Gift by company to subsidiary are dubious & not tax neutral – AAR

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AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI

Orient Green Power Pte. Ltd., In re

JUSTICE P.K. BALASUBRAMANYAN, CHAIRMAN

A.A.R. NO. 973 OF 2010

AUGUST 14, 2012

In the context of section 47(i) and (iii), this gift referred to therein, is a gift by an individual or a Joint Hindu Family or a Human Agency. Section 47(iii) speaks of ‘any transfer of a capital asset under a gift, or will or an irrecoverable trust’. Execution of a will involves a human agency. Cannot the expression gift take its colour from a will with which it is juxtaposed, especially in the background of clause (i) of section 47 and clause (ii) which earlier existed. A gift by a corporation to another corporation (though a subsidiary or an associate enterprise, which is always claimed to be independent for tax purposes) is a strange transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. This is all the more so since section 47(iv) and section 47(v) specifically provide for covering cases of transfer of capital assets by the parent company to the subsidiary and by the subsidiary to the holding company and the other sub-clauses deal with amalgamation, demerger and reorganization of business and so on. As I see it, it is possible to say that a gift of shares held in a company by one company to another company would not fall under section 47(iii) of the Act. Senior counsel sought to counter this approach by pointing out that clauses (iv) and (v) deal with transfers for consideration whereas clause (iii) deals with transfers without consideration and that there was no warrant for whittling down the sweep of clause (iii) of section 47.Since I am declining a ruling in this case, it is not necessary to pursue this aspect further.