think that the challenges of defining high-cost credit under the MLA are the same challenges of defining high-cost credit for the civilian population," said Tom Feltner, director of financial services at the Consumer Federation of America.
But where the Defense Department can simply institute a broad 36 percent rate cap, the CFPB's hands are tied. The 2010 financial reform bill that created the agency forbade it from capping interest rates. That makes CFPB's job much more of a challenge, said Feltner.