By Pradip Kapasi | Gautam Nayak | Bhadresh Doshi, Chartered Accountants
ISSUE FOR CONSIDERATION
Any transfer of a capital asset by a company to its subsidiary company, subject to compliance of the specified conditions, is not regarded as a “transfer” under section 47(iv) of the Income Tax Act ("ACT"). Likewise, a transfer of a capital asset by a subsidiary company to the holding company is not regarded as a transfer under section 47(v). A company is defined by section 2(17) and includes an Indian company and a company in which, the public are substantially interested is defined by section 2(18) of the Act and includes the subsidiary company of a company in specified cases. An Indian company is defined by section 2(26) of the Act. The terms or expressions ‘subsidiary company’ or ‘holding company’ are not defined under the Income Tax Act. These terms, however, are defined under sections 2(46) and 2(87) of the Companies Act, 2013. (Section 4 of the Companies Act, 1956). The definition of a subsidiary company under the Companies Act includes a step-down subsidiary or sub-subsidiary, ie. a subsidiary of a subsidiary company.
An issue has arisen under the income tax law as to whether a step-down subsidiary is a subsidiary for the purposes of sections 47(iv) and (v) of the Act, and therefore, whether the transfer to or from such a subsidiary is regarded as a case of ‘no transfer’ for the purposes of section 2(47) of
