Greetings,

In lieu of the multiple requests for a format of the written submission for the
2nd National Corporate Restructuring Competition, the centre would direct your attention to the
contents in this document.

Attached below is the case vehicle for the first edition of the competition conducted in 2019,
and the winning submissions.

Please note: We do not have a strict format for the written submission, and we encourage the
participants to think outside the box with respect to the solution. Please consider the
recommended Acts in the case vehicle and the examples below simply as a guide for your better
understanding

Regards.
Team C.C.C.L.
 CASE VEHICLE | EL BOMBÓN S.A.
CORPORATE RESTRUCTURING COMPETITION 2019
SYMBIOSIS LAW SCHOOL, HYDERABAD

FACTS

El Bombón S.A. (“EBSA”) is a company incorporated in Brazil. 60% of the shares of EBSA are held by an
investment company in the United Kingdom (“UK”), being Le Chocolat des Leofric Limited (“Leofric”).
This is a part of the investment strategy of Bhojanam Private Limited (“BPL”) which is a listed company
registered in India. BPL is the lead chocolate producer in India and holds 70% of Leofric.

The rest 30% is owned by Bonum Cibum GmbH (“BCG”), a German Company. BCG is the largest service
providers in cacao and chocolate related business in Brazil and have strong connections with the
Government of Brazil.

As a part of their investment strategy to secure the best cacao for their chocolate production, BPL has
acquired another plantation through another subsidiary of Leofric located at Brazil named Del Bombon
SA (“DBSA”) in which Leofric is holding 90% of the company and 10% is held by the Government of
Brazil.

Both the said plantations have done extremely well and because of the said success, BPL has now
entered into a greenfield project with the Government of Brazil in Brazil to develop 13 plantations. BPL
has acquired the plantations through a wholly owned subsidiary called Marrom-Escuro Ltda (“MEL”)
incorporated in Brazil with a capital of 100 million dollars. For further development of the project BPL
would need the expertise of BCG for the Brazil region. For this, subsequent to several rounds of
negotiations, BCG has stated that they would provide their expertise in consideration of 30% equity in
MEL.

BCG has said that due to their internal investment structure they can invest in Brazil only through
Leofric. However, Leofric has no capital to make the acquisition and has already leveraged its
shareholding in EBSA and DBSA to raise capital for investments made in EBSA and DBSA. The Nulla
Bonna Bank (“Bank”) giving the loan to Leforic has laid down some restrictive covenants as under:

1. The shareholding in EBSA and DBSA cannot be transferred without the prior approval of the
Bank
2. Leforic will have to take prior permission of the Bank before any other loan is taken

TASK

You are a member of the corporate restructuring team of Compos Mentis LLP, an Indian law firm. You
have been approached by BPL to act as transaction counsel for this matter, and to draw up a legally
viable structure for transfer of 30% of the shares in MEL to Leofric in the most tax effective way.

ASSUMPTIONS/QUALIFICATIONS

1. All parties are compliant with laws in their home jurisdiction. You are required to examine the
matter from an Indian law perspective only. However, please do note that any obligations that
flow to foreign subsidiaries of Indian entities or relate to overseas businesses of Indian entities
must also be considered.

1|2
 CASE VEHICLE | EL BOMBÓN S.A.
CORPORATE RESTRUCTURING COMPETITION 2019
SYMBIOSIS LAW SCHOOL, HYDERABAD

2. You are required to structure the transaction from a lawyer’s point of view only. You are not
required to conduct liquidity analysis, assess techno-economic viability and similar tasks. Your
goal is to provide the most efficient and least expensive legally viableand tax efficient structure
for the transaction.

INDICATIVE LAWS TO BE REVIEWED

1. Foreign Exchange Management Act, 1999 and any other Master Directions dealing with foreign
investment
2. Income Tax Act, 1961
3. Companies Act, 2013

2|2
 TEAM CODE- 108

ON BEHALF OF COMPOS MENTIS LIMITED LIABILITY PARTNERSHIP

MEMORANDUM OF OPINION

FOR STRUCTURING A TRANSACTION OF THE FOLLOWING NATURE:

TRANSFER OF SHARES OF A FOREIGN WHOLLY OWNED SUBSIDIARY TO A

FOREIGN JOINT VENTURE OF THE PARENT COMPANY

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.)

CASE VEHICLE: EL BOMBON S.A.

