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Tax Issues Concerning Contribution Of Shares Of An Indian Company


The Authority for Advance Rulings ("AAR"), has in its latest ruling, held that the contribution of shares of an Indian listed company was not chargeable to tax in the hands of the transferor as capital gains or in the hands of the transferee as income from other sources. Taxand India looks at the case of Goodyear Tire & Rubber Company ("GTRC") which holds 74% of equity shares of Goodyear India Limited ("GIL"), an Indian listed company.

This is the first ruling on tax implications arising from transfer of shares without consideration in the hands of the transferee under the newly introduced clause of sub-section (2) of section 56 of the Income-tax Act, 1961 ("the Act").

Taxand's Take

The AAR has reaffirmed its position of non-taxability of contribution of shares due to the failure of the computation mechanism. This ruling will instill greater confidence in companies that may be in the midst of a larger group re-organisation involving the contribution of shares of Indian companies. An important aspect to be considered in any contribution without consideration, would be the tax implications of the recipient of shares after introduction of section 56(2)(viia) of the Act. Since the shares were listed on the stock exchange, there was no tax incidence in the hands of the transferee.

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Mukesh Butani
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Taxand's Take Author