INCOME TAX ACT, 1961

Section 46A Section 47(iv) Section 45

Capital gains - Applicability of section 46A and section 47(iv) - Deemed capital gains on buy back of shares -

There was buy back of own shares by assessee-company, it was contended by assessee that transaction was not atracting section 46A as assessee had contended that in the present case, although it was pointed out by the assessee that the transaction was covered by section 47(iv) but as per the AO, the admitted facts are contradictory to the statement because it was undisputed that the parent company M/s. Acciona Energia International S.A, Spain holds only 99.99% of the shares of the subsidiary company and the remaining shares being 0.01% was held by another company M/s. Acciona Wind Energy Pvt. Ltd. He had noted this argument of the assessee also that for all practical purposes, the parent company were to be considered as holding the whole of the share capital of the subsidiary company. CIT(A) confirmed order of AO.Held: Section 47(iv) is not applicable in the present case for two reasons. First reason was that in the present case, the assessee was not holding whole of the shares of the subsidiary company by itself or along with its nominee or nominees as required by section 47(iv). Second reasoning given about non-applicability of section 47(iv) was that in section 46A, there is no requirement of transfer of any capital asset being shares. Only requirement is that a shareholder receives a consideration from a company for purchase of its own shares and in that situation, subject to section 48, the difference between the cost of acquisition and value of consideration received by the shareholder shall be deemed to be the capital gains arising to such shareholder in the year in which, the shares are purchased by the company. There was no mention of the term “Transfer” in section 46A. Section 47 (iv) is regarding non-applicability of section 45 to a transfer of a capital asset by a company to its subsidiary company if the parent company or its nominees hold the whole of the share capital of the subsidiary company. Section 45 and section 46A operate in different fields. Section 45 covers actual capital gain on transfer of a capital asset but section 46A is about Deemed Capital gains on buy back of shares. In view of the above discussion, in the facts of the present case, section 46A is applicable and therefore, there was no reason to interfere in the order of the CIT(A).

Distinguished:Cadell Wvg. Mill Co. (P.) Ltd., v. CIT (2001) 116 Taxmann 77 (Mum) : 2001 TaxPub(DT) 1093 (Mum-Trib) and CIT v. Papilion Investments (P.) Ltd. (2012) 206 Taxman 142 (Bom) : 2012 TaxPub(DT) 3192 (Bom-HC).

REFERRED : Goldman Sachs (India) Securities (P) Ltd. v. ITO (IT) (2016) 70 Taxmann.com 46 (Mum-Trib) : 2016 TaxPub(DT0 1276 (Mum-Trib).

FAVOUR : Against the assessee.

A.Y. : 2014-15

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