1st NATIONAL CORPORATE RESTRUCTURING COMPETITION 2019

SYMBIOSIS LAW SCHOOL, HYDERABAD

1
 TABLE OF CONTENTS

LIST OF ABBREVIATIONS ................................................................................................. 4

INDEX OF AUTHORITIES ................................................................................................... 6

SCOPE OF WORK.................................................................................................................. 8

GRAPHICAL REPRESENTATION OF THE TRANSACTION ...................................... 9

INTRODUCTION.................................................................................................................. 10

PART I – ANALYSIS OF DOMESTIC LAWS .................................................................. 11

A. Foreign Exchange Management Act, 1999 & the Rules and Regulations prescribed
thereunder ........................................................................................................................ 11

1. Foreign Exchange Management (Transfer or Issue of any foreign security)

Regulations, 2004 ............................................................................................................ 12

2. Foreign Exchange Management (Cross Border Merger) Regulations, 2004 ........... 13

3. Master Direction on Direct Investment by Resident in Joint Venture (JV)/ Wholly

Owned Subsidiary (WOS) Abroad .................................................................................. 13

B. Income Tax Act, 1961 (“ITA”) ................................................................................ 15

1. Capital Gains Tax under the ITA ............................................................................. 15

2. General Anti-Avoidance Rulings (“GAAR”) .......................................................... 16

3. Finance Act, 2019 .................................................................................................... 16

4. Transfer Pricing ....................................................................................................... 17

5. DTAA ...................................................................................................................... 17

6. Impact on deductibility of expenditures pursuant to a scheme of amalgamation .... 18

C. Companies Act, 2013 ............................................................................................... 19

D. Indian Stamp Act, 1989 ........................................................................................... 21

PART 2: ANALYSIS OF UK AND BRAZIL LAWS ......................................................... 22

E. United Kingdom Laws: ............................................................................................ 22

F. Brazil Laws .............................................................................................................. 24

PART 3: PROPOSED TRANSACTION STRUCTURE ................................................... 25

2
CONCLUDING REMARKS ................................................................................................ 29

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 3

 LIST OF ABBREVIATIONS

& And
AAR Authority For Advance Rulings
ACIT Assistant Commissioner of Income Tax
AIR All India Reporter
AO Assessing Officer
BCG Bonum Cibum GmbH
BIS Bank of International Settlements
BL Bhijanam Limited
Bom. Bombay
Cal. Calcutta
CIT Commissioner of Income Tax
DBSA Del Bombon S.A.
DTAA Double Taxation Avoidance Agreement
EBSA El Bombon S.A.
EEA European Economic Area
FAQ Frequently Asked Questions
FEMA The Foreign Exchange Management Act, 1961
GAAR General Anti Avoidance Ruling
Guj. Gujarat
ITA Income Tax Act, 1961
ITAT Income Tax Appellate Tribunal
JV Joint Venture
Leofric Le Chocolat des Leofric Limited
LLP Limtited Liability Partnership
Ltd. Limited
M&A Mergers and Acquisitions
Mad. Madras
MEL Marrom-Escuro Limited
NBB Nulla Bonna Bank
NCLT National Company Law Tribunal
Pvt. Private

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 4

RBI Reserve Bank of India
§. Section
S.A. Societe Anonyme
SC Supreme Court
SCC Supreme Court Cases
SCL Sebi and Corporate Laws
SPV Special Purpose Vehicle
UK United Kingdom
v. Versus
WOS Wholly Owned Subsidiary

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 5

 INDEX OF AUTHORITIES

CASES
CIT v. Leena Sarabhai (1996) 221 ITR 520 (Guj.).................................................................. 15
CIT v. M. Ct. M. Corporation Pvt. Ltd. (1996) 221 ITR 524 (Mad.). ..................................... 15
PNB Finance v. CIT (2001) 252 ITR 491 (Del.) ..................................................................... 14
Praxair Pacific Ltd. (2010) 326 ITR 276 (AAR) ..................................................................... 14
Star Television Entertainment Ltd. (2010) 321 ITR 1 (AAR). ................................................ 15
Tata Tea Ltd (2008) SCL 170 (Cal.). ....................................................................................... 15
Union of India v. Kullu Valley Transport Ltd. (1958) 28 Comp. Case 29 .............................. 21

