2012 (8) TMI 623 - AAR - Income Tax

Merger with the parent company - Article 8 of the Swiss Merger Act - the applicant had set up a wholly owned subsidiary in India of Switzerland company - Held that - As the merger and consequent transfer of all assets and liabilities did not generate any gain & on a merger, the transferor is effaced. The transaction undertaken is apparently one sanctioned by Swiss law. The gain if any in this case is not determinable within the scope of section 45 and section 48 of the Act as postulated in the Ruling in Dana Corporation (2009 (11) TMI 32 - AUTHORITY FOR ADVANCE RULINGS ) - no capital gain chargeable to tax under the Act in terms of section 45 read with section 48 can be said to arise. As condition no. (iii), to satisfy that definition what has taken place is amalgamation as defined in section 2(1B), is not satisfied as the shareholders of the applicant merging with company C do not or cannot become shareholders of company C as company C is the only shareholder of the applicant,relaxation of section 47 (via) will be granted but that may be in respect of the shareholders proportion, reduced from 75% to 25%, but the condition itself is not dispensed with. Therefore, in this case, it cannot be postulated that section 47(via) takes the transaction out of the clutches of section 45 - The merger involved in this case, is not exempt from capital gains tax under section 47(via). No obligation on Company C , parent company to withhold taxes under section 195.

Summary

Issues Involved:
1. Capital gains arising from the merger of two companies under the Income-tax Act.
2. Exemption from capital gains tax under section 47(via) of the Act.
3. Applicability of tax rate and withholding tax obligations.
4. Requirement to file a return of income.
5. Application of sections 92 to 92F of the Act in case of merger.

Analysis:

Issue 1: Capital Gains from Merger
The applicant sought advance rulings on whether capital gains arise from the merger. The applicant argued that the merger did not constitute a transfer under the law and no consideration accrued to them. On the other hand, the Revenue contended that the transaction constituted a transfer under section 2(47) of the Act and was taxable in India. The Authority considered the definitions of "merger" and "amalgamation" under the Income-tax Act and previous rulings. Ultimately, the Authority ruled that no capital gain arose to the applicant as a result of the merger.

Issue 2: Exemption from Capital Gains Tax
The Authority also examined whether the merger was exempt from capital gains tax under section 47(via) of the Act. The applicant argued that the merger met the conditions of the Swiss Merger Act and involved effacement of the merged company. However, the Authority ruled that the merger in this case was not exempt from capital gains tax under section 47(via) of the Act.

Issue 3: Tax Rate and Withholding Obligations
Regarding the applicable tax rate and withholding tax obligations, the Authority ruled that there was no obligation on 'Company C' to withhold taxes under section 195 of the Act.

Issue 4: Requirement to File a Return
The applicant did not press for rulings on whether they were required to file a return of income under section 139 of the Act. Consequently, the Authority did not rule on this issue.

Issue 5: Application of Sections 92 to 92F
The Authority did not rule on whether sections 92 to 92F of the Act were attracted in the case of the applicant as a result of the merger, as the applicant did not press for a ruling on this issue.

In conclusion, the Authority delivered rulings on the issues related to capital gains, exemption from tax, tax rate, and withholding obligations based on the arguments presented by the applicant and the Revenue. The rulings provided clarity on the tax implications of the merger under the Income-tax Act.