Karnataka High Court
Little Eye Software Labs Private ... vs Nil on 25 November, 2016
Author: Vineet Kothari
Bench: Vineet Kothari
1/15
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 25th DAY OF NOVEMBER 2016
BEFORE
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
Co.P No.210/2016
BETWEEN:
LITTLE EYE SOFTWARE LABS PRIVATE LIMITED
REGISTERED OFF: No.66, FIRST FLOOR
29TH MAIN, BTM 1ST STAGE, 1ST PHASE
BANGALORE-560068.
...PETITIONER
(BY SRI. SAJI P. JOHN, ADV.)
AND:
NIL ...RESPONDENT
(BY SMT. PREMA HATTI, CGC FOR ROC
SRI. K.V. ARAVIND, STANDING COUNSEL FOR
INCOME TAX DEPT.)
THIS Co.P IS FILED UNDER SECTION 100 TO 104 OF THE
COMPANIES ACT, 1956, PRAYING TO REDUCTION OF CAPITAL
RESOLVED ON AUGUST 5, 2016 BY THE SPECIAL RESOLUTION
SET OUT IN PARAGRAPH No.12 ABOVE BE CONFIRMED AND
ETC.
THIS Co.P COMING ON FOR ORDERS THIS DAY, THE
COURT MADE THE FOLLOWING:-
ORDER
Mr.Saji P. John, Adv. for Petitioner Mrs. Prema Hatti, CGC for ROC Mr. K.V. Aravind, Standing counsel for Income Tax Dept. Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 2/15
1. This petition is filed seeking reduction of the share capital as narrated in the petition therein. By an order dated 15.09.2016, settling of the list of the creditors were dispensed with. Thereafter, the publication was taken out in 'The Hindu' English Daily and in 'Udayavani' Kannada daily on 21.09.2016. The Extraordinary General Meeting of the shareholders of the petitioner company was held on 05.08.2016 and the shareholders unanimously resolved as follows:
"RESOLVED THAT pursuant to Section 100 to 104 of the Companies Act, 1956, including any statutory amendments or re - enactments thereof and Section 52 of the Companies Act, 2013 and subject to the confirmation by the Hon'ble High Court of Karnataka and subject to such terms, conditions or modifications if any, as may be prescribed by the High Court of Karnataka, the paid-up share capital of the Company be and is hereby reduced from INR 6,36,109 (Rupees Six Lakhs Thirty Six Thousand One Hundred and Nine only) comprising of Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 3/15 6,36,109 (Six Lakhs Thirty Six Thousand One Hundred and Nine) Equity Shares of INR 1/- each to INR 1,08,109 (Rupees One Lakh Eight Thousand one hundred and nine) comprising of 1.08,109 (One Lakh Eight Thousand one hundred and nine) equity shares of INR 1/- each by canceling 5,28,000 (five lakhs Twenty Eight Thousand) issued, subscribed and paid-up equity shares of INR 1/- each, proportionate to the number of shares held by the shareholders in the Company and paying against shares cancelled, a sum of INR 210/- (Rupees Two Hundred and Ten only) per equity share of INR 1/- each.
RESOLVED FURTHER pursuant to Sections 100 to 104 of the Companies Act, 1956, including any statutory amendments or re -enactments thereof and section 52 of the Companies Act, 2013 and subject to the confirmation by the Hon'ble High Court of Karnataka and subject to the such terms, conditions or modifications if any, as may be prescribed by the High Court of Karnataka, the securities premium reserved of INR Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 4/15 1,97,04,433/- (Rupees One Crore Ninety Seven Lakhs One Thousand Four Hundred and Thirty Three Only) be utilized for the pay- out against the equity shares being cancelled and the securities premium reserves be and is hereby reduced from INR 1,97,01,433/- (Rupees One Crores Ninety Seven Lakhs One Thousand Four Hundred and Thirty Three Only) to NIL, subject to the confirmation by the Hon'ble High Court of Karnataka and balance amount of INR 9,06,50,567/- (Rupees Nine Crores Six Lakhs Fifty Thousand Five Hundred and Sixty Seven Only) be drawn payable against the shares cancelled be paid from the profit and loss account of the Company.
RESOLVED FURTHER THAT the Board of Directors of the Company including such other person(s) as may be authorized by the Board of Directors, in this regard, be and are hereby authorized to take necessary action, including making necessary application to High Court or any other competent authority as may be specified in this regard and for following the directions, if any, given by the Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 5/15 High Court or any other competent authority as may be specified in this regard, for effecting the reduction of capital in the manner mentioned above."
