Summary of Arguments

Whether, the Tribunal was right in holding that commercial independence of an agent is to be
gauged qua the business in which he is engaged as an agent and not in relation to his all
businesses?

Yes. The tribunal was right in holding that commercial independence of an agent is to be
gauged qua the business in which he is engaged as an agent. If in case an agent is not acting
in the ordinary course of business and he is acting wholly or almost wholly for one principal,
then it is not an independent agent. In order to establish this, we need to consider the business
in which he is acting as an agent. In the present case, GAIL in generally involved in the
business of Home Appliances and Textiles, but for IAC, it is involved in the business of
Industrial Appliances. It is not in its ordinary course of business and it is working wholly for
IAC. Hence, GAIL is a dependent company of IAC.

Whether, the Tribunal was right in holding that even though the amalgamation is effective
from 1 April 2007, the amalgamated business cannot be looked into for ascertaining
commercial independence for AY 2008-09?

GAIL – The Tribunal was not right in saying so. Every scheme of amalgamation that is
agreed between parties will have an appointed date on which the amalgamation is deemed to
come into force. Such an amalgamation happens only if the court sanctions scheme. While
sanctioning the scheme, court can either modify the date or approve it without any change. If
in case court doesn’t change the date, then the effective date would be the date agreed upon
by the parties. In the present case, GAIL and the other company agreed that 1st April 2007
will be the effective date and the court has not changed this. So, sanction is effective from 1st
April 2007. Once it is sanctioned, the ITA cannot treat the companies as separate.

ITA – A court can always reconsider its order if it there exists fraud or collusion. A scheme
that is sanctioned should not be contrary to public interest. If in case tax avoidance is
involved through such a scheme, it is prejudicial to the public interest. Even though every one
is entitled to arrange their business in such a way that they minimise their tax liability, it can
only be done if courts sanction is not required. A court would not provide sanction if the
result of amalgamation would be tax avoidance as it will halt public growth. If the fact that
amalgamation would lead to tax avoidance is not disclosed before the court sanctioning it, it
would amount to fraud and the court which has passed it can always reconsider its order
sanctioning such a scheme. In the present case, it was not revealed before the court that
amalgamation would lead to tax avoidance, which amounted to fraud. Hence, the court
should reconsider the scheme.