Shares of Foreign Company Transferred in Scheme of Demerger

Certain Transactions not regarded as transfer

Section 47(vicc)

Any transfer in case of a demerger of a capital asset,

being a share of a foreign company, referred to in Explanation 5 to section 9(1)(i),

which derives, directly or indirectly, its value substantially from the share or shares of an Indian company,

held by the demerged foreign company to the resulting foreign company

shall be exempt,

if the following conditions are satisfied:

(a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and

 (b) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated:

When this Resulting company later sells these assets,

• ‘Cost of Acquisition of Resulting company =Cost of Acquisition of Demerged Company
• Cost of Improvement of both Demerged company and Resulting Company will be taken
• Period of holding of both Demerged and Resulting Company shall be taken into account.

Section 49(1)(iii)(e)

Example 1

AB Ltd USA purchased shares of Rs 100 crores of Indian Company  A ltd India on 10 April 2013

AB was demerged into 2 companies A Ltd,USA and B Ltd USA on  15 May 2015

Hence shares held by AB Ltd were taken over by A ltd

Whether these transfer of shares by AB to B is covered in capital gain?

Example 2

Continuing previous question, if B Ltd later sold the assets for Rs 125 crores on 18  Dec 2015

Compute Income from Capital Gain?