2. This Court had passed the order on 21.10.2016 after hearing the learned Counsel for the petitioner Mr.Saji P.John, which is quoted below:-
"1. The present company petition has been filed by the Company M/s.Little Eye Software Labs Pvt. Ltd., Bangalore, under Sections 100-104 r/w Section 78 of the Companies Act, 1956, requiring the approval of the Court for 'Reduction of the Paid up share capital' of the company in terms of Section 100(1)(c) of the Companies Act, 1956, which permits the company, subject to a special Resolution to be passed by the company to "pay off any paid up share capital, which is in excess of the want of the Company".
2. The learned counsel for the petitioner- company has submitted that the petitioner is a subsidiary company of a Holding company Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 6/15 located in Singapore namely, Face Book Singapore Pte Ltd., Singapore, (vide details given in page-67 of the paper book) and the ultimate Holding company is Facebook Inc, USA, and the accumulated profits of the company including the operating profits and share premium amount shown in the "Reserves and Surplus" of the said company in the Balance Sheet produced before this Court (vide page-54 of the paper book) is sought to be utilised for paying back the shareholders of such reduction in Paid up share capital to the extent of Rs.11,08,80,000/- by canceling 5,28,000 Equity shares of INR Re.1/- each, by utilising the sum of INR 1,97,01,433/- (Rupees One Crore Ninety Seven One Thousand Four Hundred & Thirty Three only) from the "security premium account" and the balance of INR 9,06,50,567/- from the Profit and Loss Account. He submits that as per the provisions of Section 100 of the Companies Act, 1956, such reduction of share capital requires confirmation by the Court and hence, this petition has been filed before this Court.
Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 7/15
3. During the course of arguments, learned counsel for the petitioner-company was also requested to explain the tax implications of such reduction in share capital by utilisation of the share premium account and accumulated profits of the company, upon which, he submitted that the same will be subject to the "Dividend Distribution Tax"
over and above the paid up value of each Equity share namely Re.1 per share and since the amount of Rs.210/- on each share will be paid to the shareholders, which is mainly the Holding company to the extent of Rs.209/- per share, the same will attract liability under the provisions of Income Tax Act, 1961. However, he prays for some time to draw the attention of the Court to the relevant provisions of the Income Tax Act and also explain as to what provision has been made by the company to pay off that income tax liability on such "Dividend Distribution Tax", by way of reduction in the share capital under Section 100 of the Companies Act and the company will also inform its Income Tax Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 8/15 Assessing Authority for their petition for seeking their response.
4. The learned counsel for the petitioner- company was also requested to apprise the Court about any restrictions under the provisions of the Companies Act against the utilisation of the "share premium account", if any.
5. It is also considered expedient to call upon the Registrar of Companies, Karnataka, Bangalore, to submit its report with respect to the present petition as to the various aspects of the Companies Act involved in the same and whether, the said reduction of share capital seeking approval of the Court incurs any liability or obligation on the part of the company under the provisions of the Companies Act, 1956.
6. A copy of the petition along with Annexures be served upon the Standing counsel of the Registrar of Companies in this Court.
List this case again on 11.11.2016, as prayed".
Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 9/15
3. In pursuance of the said order, the Registrar of Companies has filed the report, as also the Income Tax Department has filed the memo today before this Court and they are represented by the respective counsels Smt.Prema Hatti, CGC for Registrar of Companies and Mr.K.V.Aravind for Income Tax Department.
4. From the memo dated 23.11.2016 filed by the Registrar of Companies, paragraph-4 is quoted below for ready reference and from the memo filed by the Income Tax Department also, the relevant portion is quoted below for ready reference.
"4. It is noticed from the petition that the company has proposed to return an amount of Rs. 11,08,80,000/- to its shareholders by canceling 5,28,000 issued, subscribed and paid up equity shares of Re. 1 each from the paid up capital of the company by utilizing Rs. 1,97,01,433/- from the Securities Premium Account and the balance of Rs. 9,06,50,567/- from the Profit and Loss Account of the company. Utilization of the accumulated profits of the company for payment to the shareholders will be deemed dividend and Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 10/15 accordingly the company is liable to pay Dividend Distribution Tax on the said amount at the applicable rate.
This Hon'ble Court may be pleased to take the above report on record and pass such order as may deem fit and proper in the interest of justice and equity".
From the memo filed by the Income Tax Department, the relevant portion is quoted below for ready reference:-
"OFFICE OF THE ASST.COMMISSIONER OF INCOME-TAX,CIRCLE-4(1), ROOM, No.229, 2nd FLOOR, BMTC COMPLEX, KORAMANGALA 6TH BLOCK, BENGALURU-560095 Ph:080-25626252,E-mail:[email protected] No.CapitalReduction/AACCL3350M//ACIT-C-4(1)(1)/2016-17 Dated:22.11.2016 To, Shri K.V. Aravind, Advocate & Junior Standing Counsel for IT Dept, No.8 & 9, Ground Floor SNS Plaza, Kumara Krupa Road Bangalore - 560001.
