GAAR Panel Terms Hinduja Group Demerger An 'Impermissible Avoidance Arrangement'

BACKGROUND

• Hinduja Global Solutions Ltd (‘HGSL') had entered into a Scheme of Arrangement with NXTDigital Ltd involving demerger of digital, media and communications business of NXTDigital Ltd into HGSL. The Scheme was approved by NCLT Mumbai on 11 November 2022. The Appointed Date for the demerger was 01 February 2022.
• The restructuring was presented as a business consolidation exercise aimed at streamlining group operations and unlocking synergies for digital business undertaking of HGSL following HGSL's divestment of its healthcare business in August 2021.
• Over time, the transaction came under scrutiny by the Income Tax Department. A survey was conducted at HGSL's premises in November 2023, pursuant to which the matter questioning the entire demerger transaction was referred to GAAR panel.

FACTS OF THE MATTER

• In August 2021, HGSL announced the divestment of its healthcare services business to funds affiliated with Baring Private Equity Asia (‘BPEA') for an enterprise value of USD 1,200 million. The transaction created significant capital gains for HGSL.
• Subsequently, an NCLT approved scheme of arrangement was entered into involving demerger of Digital, Media and Communication business undertaking from NXTDigital with HGSL with effect from February 1, 2022. The scheme was sanctioned in November 2022 and was not challenged by the Income-tax Department at that time.
• In November 2023, the Income-tax Department conducted a survey at HGSL's premises. HGSL confirmed the development in its stock exchange clarification dated 3 December 2023, stating that it had extended full cooperation and would provide any further information sought by the authorities.
• Subsequently, the matter was referred to GAAR panel to investigate the demerger transaction and the Secretariat of the Approving Panel under GAAR, on 30 October 2025, issued a direction characterizing the demerger as an “impermissible avoidance arrangement”.

GAAR PANEL'S FINDINGS / DIRECTION

• On October 30, 2025, The GAAR Approving Panel, acting under section 144BA of the Income-tax Act, issued a direction in respect of HGSL for AY 2022–23 and AY 2023–24, characterising the tax treatment arising from the demerger as an “impermissible avoidance arrangement.”
• The Panel reportedly observed that the primary purpose of the arrangement was to obtain a tax benefit and that the transaction lacked commercial substance. The direction allows the Assessing Officer to recharacterize or disregard the arrangement for tax purposes and take consequential action.
• As per HGSL's stock exchange intimation dated October 31, 2025, the direction noted a total tax reduction of ₹281.59 crore.
• Media reports also indicate that the tax authorities have alleged the arrangement enabled HGSL to set off carried-forward losses against the capital gains earned from sale of healthcare business in the year 2021, thereby reducing its overall tax outgo.
• HGSL has stated that the scheme was duly sanctioned by the NCLT, that it has initiated appropriate legal steps, and that the direction does not impact the company's operations.

AURTUS COMMENTS

• This development represents one of the first prominent cases of the GAAR Panel applying anti-avoidance provisions to a NCLT-approved group restructuring.
• It underscores the heightened scrutiny of intra-group reorganizations where tax benefits may arise incidentally, and reinforces the need for companies to demonstrate clear commercial intent, economic substance, and valuation rationale in support of such transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.