While hearing the case between M/s. Emami Infrastructure Limited vs. Income Tax Officer (ITO), Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently ruled that transfer of capital assets by a company to step down 100% subsidiary company would not attract Capital Gain Tax.
The assessee in the instant case is a private limited company filed its return of income for the relevant assessment year and declared total income at Rs.88,79,544 and claimed the long-term capital loss on account of sale of 286329 equity shares of Zandu Realty Ltd.
While completing the assessment the Assessing Officer (AO) has recomputed total income at Rs.29,99,30,657 as against Rs.88,79,544 vide order under section 143(3) of the Income Tax Act 1961. He noticed that the said sale transaction was off-market transaction and the Assessee was asked to submit detailed explanation regarding the transaction.
In response, the Assessee submitted that the said 2,86,329 shares were sold to M/s. Emami Rainbow Niketan Pvt. Ltd which is 100% subsidiary of assessee’s subsidiary in accordance with the decision of the board of directors. However, the AO refused to accept the contention of the Assessee and accordingly, long-term capital gain is determined at Rs.29,05,83,769 as against the claim of loss of Rs.25,05,20,775 shown by the Assessee in its return of income. While concluding the Assessment the AO denied the claim of the Assessee by holding that provisions of section 45(2A) of the Income Tax Act are not applicable in the present case.
Thereafter, the counsel for the Assessee advocate R.N. Bajoria has challenged the matter before the CIT(A) and contended that the AO erred in computing long-term capital gains (LTCG) on sale of 2,86,329 shares of Zandu Realty Ltd. at Rs. 29,05,83,969 by adopting Fair Market Value of the shares sold at Rs. 3989.80 per share is the average market price quoted on the Stock Exchange and he did not consider the Fair Market Value. Further he submitted that the long-term capital gain computed by the AO is against the provisions of Income Tax Act in as much as the Act does not contemplate taxation of deemed capital gains on sale of shares and the AO not accepted the provisions of section 45(2A) of the Act only on the ground that the shares were sold to a step down subsidiary. However, the CIT(A) confirmed the action of the AO.
After analyzing the above-narrated facts and circumstances, the tribunal comprising Judicial member S.S. Viswanethra Ravi and Accountant Member J. Sudhakar Reddy observed that M/s.Emami Rainbow Niketan Pvt. Ltd is, in turn, a 100% subsidiary of M/s. Emami Realty Ltd. In other words, this is a second step down 100% subsidiary of the assessee. The sole issue in the present case is whether the provisions of section 45(iv)(a)(b) is applicable to the second step down subsidiary or not.
The division bench further observed that “it is a transfer of capital asset by a company to its subsidiary company and as a second step down 100% subsidiary company is also a subsidiary of the assessee company under the Companies’ Act 1956 as the term ’subsidiary company’ has not been defined under the Income-tax Act, 1961 and the transaction in question does not fall within the ambit of provisions of section 47(iv) of the Act. While concluding the issue the bench held that transfer of capital assets by a company to step down 100% subsidiary company would not attract capital gain tax”.Subscribe Taxscan AdFree to view the Judgment