TMI Blog2023 (5) TMI 1036X X X X Extracts X X X X X X X X Extracts X X X X ..... wherever legislature wanted particular percentage of particular share capital qua voting right, etc same is provided in those sections, such as Section 47 (xiii) and (xiv) of the Act. Similarly section 2(22) and section 40 A of the Income tax Act provides for beneficial ownership of shares. Section 47 (iv) exempts transfer of capital assets from Holding company to subsidiary company only where share capital in its entirety is held by holding company. Plain meaning of the words of the section clearly suggest so. We find that the requirement of holding the whole of the share capital applies to both the types of share capital i.e. equity share capital and preference share capital. As apparent that entire issued and paid-up share capital of the subsidiary company should be held by holding company or its nominees for claiming exemption from capital gains under this clause. There are different shareholders of preference share capital other than the holding company and holding company only holds along with its nominees, 100 % equity shares of the transferee company. Therefore, according to us the conditions of section 47 (iv) of the act are not satisfied and if any capital gain or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai in which is as under:- On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in excluding the comparable M/s Axis Integrated Systems Limited without appreciating the fact that Business Support Services and Management Services are highly skill-based services and by no stretch of imagination BSS and MSS can be treated as low-end services. 06. At the time of hearing both the parties were heard and both the parties pointed out that this comparable was considered by the co-ordinate Bench in earlier years in ITA No.1547/Mum/2016 for A.Y. 2010-11, ITA No.2733/Mum/2017 for A.Y. 2011-12 and ITA No.5842/Mum/2017 for A.Y. 2012-13 vide order dated 28th September, 2018, wherein at paragraph no.163, the above comparable company was considered as under:- 163. With regard to Axis Integrated Systems Ltd, we notice that the said company is providing services in respect of regulatory and licensing requirements by liasioning with Government and regulatory authorities. On the other hand, the assessee is providing back office support services, which are mostly internal services. Accordingly, the learned CIT (A) has held that M/s Axis Integrated Systems Ltd is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the appellant and hence the sale of equity and preference shares was not covered by the exception under section 47(iv) of the Act. Your Appellant reserves the right to add, amend, alter or vary all or any of the above grounds of appeal as they or their representatives may think fit. 011. According to ground no.6, the assessee claims and submits that i. Assessee has incurred long term capital loss arising on sale of equity and preference shares of M/s. Reliance Exploration and Production DMCC (REP DMCC), to its subsidiary company M/s. Reliance Industrial Investments and Holdings Ltd ('RIIHL), Which was claimed as exempt u/s 47 (iv) of the Act. ii. It was erroneous understanding that the above said transactions is falling within the exception to definition of ' Transfer' u/s 47(iv) of the Income-tax Act, 1961 (the Act). iii. Assessee does not hold whole of the share capital of its subsidiary company. It only holds 100 % equity shares capital of that company but does not hold any preference share of that company. 012. The brief facts of the case shows that assessee transferred a capital asset as under :- i. Reliance Exploration and Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,15,382 11,073.21 31/3/2009 6,03,411 838,70,01,286 13,899.32 31/3/ 2009 52,816 73,41,06,372 13,899.32 31/3/2010 5,45,000 658,46,95,319 12,082.01 31/3/2011 3,62,000 439,65,58,448 12,145.19 25/9/2011 4,20,000 557,90,89,332 13,283.55 Total 24,82,316 3,120,79,66,139 vii. Thus, as on 31st March, 2012, assessee was holding a. 24,82,316 5% noncumulative compulsorily convertible preference shares at a total cost of ₹ 31,207,966,139/-, and b. 176,200 equity shares at total cost of ₹210,84,30,198/- viii. Reliance exploration and production DMCC purchased and cancelled 11,02,500 5% noncumulative compulsorily convertible preference shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the coordinate bench. As those grounds were not adjudicated, we are supposed to adjudicate the same. 016. Before us, the assessee has placed the annual accounts of Reliance Industrial Investment and Holding company as on 31 March 2013. It was shown that this company i. has 14,75,04,400 equity shares of ₹10 each fully paid up amounting to ₹14750 lacs held by Reliance Industries Ltd along with its six nominees. Each of the six nominees held 100 equity shares each and Reliance Industries Ltd held 14,75,03,800 equity share of the above company. Thus, Reliance Industry Ltd along with its six nominees was holding 14,75,04,400 equity shares of Reliance industrial investments and Holdings Ltd. Thus, Reliance Industries Ltd. held 100% equity