Facts of the Case

On 13.09.2005, M/s. Anandeya was incorporated as a Private Limited Company succeeding erstwhile firm M/s. Anandeya Zinc Oxides whose conversion into a Private Limited Company was effected under part IX of the Indian Companies Act, 1956. It is further their case that on the date of the conversion, the partners of the erstwhile firm continued as shareholders having shareholding identical with profit sharing ratio of the partners. Respondent is a non-resident Company incorporated under the laws of Luxembourg and purchased 100% of the shares of Anandeya through share purchase agreement dated 01.07.2008 which was completed 12.08.2008.

The respondent filed an application before the AAR seeking a ruling on question as to whether notwithstanding the non-compliance with clause (d) of proviso to section 47(xiii), WHETHER it was liable to pay capital gain tax?

The AAR noted that section 47(xiii) specifically excludes different categories of transfers from the purview of capital gains taxation but it is subject to fulfilling the conditions laid down clauses (a) to (d). The fact that conditions (a) to (c) are satisfied, is not in dispute but, however, the question is whether clause (d) requires to be satisfied.

The AAR has rightly pointed out that the first part of clause (d) has been satisfied but, however, it is noted by the AAR the requirements of second part of clause (d) i.e. the shareholding of 50 per cent or more should continue to be as such for the period of five years from the date of succession, has not been fulfilled in the instant case by reason of the transfer of shares by the Indian Company to the respondent before the expiry of five years.

Being aggrieved by the said assessment, the Petitioners have filed the above Petition.

Question of law

  1. Whether Capital Gain tax is applicable for above mentioned Transfer of Assets? If yes whether it can be paid by respondent Company i.e transferee Company?
  2. Whether application under section 245N of the assesse was maintainable?

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