The Tax Publishers2020 TaxPub(DT) 3011 (Mad-HC) : (2020) 316 CTR 0297

INCOME TAX ACT, 1961

Section 47(v)

Where AO denied exemption claimed under section 47(v) on allegation that 25 shares of assessee out of 80 lakhs shares, were held by nominees of holding company, considering that under Companies Act, assessee-public limited company was required to have a minimum of seven shareholders and individuals were nominees of holding company and had no individual right, therefore, it was to be held that whole of share capital of subsidiary company was held by holding company in instant case.

Capital gains - Exemption under section 47(v) - Out of 80 lakhs shares, 25 shares of assessee-company, were held by nominees of holding company -

Assessee-public limited company transferred some portion of its land to its holding company (Simpson & Co. Ltd.) for a consideration of Rs. 375 lakhs resulting in a profit on sale of asset and the same was not offered to tax under the head 'capital gains' on ground that assessee was a 100% subsidiary in terms of section 47(v). AO alleged that 25 shares of assessee out of 80 lakhs shares, were held by nominees of holding company. Therefore, AO denied exemption of capital gains as per section 47(v). Held: The dispute raised by revenue was that whole of share capital of subsidiary company was not held by holding company as there were six individual shareholders. Total number of shares were 80 lakhs, out of which, 79,99,975 shares were held by holding company. This fact was also not disputed by revenue. Remaining 25 shares were held by six individuals. Explanation offered by assessee was that under Companies Act, a public limited company should have a minimum of seven shareholders. Individuals were nominees of holding company and they had no individual right, which facts were also not disputed. Therefore, on facts, it was to be held that whole of share capital of subsidiary company was held by the holding company in the instant case. Beneficial ownership of holding company is to be taken note of and a proper interpretation was not given to the facts, as it would render the provisions of section 47(v) redundant.

Followed:CIT v. Papilion Investments (P.) Ltd. 2009-TIOL-491-HC-Mum-IT : 2012 TaxPub(DT) 3192 (Bom-HC).

REFERRED : CIT v. S. Teja Singh (1959) 35 ITR 408 (SC) : 1959 TaxPub(DT) 0112 (SC) and RST v. Director of Income-tax (International Taxation) (2012) 348 ITR 368 (AAR) : 2012 TaxPub(DT) 1909 (AAR).

FAVOUR : In assessee's favour.

A.Y. : 2007-08



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