Sub: Submission of response in the case of M/s Little Eye Software Labs Private Limited (AACCL3350M) - reg.
Ref: Order of Hon'ble High Court of Karnataka in COP 210/2016 dt.21/10/2016.
************ As per the directions of the above said Order, Para No.3, the following are the tax implications by way of dividend distribution tax on the reduction in share capital as proposed by the Assessee Company, M/s Little Eye Software Labs Private Limited (AACCL3350M).
2. The calculation of dividend distribution tax on account of Capital reduction is as under:
Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 11/15 Proposed repayment to shareholders Pursuant to A 11,08,80,000 capital reduction Accumulated profits available with the company B 9,13,71,166 for distribution as on date of capital reduction Dividend Distribution Tax under Section 2(22)(d) C=B*20.36% 1,86,03,169
3. Based on the available facts of the case, there may not be an impact on capital gains.
This is for your kind information and necessary action.
Sd/-
Asst. Commissioner of Income Tax Circle-4(1)(1), Bengaluru".
5. Since neither the Registrar of Companies nor the Income Tax Department have raised any objection, but they only submitted that the "Dividend Distribution Tax" as defined under Section 2(22)(d) of the Income Tax Act, 1961 is required to be paid upon such reduction of capital out of the profits and Reserves and Surplus of the company, therefore, the interest of the revenue may be safeguarded to that extent.
6. The learned counsel for the petitioner-company Mr.Saji P.John submitted that the company is ready and willing to deposit the said "Dividend Distribution Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 12/15 Tax" liability with the concerned Assessing Authority of the Income Tax immediately while the remittance of the payments of the shareholders of the Holding company is being made upon such reduction of the share capital of the petitioner company out of the Profit and Reserves and Surplus of the applicant company.
7. The learned counsel for Revenue Mr.K.V.Aravind also submitted that the said Dividend Distribution Tax liability has been computed only on the basis of the figures supplied by the petitioner company and which may be paid as aforesaid by the learned counsel for the petitioner company Mr.Saji P.John and in case upon any such investigation, some more tax liability is found due from the petitioner company, the concerned Assessing Authority should be left free to initiate appropriate proceedings against the company in this regard.
Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 13/15
8. This submission is also not opposed by the learned counsel for the petitioner company to allow the due process of law under the Income Tax Act to take place in case of any such eventuality in view of the aforesaid.
9. Thus, there is no objection to the reduction of the share capital to be allowed and approved by this Court under Section 100 of the Companies Act, 1956.
The same is therefore allowed and the company petition is accordingly allowed.
10. The form of minutes set out herein below is approved in terms of Section 100 of the Companies Act, 1956, subject to the aforesaid;
"The paid up share capital of Little Eye Software Labs Private Limited is henceforth INR 1,08,109/-
(Rupees One Lakh Eight Thousand One Hundred Nine only) divided into 1,08,109 (One Lakh Eight Thousand One Hundred Nine) equity shares of INR 1/- (Rupees One Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 14/15 Only) each fully paid, reduced from INR 6,36,109/-
(Rupees Six Lakhs Thirty Six Thousand One Hundred Nine) divided into 6,36,109 (Six Lakhs Thirty Six Thousand One Hundred Nine) equity shares of INR 1/-
(Rupee One Only) each. At the date of registration of this minute 1,08,109 (One Lakh Eight Thousand One Hundred Nine) equity shares of INR 1/- (Rupee One only) each numbered 1 to 1.07,617 (One to One Lakh Seven Thousand Six Hundred Seventeen) and 4,28,551 to 4,29,042 (Four Lakh Twenty Eight Thousand Five Hundred Fifty One to Four Lakh Twenty Nine Thousand Forty Two) have been issued and are deemed to be fully paid".
11. The order including the minutes shall be delivered to the Registrar of Companies within twenty one days from the date of receipt of a certified copy of this order. The notice of reduction of paid-up equity share capital, shall be published by the petitioner Date of Order 25.11.2016 Co.P. No.210/2016 Little Eye Software Labs Private Limited Vs Nil 15/15 company in the English Daily "The Hindu" and Kannada Daily 'Udayavani' Bengaluru edition within fifteen days from the date of registration of the order and minutes by the Registrar of Companies and a copy thereof shall be filed by the petitioner with the Registry.
Sd/-
JUDGE Srl.