The Tax Publishers2019 TaxPub(DT) 1938 (Chen-Trib)

INCOME TAX ACT, 1961

Section 47(iii)

There is no legal impediment to a company transferring property to another company, by way of gift, therefore, contention of assessee company that transfer of shares made by it to its step down subsidiary without any consideration was a gift eligible for exemption under section 47(iii), deserved acceptance and, therefore, no capital gains tax was imputable to transfer of shares in question.

Capital gains - Transaction not regarded as transfer under section 47(iii) - Transfer of shares by assessee-company to its subsidiary without any consideration -

Assessee-company transferred shares of its wholly owned subsidiary to its step down subsidiary without consideration and claimed that transfer was a gift eligible for exemption under section 47(iii). As per AO, a company could not make a gift and even if it was treated as a gift, it was not eligible for exemption provided under section 47(iii), as correct provision of law as applicable to the case of the assessee was section 47(iv) of which the condition had not been satisfied by the assessee. Held: The essential ingredients of a valid gift are existence of property, voluntary nature of the transfer and absence of consideration. As a pre-condition for making a valid gift, the law does not prescribe that only natural persons can make gift on the ground of 'love and affection'. Therefore, AO erred in law in concluding that assessee being a corporate body could not make a gift. Therefore, contention of assessee company that transfer of shares made by it to its step down subsidiary without any consideration was a gift eligible for exemption under section 47(iii)., deserved acceptance. Also, transfer without consideration could not be the subject-matter of section 47(iv)/(v). Therefore, no capital gains tax was imputable to transfer of shares in question.

Relied:DP World (P.) Ltd. v. Dy. CIT (2013) 140 ITD 694 (Mum) : 2014 TaxPub(DT) 2224 (Mum-Trib) and Ku. Sonia Bhatia v. State of UP (1981) 2 SCC 585 (SC), Vodafone Essar Ltd., In re (2011) 107 SCL 51 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10


INCOME TAX ACT, 1961

Section 92

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