of this company i.e. Reliance Industrial Investment and Holdings Ltd. ii. It has issued two different types of preference shares. iii. As on 31st of March 2012, it had issued 14,57,250 9% noncumulative optional convertible preference shares. These were held by following entities as under:- Preference Share Holding Pattern Of 9% Noncumulative Optionally Convertible Preference Shares serial nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.12 each fully paid up Total 149,06 149,11 017. Thus, it was submitted that 'whole of the share capital' which comprises of both the equity share capital and preferential capital of Reliance Industrial Investments Holdings Ltd was not held by the assessee company, Reliance Industries Ltd and therefore the benefit of provisions of section 47 (iv) of the act is not applicable to the above transaction. Therefore, profit or gain arising on the sale of above shares would be treated as per normal capital gain provisions. 018. The learned Departmental Representative submitted that no such claim was before the learned Assessing Officer or before the learned CIT (A) but Assessee raised it first time before the ITAT. The above claim should not be allowed. It was further stated that whole of the share capital shall only mean the equity share capital in the above company. The holding of preference share capital by other entities does not exclude the Reliance Investment and Holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1200 10% noncumulative optionally convertible preference shares of ₹ 10 each fully paid are held by Reliance Petro Investments Ltd. In addition, 1,49,020 10 % noncumulative optionally convertible preference shares of ₹ 10 each fully paid are held by Reliance Polyolefin's Ltd. 024. Undoubtedly, the shareholders holding preference share capital are the fellow subsidiary companies. 025. These fellow subsidiary companies are not the nominees of the assessee but are holding shares on their own account. 026. Section 47(iv) of the Act provides that, Provisions 45 of the Act does not apply to the transfer of capital asset by a company to its subsidiary company. This is subject to the condition that subsidiary company is an Indian company and the holding company along with its nominees, hold the whole of the share capital of the subsidiary company. 027. Assessee has sold equity shares and preference shares, which are the capital asset of the assessee company to its wholly owned subsidiary company namely Reliance Industrial Investment and Holdings Ltd. 028. Reliance Industrial Investment and Holdings Ltd is an Indian company as provided under Section 2(26) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising to the assessee on this transaction is not exempt loss. 031. Share capital includes 'equity and preference share capital' both. There is no reference of holding of only equity share capital in that section. Therefore, the capital loss arising to the assessee on sale of shares by assessee to its subsidiary company are eligible capital loss of the assessee. Wherever the statute wanted to include each clause of the capital or type of the capital, or any condition attached such shareholding it has provided accordingly. Provisions of Section 86 of the Companies Act 2013 provides that share capital of the company limited by shares shall be of two kinds only i.e. Equity share capital and preference share capital and the 'whole of the share capital' should include holding of equity share capital and preference share capital both. 032. Provisions of section 47 (iv) of the Act, exempts the capital gain on transfer of capital asset by holding company to its Indian subsidiary company only if the holding company along with its nominees holds the whole of the share capital of the subsidiary company. Income tax Act does not contain any definition of share capital. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding company. Plain meaning of the words of the section clearly suggest so. Therefore, we find that the requirement of holding the whole of the share capital applies to both the types of share capital i.e. equity share capital and preference share capital. Thus, it is apparent that entire issued and paid-up share capital of the subsidiary company should be held by holding company or its nominees for claiming exemption from capital gains under this clause. 035. In the present case before us, there are different shareholders of preference share capital other than the holding company and holding company only holds along with its nominees, 100 % equity shares of the transferee company. Therefore, according to us the conditions of section 47 (iv) of the act are not satisfied and if any capital gain or loss arising on transfer of a capital asset by the assessee company to its subsidiary company, is chargeable to tax under the provisions of section 45 of the act. 036. In nutshell, assessee is not eligible for exemption of section 47 (iv) of the act as we hold that transactions of the transfer of capital asset by the holding company to its subsidiary company is to be regarded as &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
