INCOME TAX ACT, 1961

Section 47(iii) Section 45 Section 56

Capital gains - Applicability of provision under section 47(iii) - Gift of shares by assessee-NBFC to its group concern without consideration -

Assessee-NBFC transferred certain shares at nil value to group companies without consideration. AO had considered these transactions to be colourable device and taxed the resultant profit under the head 'Income from other sources' after considering the market value of the shares as selling price. CIT(A), while upholding the stand of the AO that the transactions were colourable device, held that the resultant profit should be taxed under the head capital gain.Held: There is nothing that prohibits a company from giving or receiving gifts. The transfer without consideration as gift were authorized by the Memorandum of Association. A perusal of the provisions of sections 5, 122, 123 of Transfer of Property Act indicates that there is no restriction on the corporate transfer of shares by way of gift. for movable property, a gift deed in writing is not necessary, an oral agreement with transfer of possession is sufficient to complete a gift of a movable property. The lower authorities, therefore, had erred in law in concluding that the assessee being a corporate body could not make a gift. In view of the above, transfer of shares of WWIL and DTIL without consideration as gift were valid, permissible and genuine. Transfer of shares, by way of gift, are exempt from the provisions of capital gain by virtue of provisions of section 47(iii). Accordingly, the transfers made as gift without consideration were not taxable under the provisions of capital gains.

Relied: Redington (India) Ltd. v. JCIT (2014) 49 taxmann.com 146 (Chen-Trib), Nerka Chemicals Pvt. Ltd. v. DCIT [ITA No. 4423/M/2014] and Prankriya Pharmacem v. ITO (2016) 238 Taxman 185 (Guj) : 2016 TaxPub(DT) 1146 (Guj-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13 & 2013-14

INCOME TAX ACT, 1961

Section 36(1)(iii)

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