sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« News Headlines »
 New tax rules which will help you save tax in FY2018-19
 5 things you should not forget while filing income tax return
 10 Easy Steps to File ITR 1 Online
 How to e-verify income tax return?
 What to do when you receive a notice from the tax department
 How to use your Form 16
 Which ITR form applies to you for financial year 2017-18?
 Income tax returns filing form-2 released; should you use it? Find out
  Are you planning to file ITR 1 form? here's how to do it Income Tax Return (ITR) filing
 30 LPA-Opening Financial Controller
 ITR form 2 in java release by CBDT for return filing by individuals

Amalgamation abroad has no adverse tax implication
June, 04th 2007
In todays competitive economy, capital restructuring by the way of demergers and amalgamations has become a common phenomenon. In many cases, the foreign companies, which hold shares in Indian companies (whether as holding companies or otherwise), transfer the shares of the Indian companies to their other group companies in order to reorganise their shareholding pattern.
In a case before the Authority of Advance Rulings (289 ITR 464), a Dutch company which owned 100 per cent share capital in its Indian subsidiary reorganised its holding pattern. The company transferred the Indian shareholding to another Dutch company. The question that arose was whether capital gains arising on transfer of shares would be liable to tax in India or not?
A bare reading of Section 9(1)(i) would reveal that such capital gains will be deemed to accrue or arise in India. But such a transaction is also affected by the Tax Treaty between India and the Netherlands. Article 13(5) of the Treaty provides that if capital gains are realised in the course of a reorganisation or amalgamation etc, such gains shall be taxable in the state in which alienator is resident. Therefore, capital gains arising on transfer of shares of the Indian company would not be liable to tax in India. In another recent case reported in 289-ITR-312, APH, a German company, held shares of an Indian company. The said company is a 100 per cent subsidiary of another German company called Hoechst. Both the German companies decided to amalgamate.
As a result of the amalgamation, the shares of the Indian company held by APH got vested in the other amalgamating company. Since Hoechst holds the 100 per cent capital of APH, no share was issued to any third party consequent to the amalgamation.
In the above background, an Advance Ruling was sought on the question as to whether the vesting of shares of Indian company in the amalgamated company pursuant to the scheme of amalgamation is exempt from capital gains tax under Section 47 of Income Tax Act?
It was argued before the Authority of Advance Ruling that Hoechst held 100 per cent shares of APH and on amalgamation of APH with Hoechst, all assets and liabilities of APH got vested in Hoechst and shares held by Hoechst in APH stood extinguished. Therefore, the requirement of Section 47 could not be fulfilled. Condition (a) u/s 47 (via) contemplates that at least 25 per cent of the shareholders of the amalgamating company should continue as shareholders of the amalgamated company, which can be fulfilled only in a case where the shareholders are other than the amalgamated company itself.
It was contended by the department that if the condition of Section 47 cannot be fulfilled for any reason whatsoever, then the tax exemption from capital gains will not be available. On the other hand, assessee argued that it is a well-settled legal principle that a person cannot be expected to fulfil a condition, which is impossible of performance. Therefore, since APH, the amalgamated company, itself held 100 per cent of the shares in Indian company, it will not be required to fulfil condition (a) because the said condition (a) is impossible of being fulfilled.
It was finally held by the Authority that amalgamation of the wholly owned subsidiary foreign company with its parent company does not result in a transfer for consideration and therefore, does not give rise to any capital gains.
It is clear from the aforesaid cases that amalgamation of foreign holding companies with their subsidiaries can be brought about without any adverse tax implication in India.

H P Aggarwal

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Reengineering Software Re-engineering Software Reverse Engineering Software Reverse Development Software Change Modulation Software Conversion Software Re-creation Software Re-development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions