Transfer of Land to Holding Company exempted from Capital Gain Tax: Madras HC [Read Judgment]

The Madras High Court held that the assessee is entitled to exemption under Section 47(v) of Income Tax Act with respect to the transfer of land to its holding company.

The assessee, M/s.Shardlow India Ltd. is a public limited company, filed the return of income for the assessment year under consideration returning an income of ‘NIL’. The return was processed under Section 143(1) of the Act and later, the Assessing Officer proceeded with the regular assessment.

The assessment was reopened by issuing a notice under Section 148 of the Act on the ground that the assessee transferred some portion of its land at Sembium to its holding company namely M/s.Simpson & Co. Ltd., for a consideration of Rs.375 lakhs resulting in a profit on the sale of the asset and the same, was not offered to tax under the head ‘capital gains’ against the assessee on the ground that the assessee company is a 100% subsidiary of M/s.Simpson & Co. Ltd. by referring to Section 47(v) of the Act.

The Assessing Officer found that 25 shares of the assessee company out of 80 lakhs shares were held by the nominees of the holding company namely M/s Simposon & Co. Ltd. Therefore, the Assessing Officer held that the assessee was not eligible for exemption of capital gains as per the provisions of Section 47(v) of the Act.

The assessee filed an appeal before the CIT(A), who, by order dismissed the same. Aggrieved by that, the assessee filed an appeal before the Tribunal, wherein it was held that assessee is entitled for exemption under Section 47(v) with respect to the transfer of land to M/s.Simpson & Co. Ltd.

Section 47(v) of the Act states that nothing contained in Section 45 of the Act shall apply to any transfer of a capital asset by a subsidiary company to the holding company if the whole of the share capital of the subsidiary company is held by the holding company, and the holding company is an Indian company. The fact that the company is an Indian company is not disputed.

The revenue contended that the distinction has been clearly brought out if one reads Section 47(iv) and Section 47(v) of the Act and it is clear that the word ‘nominees’ is not present in Clause (v) to Section 47 of the Act and therefore, the contention advanced by the assessee does not merit acceptance.

The two-judge bench of Justice T.S.Sivagnanam, and V.Bhavani Subbaroyan while upholding the decision of the tribunal held that the assessee, M/s.Shardlow India Ltd. is entitled to exemption under Section 47(v) of Income Tax Act with respect to the transfer of land to its holding company namely M/s. Simpson & Co. Ltd.