Applicability of proviso to section 47(iv) of IT Act in case of transfer of capital asset by a company to its wholly owned subsidiary

RELEVANT EXTRACTS:

Therefore, there cannot be a formula which had no connection with the value of the individual assets and the liabilities. The price was determined that of the business and therefore, there is no question of picking up any portion of such price and charging its capital gains. It appears to us that before transfer of the company, the said company had issued subscribed share capital and the original share certificates were produced before the CIT (Appeals). The company had transferred a business undertaking as a whole which was a capital asset in itself, that is the contention of Mr. Bhowmick before us. We have also considered the aspect which has been decided by the Learned Tribunal land the CIT (Appeals). The CIT has held that the price was approved by the High court and did not have any relation with the value of the assets of the undertaking. It further appears that in respect of the grievance of the Assessing Officer that transfer of the undertaking including transfer of stock-in-trade also, the CIT (Appeals) has observed that no portion of the price could be attributed to stock-in-trade. The Assessing Officer had brought to capital gains tax the transfer of good will treating the good-will as a capital asset rat her than stock-in-trade. The CIT (Appeals), therefore, observed that the proviso to section 47(iv) has no application to the present case. The CIT (Appeals) granted relief to the assessee by holding as under:-

i. It was the entire packaging coating undertaking which was transferred in consideration of a slump price of Rs. 29,89,87,000/ – and no price was fixed item-by-item in respect of the different assets belonging to the undertaking.

ii. In view of the decision of the Supreme Court in CIT – versus – B. C. Srinivasa Setty (supra) as no cost of
acquisition can be conceived for the undertaking, the consideration received on transfer of the packaging coatings business by the assessee cannot be subjected to capital gains tax. Therefore, the AO was wrong in assuming that the amount of Rs. 19,14,55, 804/- credited in capital reserve was received on account of goodwill.

Please become a Premium member. If you are already a Premium member, login here to access the full content.