Page 333 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes A company is a subsidiary of another company that is the holding company if the holding company
holds more than half the shares or controls the subsidiary company. A holding company and all
its subsidiaries and the subsidiaries of its subsidiaries constitute a group. Each company in a
group is a separate entity for tax purposes. However, Tax Law gives special treatment to groups
of companies. Two companies are associated if the companies are under the control of another
or both are under the control of the same person or persons. Where companies are associated/
in a group the upper and the lower limits determining the tax rates are divided between the
associated companies.

Example: Where companies are in a 75% group that is where on company is a 75%
subsidiary of another or both companies are 75% subsidiaries of a third company, special relief
are available to them.
Where companies form a group, losses may be surrendered to other companies in the group

which can relieve then against their own profits which are subject to the tax. The loss may be
surrendered by any member company to another member of the same group. The loss must be

specifically surrendered from one company to another. Therefore, the companies must have the
corresponding accounting periods. Certain reliefs from capital gains tax also apply to the group.
A 75% capital gains group applies where there is a parent company and a 75% subsidiary. Assets
can be transferred between companies in the group at a nil gain nil loss. Assets can be transferred
to take the advantage of capital losses and lower tax rates. Where assets are transferred within
a group they are deemed to be at a price which does not give rise to a gain or loss. Effectively
the transferee company inherits the capital gains tax basis of the original company. No claim is
necessary. Where the acquiring company sells the asset outside the group capital gain or loss
arises in the usual way. Nothing contained in section 45 shall apply to the following transfers:
(a) Any transfer of a capital asset by a company to its subsidiary company, if –

(i) The parent company or its nominees hold the whole of the share capital of the
subsidiary company; and
(ii) The subsidiary company is an Indian company;
(b) Any transfer of a capital asset by a subsidiary company to the holding company, if –

(i) The whole of the share capital of the subsidiary company is held by the holding
company, and
(ii) The holding company is an Indian company.

Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a
capital asset made after the 29th day of February, 1988, as stock-in-trade;
(c) Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company
to the amalgamated company if the amalgamated company is an Indian company;
(d) Any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held
in an Indian company, by the amalgamating foreign company to the amalgamated foreign
company, if –
(i) At least twenty-five per cent of the shareholders of the amalgamating foreign

company continue to remain shareholders of the amalgamated foreign company,
and
(ii) Such transfer does not attract tax on capital gains in the country, in which the
amalgamating company is incorporated;
(e) Any transfer, in a demerger, of a capital asset by the demerged company to the resulting
company, if the resulting company is an Indian company;

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