Section 47(iv) protects genuine share transfers to a wholly owned subsidiary where no sham or valuation defect is shown.

A transfer of shares by a holding company to its wholly owned Indian subsidiary was treated as a bona fide transaction, not a colourable device or non-genuine arrangement. The mere presence of a tax advantage did not justify disregarding the transfer absent material showing sham, lack of commercial substance, or abuse of the statutory framework. The prior long-term investment character of the holding was accepted, and the later acquisition of the remaining shares did not convert it into stock-in-trade. The transfer before merger was viewed as commercial expediency, and the valuation objection failed because no specific defect in the methodology was shown. Section 47(iv) was held to apply, and the addition was deleted.

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Issues: Whether the transfer of shares by the assessee to its wholly owned subsidiary was a colourable device or non-genuine arrangement liable to be assessed as income from other sources, and whether the transfer was protected by section 47(iv) of the Income-tax Act, 1961.

Analysis: The assessee had held the controlling stake in the subsidiary as an investment over a substantial period, and the subsequent acquisition of the remaining shares did not by itself convert the holding into stock-in-trade. The mere fact that the transaction yielded a tax benefit did not justify disregarding it in the absence of material showing sham, lack of commercial substance, or abuse of the statutory framework. The choice to effect a share transfer before the merger was treated as a matter of commercial expediency, and the Revenue could not substitute its view for the assessee's business decision. The valuation objection was also not sustained because no specific defect in the valuation methodology was demonstrated. The statutory conditions for section 47(iv) were found to be satisfied since the transfer was by a holding company to its wholly owned Indian subsidiary.

Conclusion: The transfer was held to be a bona fide transaction covered by section 47(iv), and the addition made by the Assessing Officer was directed to be deleted.

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