Companies Act & Tax Planning

This query is : Resolved

CA Ysil Karunai (Querist)
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20 February 2011 Dear Experts,
Please consider the following situation:
ABC (p) Ltd having two Shareholders and who are also Directors. Abc (p) Ltd acquired the 100% shares in the XYZ Public limited company , and take over of the management & control and make it as a 100% subsidiary company on 9/9/1998.
0n 23/3/2011, ABC (p) Ltd willing to transfer all the investment i.e, 100% holding of shares in XYZ public limited company, to the two Directors(Shareholders). Further, ABC (p) Ltd, Proposing to sell a Land which is a only Asset of XYZ Public limited for a substantial consideration, since the Land was acquired long years back.
Query:
1. Whether, ABC (p) Ltd can transfer their shares in the name of two Directors(Shareholders), is it possible? If yes, Please brief according to companies Act? If No, Please explain, why it is?
2. If yes, What are the tax consequences in the hands of AbC (p) Ltd, two Directors, XYZ public limited company?
3. If yes, What are the steps for tax planning for transfer of Land by ABC (P ) Ltd?
4. Any other alternative suggestion you may give?

UMA SHANKER SHARDA

UMA SHANKER SHARDA (Expert)
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21 February 2011 Dear Karunai, reply to your quesries is as under:
1. Yes as a shareholder of xyz pl, ABC PL can sell the shares hold by it to its directors(shareholders). As per companies Act the existing shareholder i.e. ABC will sale the shares to directors and get the consideration. While transferring the shares sec.56(2)(VII) of IT Act where the shares can not be sold below book value.
2. If there is any capital gain, which will be LTCG and after taking benfit of indexation, the LTCG tax shall be paid @20% + EC & HEC in the hand of ABC.
3. As the land is in the name of XYZ, ABC can not sale the same. It will be sold by XYZ only and any capital gain arises, it will be taxed in the hand of XYZ.