{"id":4559,"date":"2012-03-20T07:54:28","date_gmt":"2012-03-20T07:54:28","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4559"},"modified":"2012-03-20T07:54:28","modified_gmt":"2012-03-20T07:54:28","slug":"in-re-rst-aar-s-47iv-relief-not-available-if-holding-co-and-nominees-hold-100-of-subsidiary","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/in-re-rst-aar-s-47iv-relief-not-available-if-holding-co-and-nominees-hold-100-of-subsidiary\/","title":{"rendered":"In Re RST (AAR)"},"content":{"rendered":"\n\n
Click here to download the judgement (RST_buy_back_holding_subsidiary.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n

S. 47(iv) relief not available if holding co and<\/em> nominees hold 100% of subsidiary
\n<\/strong><\/p>\n

The applicant, a German company, held 99.99%<\/em> of the shareholding of an Indian company. The rest of the shares were held by other companies as nominees of the applicant<\/em>. The Indian company proposed a buy back of shares u\/s 77A of the Companies Act which would have resulted in transfer of shares of the Indian company from the applicant to the Indian company at a price to be determined. The applicant claimed that as it and its nominees held 100% of the shares of the Indian company, the exemption conferred by s. 47(iv) on transfers between holding company and 100% subsidiary applied and s. 46A would not apply<\/em>. HELD by the AAR:<\/p>\n

(i) S. 47(iv) exempts a transfer of a capital asset by a company to its subsidiary if \u201cthe parent company or<\/strong> its nominees hold the whole of the share capital of the subsidiary company\u201d. The word used is “or” and not “and”. The assessee held only 99.99% of the shareholding. The shares held by the nominees cannot be considered as held by the assessee<\/strong>. If, under Indian law (s. 49 (3) of the Companies Act), a company cannot by itself hold 100% of the shares in a subsidiary, it would only mean that Parliament did not intend to confer the benefit of s. 47(iv) on such a parent company<\/strong>. Though this approach confines the relief to a particular species of parent companies, it does not mean that the provision is unworkable. If the nominees are treated as holding the shares benami<\/strong> for the parent company, it would offend the Benami Transactions (Prohibition) Act, 1988 and also violate s. 49(3)<\/strong> of the Companies Act. The nominees can also not be regarded as a trustee<\/strong> in view of s. 153 of the Companies Act. The result is that the applicant does not hold 100% of the share capital<\/strong> of the subsidiary and so s. 47(iv) is not attracted;<\/p>\n

(ii) S. 46A, which provides that in the case of a buyback, the difference between the consideration and the cost of acquisition shall be deemed to be capital gains is a special provision<\/strong> and prevails s. 45. S. 47 overrides s. 45 but not s. 46A. There is no reason to enquire whether s. 46A is a charging section or not. The result is that even if the exemption in s. 47(iv) is held applicable, it does not override s. 46A<\/strong> and the applicant is subject to capital gains. <\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

S. 47(iv) exempts a transfer of a capital asset by a company to its subsidiary if \u201cthe parent company or<\/strong> its nominees hold the whole of the share capital of the subsidiary company\u201d. The word used is “or” and not “and”. The assessee held only 99.99% of the shareholding. The shares held by the nominees cannot be considered as held by the assessee<\/strong>. If, under Indian law (s. 49 (3) of the Companies Act), a company cannot by itself hold 100% of the shares in a subsidiary, it would only mean that Parliament did not intend to confer the benefit of s. 47(iv) on such a parent company<\/strong>. Though this approach confines the relief to a particular species of parent companies, it does not mean that the provision is unworkable. If the nominees are treated as holding the shares benami<\/strong> for the parent company, it would offend the Benami Transactions (Prohibition) Act, 1988 and also violate s. 49(3)<\/strong> of the Companies Act. The nominees can also not be regarded as a trustee<\/strong> in view of s. 153 of the Companies Act. The result is that the applicant does not hold 100% of the share capital<\/strong> of the subsidiary and so s. 47(iv) is not attracted<\/p>\n

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