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

Transfer of Shares to Directors May Be Taxed as Dividend Under Companies Act; Explore Land Sale Tax Strategies A user inquired about the legal and tax implications under the Companies Act for ABC (p) Ltd transferring its 100% shareholding in XYZ Public Ltd to its two director-shareholders. Additionally, they sought advice on tax planning for selling a land asset owned by XYZ Public Ltd. The response highlighted that transferring shares to directors without adequate consideration might be deemed a dividend under income tax provisions, implying potential tax consequences for the parties involved. The discussion sought further advice on alternative strategies and tax planning for the land sale.