| Question And Answer | |
|---|---|
| Subject: | Transfer of depreciable capital asset ? |
| Category: | Income-Tax |
| Querist: | Ravi aiftp |
| Answered by: | Chartered Accountant ., Mr . H. N. Motiwalla |
| Tags: | Transfer of depreciable capital asset |
| Date: | January 16, 2024 |
Company A has transferred a depreciable capital asset to its wholly owned subsidiary company B during the year 2018. The WDV value in the hands of the company A as on date of transfer is Rs. 10 crs. As per the independent valuer report the value of the said asset is Rs. 8 crs. The company B has been claiming depreciation on WDV value of 10 crs. During the year (June 2020), company A ceased to hold 100% shareholding in company B.
- a) How to give effect to provisions of S. 47A and S. 49(3). Alternatively, would the situation be different if the capital asset would have been valued at Rs. 12 crores by independent valuer.
- b) Whether withdrawal of such exemption under section 47A will have any tax implication under section 56(2)(x) in the hands of WHOS since earlier the receipt was excluded from 56(2)(x) by virtue of 1st proviso to clause (x) of section 56(2).
- c) Whether Company needs to revise its of deprecation and how to give effect of same in Tax Audit and Return of income.
In case, where a capital asset is transferred by a company to a wholly owned subsidiary company and the transferee company is an Indian company, the transferor company is exempted from capital gain tax.
As per Explanation (6) to S, 43(1) and Explanation (2) to S. 43(6) the transferee company is entitled to depreciation only on the basis of written down value of the asset in the hands of transferee company, irrespective of the actual consideration paid by it.
S. 47A provides that if within eight years of such transfer:-
i) the transferee company converts the capital assets into, or treat it as stock-in-trade of its business, or
ii) the parent company ceases to hold the entire share capital of the subsidiary, the capital gain exempted under these clauses would be taxable as the income of the accounting year in which transfer had taken the place.
So from the above, legal position, it is clear that wholly owned subsidiary B is entitled to claim depreciation on WDV of capital asset of A amounting to Rs. 10/- crores Therefore valuation of independent valuer of Rs. 8/- crores or 12/- crores has no significance.
Further, in the account year 2022/23 i.e. for assessment year 2023/24 when holding company A ceased to hold 100% shareholding in company B, the holding company A will have to pay tax on whatever capital gains claimed as exempted u/s.47(iv) and thus Exemption would be withdrawn and it would be liable to pay tax under the head “capital gains” by virtue of the provisions of S, 47A r. w. s.49(3) of the Act.
Source: AIFTP Journal November 23