Companies Act & Tax Planning

[Ysil Karunai]

Dear Experts,
Please consider the following situation:
ABC (p) Ltd having two Shareholders and who are also Directors. Abc (p) Ltd acquired the 100% shares in the XYZ Public limited company , and take over of the management & control and make it as a 100% subsidiary company on 9/9/1998.
0n 23/3/2011, ABC (p) Ltd willing to transfer all the investment i.e, 100% holding of shares in XYZ public limited company, to the two Directors(Shareholders). Further, ABC (p) Ltd, Proposing to sell a Land which is a only Asset of XYZ Public limited for a substantial consideration, since the Land was acquired long years back.
Query:
1. Whether, ABC (p) Ltd can transfer their shares in the name of two Directors(Shareholders), is it possible? If yes, Please brief according to companies Act? If No, Please explain, why it is?
2. If yes, What are the tax consequences in the hands of AbC (p) Ltd, two Directors, XYZ public limited company?
3. If yes, What are the steps for tax planning for transfer of Land by ABC (P ) Ltd?
4. Any other alternative suggestion you may give?

[Rama Krishana]

I think under the provisions of Income Tax any transfer without consideration or inadequate consideration etc. to the directors would constitute deemed dividend.

AI Summary

Deemed dividend: transfer of parent's shares to director-shareholders without adequate consideration may be taxable as a dividend. The document asks whether a parent company can transfer its entire shareholding in a subsidiary to two director-shareholders and the tax consequences of such transfer and a subsequent land sale. The sole expert reply indicates that under Income Tax provisions any transfer to directors without adequate consideration or for no consideration would be treated as a deemed dividend, triggering tax consequences; no Companies Act procedural analysis or detailed tax-planning steps are provided.