Sale of assets to wholly owned subsidiary

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Dear Faisal,

I understand that you in tax profession and will be well aware of with the reasons of introducing the section 97 and 97A.

Let me refresh it please. As per my knowledge, it was introduced to facilitate the mergers and corporate restructurings. Previously, when any restucturing was done and assets were transferred from one company to its wholly owned subsidiary, gains (losses) were used to recognise on such sale of assets which resulted into tax incidences on those groups which already were in financial crises and planning for restructuring.

Let me come to the specific point provision and conditions mentioned in section 97 which goes on....

.....no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely-

(a)Both companies belong to a wholly-owned group of
1[resident] companies at the time of the disposal;

(b) the transferee must undertake to discharge any liability in
respect of the asset acquired;

(c) any liability in respect of the asset must not exceed the
transferor’s cost of the asset at the time of the disposal; and

(d) the transferee must not be exempt from tax for the tax year
in which the disposal takes place.

We understand that if the asset is transferred at fair value the condition (c) mentioned above is not fulfilled. If there is misunderstanding at our end please explain.

Other members are also requested to comment.


Regards,

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