The Delhi High Court held that “partial consideration” for a business transfer, received directly by the transferor company's shareholders pursuant to an arrangement, would form part of the total consideration accruing to the transferor company for the purposes of computing capital gain tax.
The High Court found that the transferred undertaking was owned by the transferor company, and not by its shareholders, and that despite the fact that part of the consideration was diverted to the shareholders did not absolve the transferor company from recognising the entire consideration as gain.
Moreover, a court order approving the arrangement (pursuant to provisions of the Companies Act, 1956) did not alter the nature of the transaction or the incidence of taxation with respect to the transaction.
The case is: Salora International Ltd.
Read a May 2016 report [PDF 318 KB] prepared by the KPMG member firm in India: Transferor company held taxable even in respect of part sale consideration directly received by its shareholders under a scheme of arrangement for transfer of business
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