TaxTMI 
TaxTMI 
2012 (3) TMI 264
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....% of the shares of the Indian company. According to the applicant, the six other companies holding shares are its nominees. The shares are held by them for complying with the requirements of the Companies Act with regard to the minimum number of members for a public limited company, fixed at seven by the Act. 3. The applicant submits that the shares in the Indian company are held by it as an investment and not as stock in trade. It has now received intimation from the Indian company that it is proposing a buy back of shares from the applicant. The buy back would result in transfer of shares of the Indian company from the applicant to the Indian company. The consideration for the proposed transfer is to be determined on the basis of pricing guidelines prescribed by the Reserve Bank of India as applicable for transfer of shares by a non-resident to a resident. Since the applicant wants to ascertain whether, based on the proposed transaction, the applicant would be liable to be taxed in India, it is approaching this Authority for a Ruling. 4. This Authority allowed the application for a Ruling under section 245R(2) of the Income-tax Act (hereinafter referred to as „the Act....
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....n is not taxable, going by Section 45 of the Act read with Section 47(iv) of the Act, the gain arising out of the proposed buyback was not taxable as capital gains. The decision to buyback was a business decision taken and was bona fide. It was proposed for rationalizing the share capital of the Indian company. 7. Representative for the Revenue argued that Section 46A was introduced specifically to deal with buyback of shares and the rate of tax has to be computed in terms of Section 48 of the Act. Section 47 had no relevance in the context. Existence of the share after the transfer, was a must for attracting section 47(iv) of the Act. In a buyback the shares get destroyed and hence section 47(iv) has no application. That deals with a transfer of a capital asset being a share. Hence, that provision is confined to assets and on a buyback, there remains no asset. 8. In reply, the applicant submits that it is enough if a share is a capital asset to attract section 45 and 47 of the Act. Section 47(iv) and (v) apply to two different situations. They are not specifically for shares. The two conditions are not cumulative. The purpose of the amendment to the Act has also to be kept i....
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....this question, it is necessary to bear in mind the provisions of section 153 which provide that no notice of any trust, express, implied or constructive, shall be entered in the register of members or debenture holders. A company, therefore, is bound to treat the person in whose name the shares are entered in its register of members as a member. If a company holds shares in the name of its nominee it is not entitled to any of the rights in respect of the shares such as right to dividend, to allotment of rights shares under section 81, to exercise voting rights in relation to the shares and other privileges which shareholders have. It does not, therefore, appear to be an implication of the provisions of section 49 that if a company holds shares in another company in the name of its nominee, the shares must be deemed to be held by the company and not by the nominee." The position therefore appears to be that even if it is taken that the other six members of the subsidiary are the nominees of the applicant, it cannot be postulated that the applicant is holding 100% of the shares in the subsidiary. 12. Accepting an argument that the holding of the shares by the nominees should be tr....
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....n law, a parent company cannot hold 100% in a subsidiary, it would only mean that the Parliament did not intend to confer the benefit of Section 47(iv) of the Act on such a parent company. In its wisdom, it thought that the benefit must be confined to cases where a parent company holds 100% shares in an Indian subsidiary, through its nominees. It is true that such an approach may confine the relief to a particular species of parent companies. But that would not enable us to hold that the provision is unworkable or would become unworkable. In the context and in such situations, nothing is to be supplied and nothing is to be taken away from the section. 16. The Companies Act and the Income-tax Act recognize holding of shares by a nominee. But that does not mean that the nominee holds the shares benami for the company. That would offend the Benami Transactions (Prohibition) Act, 1988. It would also offend the spirit of Section 49 of the Act, and even its manadate. There is no case that the nominee is a trustee. Even otherwise such a claim may fail in the teeth of Section 153 of the Companies Act. The result achieved by adding up the shares held by the parent company and its nominee....
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....that „where a plain literal interpretation of a statutory provision produces a manifestly unjust result which would never have been intended by the legislature, the court might modify the language used by the Legislative so as to achieve the intention of the Legislature and produce a „rational construction‟. The Ruling in Hoechist GmbH, In re [(2007) 289 ITR 312] is also relied on. When the same legislature has also introduced Section 46A of the Act to cover a particular situation brought about by the amendment to the Companies Act, how can the application of that provision said to lead to an unjust result? When an exception is provided by Section 77A of the Companies Act from the prohibition otherwise contained in Section 77 of that Act, the legislature hemmed in that exemption with an obligation to pay the tax on that transaction. Unless it is argued that impressing a tax itself is unjust, an argument that the taxing of the transaction would lead to an unjust result can only be rejected. 20. It was argued that Section 45 of the Act alone was the charging section and section 46A cannot be resorted to, to tax the capital gains arising out of such transaction. S....
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.... provided the means of determining the capital gains arising from such a transaction. Similarly, Circular No. 779 issued by the Board also does not help the applicant. Paragraph 28.3 only states: "28.3. The Act, therefore, has amended clause (22) of section 2 of the Income-tax Act by inserting a new clause to provide that dividend does not include any payment made by a company on purchase of its own shares in accordance with the provisions contained in section 77A of the Companies Act, 1956. It has also inserted a new section, namely, section 46A in the Income-tax Act, to provide that any consideration received by a share holder or a holder of other specified securities from any company on purchase of its own shares or other specified securities shall be, subject to provisions contained in section 48, deemed to be the capital gains." It says that the gain would be „deemed to be the capital gains‟. That is obviously, by virtue of Section 46 A of the Act. 22. Even if we accept the plea of the applicant to read „or‟ as „and‟ in Section 47(iv) of the Act, it is of no avail to the applicant in our view that Section 46A of the Act would be....