In Re Orient Green Power Pte. Ltd (AAR)

DATE: (Date of pronouncement)
DATE: August 15, 2012 (Date of publication)

Click here to download the judgement (orient_green_gift_tax_avoidance.pdf)

“Gift” by company to subsidiary appears to be “Dubious tax avoidance scheme”

The Applicant, a Singapore company, “gifted” the shares of Bharath Wind Farm Ltd, an Indian company, to its 99.61% subsidiary Orient Green Power Ltd, another Indian company. As the gift was made prior to the enactment of s. 56(2)(viia) and there was no consideration received, it was claimed that there was no taxable income and that the transfer pricing provisions did not apply. The department opposed the applicant on the ground that it did not appear to be genuine. HELD by the AAR:

U/s 82 of the Companies Act, shares in a company is moveable property transferable in the manner provided by its Articles of Association. The applicant has not shown the gift was authorized by its Articles. It is difficult to imagine the Articles of Association of a company providing for gifting away of the assets in the form of shares in another company by what is attempted to be described as oral gift. A “gift” by one company to another company of shares in a public company appears to be strange, unless it be one which has been set up for some purpose. The revenue’s contention that the purpose of the gift is to avoid tax and s. 56(2)(viia) is not far-fetched. Also, s. 47(i) & (iii) appear to apply to gifts by individuals and HUFs and not by companies. The Authority has the right & the duty to consider the reality of the transaction and genuineness of the transaction, in addition to its validity. When such transactions are entered into involving substantial assets the applicant has to prove to the hilt the factum, genuineness and validity of the transaction, the right to enter into the transaction and the bona fides of the transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. The AO is in a better position to make a proper enquiry into the question of the genuineness and validity of the transaction. Hence, a ruling is declined.

Contrast with Venesta Foils 124 ITR 660 (Cal) where it was held that transfer of assets to a 100% subsidiary at an undervaluation was not a “gift” since the transferor held all the shares of the transferee

2 comments on “In Re Orient Green Power Pte. Ltd (AAR)
  1. SORRY. AOs cannot understand simple jurisdiction aspects! simple mens rea doctrines, when so how can we allow such a power to his discretion .

    taxation in india is the highest if you load all taxes on pays both direct and indirect, there re several views on this aspect too by ever so many justices in india

    so, it is certain avoidance bound to take place if revenue collection is exorbitant that is the case in india; reduce taxes compliance would be better, you can cut down too many revenue men in revenue;

    if you wan to give jobs do give not in taxation areas and departments which turn as corruption nests for one reason or another.

    when laws are in place for gifts, charities let that function meaningfully , we do not want great revenue men poke their noses as great dubious ‘experts’.

    we have all kinds of experts, why AO need to be an expert investigator, while he does not know basics of investigation, but acts like traffic police man, what you got out of traffic police man, he only takes haftas, and permits all kinds of violations, that way only a lot of accidents take place a lot of lives are lost on roads…so these great AO worthies e like traffic constabulary.

    this is not to condemn AO but this cannt be his cup of tea sirs! that way one need to look when we look how tax payers moneys are wasted day by day great governments… why tax payer pay these parasites! any tax payer would question! that is his legitimate right as a master, after all governments fall under the category of master and servant concept – master is citizen only all governments are servants of citizens.. so Americans said at Boston ‘No taxation without representation. representation means a lot if one cares to go into!

  2. sec 47(i) n (iii) relating to gift by individuals and HUF is right.

    Gift as a word is not only to living persons only, as legal person concept is devised in company law, that clearly means company is made of persons combined as stock holders…meaning, a company is a group of persons only as no company could never be formed by animals other than men or just by non living beings that way the idea of legal person idea emanated in company law.

    i do not see any weight in income tax act idea after all income tax act is a subsidiary act and just some administrative law with no in built substantial law character like transfer of property and so on.

    you can call AAR or any abbreviation that does not qualify a revenue man as some God superior to the constitution of a country ..specially here in india …we have a valid constitution of india under very government is just a creature under Article 12, so you as AAR is an another small creature, certainly not superior to the constitutional courts like high courts in India, and AAR is falling under the jurisdiction of the relevant jurisdictional high courts only,when so AAR must and should fall under the judicial review jurisdiction under article 226 which has much wider jurisdiction over your own controlling ministry and as such AAR holding it is not subject to Art 227 r/w Ar 226 does not stand to any reason, unless you had been created by a special constitutional amendment, if so what constitutional amendment made the great AAR is to be revealed, at first.

    then,under what legal definition sec 47 has excluded companies from its ambit first need to be proved by the AAR or the revenue authorities…without legal position you as AAR has no standing at all after all you as AAR is some administrative kind tribunal,after all all tribunals fall under High court jurisdiction,after all AAR is not some listed item under schedule IX act found in first constitutional amendment…it is a well known fact after (LR )Coelho v state of TN judgement in 2007 jan except 13 basic Acts all other Acts kept under sch IX had been quashed by then CJI YK Sabharwal in a constitutional bench…

    that way it should be clear AAR has to prove how it is not amenable to High courts concerned where AAR sits

    that way only AAR on its own volition cannot write definitions of sections without legislative sanctions, even legislature cannot create Acts as it pleases unless it follows set procedure mandated.

    so very gift idea under sec 47 is not applicable to companies has to be proved to the hilt by AAR or the Revenue body concerned, is my considered view!

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