The Authority for Advance Rulings (AAR) has held that no capital gains tax liability would arise under the Income Tax Act, 1961 (ITA), with respect to the transfer of shares and assets which form part of the terms of an amalgamation of offshore companies with an Indian company. In a case concerning Star Television Entertainment, the AAR refused to deny the benefit of capital gains tax exemption, which had been requested by the tax department authorities on the grounds that the amalgamation has no commercial or business purpose.
The tax department authorities raised doubts over the genuineness of the transaction, claiming that the companies were amalgamating only to enjoy the benefit of exemption under section 47 of the ITA.
The department also objected to the AAR hearing the application, on the ground that section 245 R(2) of the ITA states that the AAR should not approve applications relating to transactions designed purely for tax avoidance.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
