Page 335 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes Interim to its 100 per cent subsidiary, M/s Ofisade Pvt. Ltd.: The transfer was affected

under the agreement referred to above. The preamble to the agreement recites the nature
of the businesses carried on by the assessee which cover four items, i.e., Swastik Oil Mills,
Operations Research Group, Sarabhai Technical Services and Sarabhai Research Centre.
The assessee is also in possession of several agreements relating to services, leases such as
the HRO Agreement, the PACKART Agreement, the STDS Agreement, etc., which give the
assessee substantial rights, etc. These are also detailed in the transfer agreement.
The vendor shall transfer and assign and the purchaser shall purchase and accept the
transfer and assignment of the industrial undertaking and business of Swastik Oil Mills
Division and the businesses and activities of Operations Research Group, Sarabhai
Technical Services Division and Sarabhai Research Centre of the Vendor as going concerns
on and with effect from the 1st day of March, 1977 and as incidental thereto, the Vendor
shall sell, transfer and assign to the Purchaser and the Purchaser shall purchase and accept
the transfer and assignment of goodwill of the aforesaid businesses provisions, to execute
this conveyance. The assessee, therefore, had to go through the device of getting this land
conveyed to an amalgamated company. The business undertaking consists of several assets
and liabilities. In a transfer of the undertaking, it is not always necessary that every item
of assets and liabilities should be transferred. Some of the items may be incapable of being
transferred; some on account of their onerous nature may not be acceptable to the purchaser.
In ordinary business transactions, it is not uncommon that one or other such items are not
transferred. For instance, in an extensive business carried on by a Hindu undivided family
or an individual, transferred to another, if a house belonging to the family or individual
to whom sentimental attachments are there, is not transferred, it cannot be said that the
business undertaking remains not transferred. On facts, the business is continued by the
subsidiary company on its own terms. The mere fact that land and buildings were not
transferred is irrelevant for deciding the issue of a slump sale of the entire undertaking. In
fact, where a purchaser has his own premises where he can more advantageously carry on
a newly purchased business.
Questions
1. Study and analyse the case.
2. Write down the case facts.

3. What do you infer from it?
Source: http://indiankanoon.org/docfragment/843113/?formInput=%22transfer%20of%20assets%20to%20subsidiary%20
company%22:

14.5 Summary

Many entrepreneurs start their businesses as a sole proprietorship due to the low compliance
requirements.
All the assets and liabilities of the sole proprietary concern relating to the business
immediately before the succession become the assets and liabilities of the company
The sole proprietorship is a completely separate legal form from a company and the law
does not provide any process for conversion from one form to the other.

Where a firm is converted into a company and as a result of such conversion, the fi rm
transfers any capital asset (whether tangible or intangible) to the company, such transfer
will not be charged to capital gains tax if the following conditions are complied with all the

assets and liabilities of the firm immediately before its succession should become the assets
and liabilities of the company.

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