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If foreign co merged without consideration, no caiptal gain on transfer of shares

In case of merger of two group foreign companies, the benefit of section 47(via) can't be available as the holding company can't be a shareholder of its own after merger so as to satisfy the conditions provided in section 2(1B) for amalgamation

(1) In above merger, no consideration would flow to the applicant in view of provisions of Article 8 of Swiss Merger Act.
(2) However, since by virtue of merger there would be an indirect transfer of shareholding of the applicant in CSS, India to CSA, Switzerland the applicant sought advance ruling on whether this transfer will be exempt from tax by virtue of section 47(via).
(3) The applicant argued that no transfer took place as a result of merger as no consideration accrued to the applicant. Alternatively, even if the transaction is assumed to be transfer, even then the capital gains are exempt under section 47(via), i.e., exemption in case of amalgamation of two foreign companies.
(4) The revenue contended that the Indian company continues to exist even after the so-called merger and there must be flow of undercover consideration between the foreign companies.

(1) To satisfy definition of amalgamation as given under section 2(1B) of the Act, following conditions have to be satisfied:
  i.  …
  ii. …
iii.  Shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation.
(2) In the present case, the condition No. (iii) can never be satisfied as CSA, Switzerland is the only shareholder of the applicant and it can't become the shareholder of its own;
(3) Further, the relaxation given in section 47(via) just reduced the conditions of 75% to 25%, but the condition itself is not dispensed with;
(4) Thus, the charging provisions of section 45 will be attracted in this case. However, for its applicability there must be some consideration;
(5) On merger the transferor company is effaced and hence, it couldn't be said that there will be flow of some future benefits from transferee to the transferor company;
(6) Therefore, as the gain is not determinable within the scope of sections 45 and 48 the transaction can't be charged to capital gains tax.

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