Any transfer of capital assets by a company to its 100% Indian subsidiary company or by a 100% subsidiary company to its 100% Indian holding company shall not be treated as capital gain under section 47(iv) / (v).
But under theses circumstances following exemption shall be withdrawn:
Where before expiry of 8 years from date of transfer of capital assets:
(a) Such capital asset is converted by transferee company into stock-in-trade.
(b) 100% relationship between holding and subsidiary company comes to end.
Result: Amount of profits and gains arising from transfer of capital assets shall deemed to be income chargeable under the head capital gains of previous year in which such transfer took place in hands of transferor company. For taxation please check image below:
NOTES:
(a) Where income of the assessee has already been completed, assessing officer has power to rectify income of the assessee before end of 4 years from end of previous year in which condition is violated [Section 155(7B)].
(b) Where exemption under section 47(iv)/(v) has not been withdrawn, cost of acquisition for transferee company shall be cost of acquisition of transferor company. If exemption under section 47(iv)/(v) has been withdrawn, cost of acquisition of transferee company, shall be actual cost for which transferee company acquired such assets.
Example :
A ltd. Acquired 100% holding interest of 40,000 shares in B ltd. For Rs. 12,00,000 on 11-11-2003. On 22-02-2014, A ltd. Transferred its land (cost of acquisition is Rs. 1,50,000 acquired on 02-04-2003) to B ltd. For Rs. 10,00,000. On 31-03-2021, A ltd. transferred 2,000 shares for Rs. 1,50,000. Show tax treatment.
Sol. As per section 47(iv)/(v) transfer of capital assets by a company to its 100% Indian company and vice versa is not liable to capital gain. But as per section 47A(1), where before 8 years from date of transfer 100% relationship comes to end, amount earlier exempted shall taxable in the hands of transferor company in the year in which such transfer took place.
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