AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (5) TMI 561
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....seeking to expand the role of its Singapore based GOCPL for the benefit of its other group entities within Asia-Pacific Region by making it a financially strong and important entity of the group. GOCPL is an operating company and manages the natural rubber purchasing, delivery, financing, treasury and quality of the worldwide operations of GTRC and as such there is commonality of business interests of the group with GIL. With this end in view, the applicant proposes to enter into a Share Contribution Deed (SCD) to contribute voluntarily the entire 74% shares it holds in GIL to GOCPL, without any consideration. Based on the above facts, as the transfer of shares would be voluntarily and without any consideration, the applicants, GTRC and GOCPL desire to know their tax liabilities under the Income Tax Act, 1961 (Act). 3. The applicant, GTRC, has sought a ruling on the following questions: 1. Whether the Applicant is liable to tax in India under the provisions of section 45 read with section 48 or under any other provisions of the Income-tax Act, 1961 ("Act") in relation to the proposed contribution of its shares in Goodyear India Limited ("GIL") to Goodyear Orient Com....
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.... of GIL are capital assets and any profits or gains arising from its transfer are chargeable to income tax under the head 'Capital gains'. Section 48 of the Act deals with the mechanism for computing income chargeable under the head 'capital gains'. However, as the full value of consideration received or accruing as a result of the transfer of shares of GIL is nil, the mechanism to charge the capital gains to tax fails. The applicant further submits that as the contribution of shares is by way of 'gift', it would not amount to 'transfer' under section 45 read with section 47(iii) of the Act. 6. The learned Additional DIT (Intl. Tax), appearing on behalf of the Revenue stated that by holding 74% shares in GIL, and GOCPL being its subsidiary, the effective control of both these entities is with GTRC. The proposed transaction virtually tantamount to transferring shares from one pocket to another. As the consideration for transferring the shares is for creation of a better business environment, that itself is a 'consideration" and the transaction would not be termed as "gift" in view of the meaning assigned to it in Webster's dictionary. It is further argued that it is a case o....
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....ear in which the transfer took place. [(1A) Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of - (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature ; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion ; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Explanation: For the purposes of this sub-section, the expression "i....
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.... the price bargained for by the parties to the same". On a similar issue in the case of Amiantit International Holding Ltd cited supra,this authority was of the view that: " Viewed from any angle, we are unable to perceive as to how any profit or gain has accrued or arisen to the applicant by virtue of the transfer of shares to its subsidiary company. It is not possible to identify or pinpoint anything which has the characteristic of profit or gain or any consideration which is capable of being valued in praesenti. As pointed out earlier, the income in the sense of profit and gain should be real but not hypothetical income. We may take it that the income may be in cash or in kind and need not necessarily be pecuniary in nature. As stated in the Law and Practice of Income-tax (by Kanga, Palkhivala and Vyas) income, profits and gains may be realized in the form of money's worth as well as money, in kind as well as in cash. Even then, the alleged consideration for which the shares are to be transferred should be capable of being evaluated on commercial and accounting principles..." The objection of the revenue in Amiantit International Holding Ltd was that the purported tran....
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....lly interested and its shares are listed on BSE, any income arising from the transfer of the shares (long-term capital asset) are otherwise exempt under section 10(38) of the Act. This is an answer to the Revenue's argument that the transaction is designed for avoidance of tax and/or that the applicant has resorted to Treaty- shopping. We need to mention that as we have found the answer to the questions raised within the realm of sections 45 and 48 of the Act, there is no necessity to discuss whether section 47(iii) of the Act is also attracted. 10. As no consideration will pass on transfer of shares of GIL by GTRC, no income will arise. The provision of section 92 to 92F of the Act will not be applicable in the absence of liability to pay tax. We are of the view that the transfer pricing provision in Chapter X is not attracted. In view of our answer to question No.1 & 2, as the income is not chargeable to tax as per the finding recorded above, the question of withholding of tax under section 195 of the Act by GTRC does not arise. That will also be true in the case of GOCPL, as evident from the discussion that follows. 11. All questions are answered in the affirmati....