STATUTORY PROVISIONS
§. 111A, Income Tax Act, 1961 ............................................................................................... 15
§. 112, Income Tax Act, 1961.................................................................................................. 15
§. 115BBE, Income Tax Act, 1961 .......................................................................................... 16
§. 2(47), Income Tax Act, 1961 ............................................................................................... 14
§. 2(a)(iii), Finance Act, 2019 .................................................................................................. 16
§. 3(d), Foreign Exchange Management Act, 1999. ................................................................ 10
§. 35D, Income Tax Act, 1961 ................................................................................................. 17
§. 35DD, Income Tax Act, 1961 .............................................................................................. 17
§. 391-394 of the Companies Act, 1956 .................................................................................. 19
§. 45(1), Income Tax Act, 1961 ............................................................................................... 14
§. 92A, Income Tax Act, 1961 ................................................................................................. 16
§. 92B, Income Tax Act, 1961 ................................................................................................. 16
Article 13, India-Brazil DTAA ................................................................................................ 17
Article 14, India-UK DTAA .................................................................................................... 16
Article 23, India-Brazil ............................................................................................................ 17
Article 24, India-UK DTAA .................................................................................................... 16
Chapter X-A, Income Tax Act, 1961 ....................................................................................... 15
Order No. S.O. 2189(E) dated Sep. 12, 2008 .......................................................................... 21
Part 2, Paragraph E, Finance Act 2019 .................................................................................... 16
Part 26: Arrangements and Reconstructions, Companies Act 2006 ........................................ 23

RULES & REGULATIONS

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 6

Companies (Restriction on Number of Layers) Rules, 2017 ................................................... 20
Regulation 13, Foreign Exchange Management (Transfer or Issue of any foreign security)
Regulations, 2004 ................................................................................................................ 11
Regulation 6(2), Foreign Exchange Management (Transfer or Issue of any foreign security)
Regulations, 2004 ................................................................................................................ 11
Regulation 6(3), Foreign Exchange Management (Transfer or Issue of any foreign security)
Regulations, 2004 ................................................................................................................ 11
Rule 11, Companies (Share Capital & Debentures) Rules, 2014 ............................................ 21
Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Amendment
Rules, 2017 .......................................................................................................................... 19
The Companies (Cross-Border Mergers) Regulations 2007 .................................................... 22

INTERNET
BIS member Central Banks, BANK OF INTERNATIONAL SETTLEMENTS.................... 19
Shodhganga, Chapter-V Taxation Aspects of Mergers and Acquisitions ............................... 14

BOOKS
EY Corporate Tax Worldwide Book, EYGM Ltd. .................................................................. 22
KPMG Invest in Brazil, KPMG (11th ed.) .............................................................................. 24
N.A. PALKHIVALA, THE LAW AND PRACTICE OF INCOME TAX ............................. 14

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 7

 SCOPE OF WORK

We understand that Bhojanam Ltd. has enlisted our services for advising on a legally viable
and tax efficient structure wherein 30% shares in Marrom-Escuro Ltd are transferred. to
Bonum Cibum GmbH. In this regard, Bonum Cibum GmbH ought to invest in Marrom-
Escuro Ltd. through Le Chocolat des Leofric Ltd.

On account of Compos Mentis LLP being engaged as a transaction counsel by Bhojanam

Ltd., our Scope of Work for the aforementioned transaction is as follows:

We shall evaluate the possible legal implications of the transaction from the perspective of
Indian Laws only. Additionally, any legal obligations that would arise for the subsidiaries of
Bhojanam Ltd. – on account of the said transaction - will also be a part of the advisory
services.

Our advice on the said transaction will be from a legal standpoint only. We are not expected
to conduct liquidity analysis, assess techno-economic viability or any similar tasks for
evaluating the feasibility of the said transaction.

Lastly, Compos Mentis LLP does not take responsibility for fulfilment of any monetary or
non-monetary obligations that could arise pursuant to Bhojanam Ltd. acting on our legal
opinion.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 8

 GRAPHICAL REPRESENTATION OF THE TRANSACTION

Transaction Structure

DBSA 90%
%

Leofric
30%
60% BCG
EBSA

70%
MEL
100%
BPL

KEY:
Particulars Indication
a) Shares held by an entity
b) Potential Purchase of shares by an entity
c) Company incorporated in Brazil
d) Company incorporated in Germany
e) Company incorporated in India
f) Company incorporated in UK

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 9

 INTRODUCTION

The Memorandum of Opinion analyses the potential share transfer from the perspective of
different laws that would influence the structuring of any proposed transaction. The
Memorandum has been divided into 3 parts. Contents of the same are provided hereinafter:

The first part of the Memorandum makes mention of the restrictions imposed by various
domestic laws and provides an analysis of how the said restriction could influence the
structuring of any transaction.

The second part of the Memorandum of Opinion makes a prima facie analysis of the UK
Laws and Brazil Laws which would directly impact the structuring of the transaction.

The third part contains our opinion on the transaction which ought to be the most legally
viable and tax efficient. Reasons for prescribing the said transaction are covered as well.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 10

 PART I – ANALYSIS OF DOMESTIC LAWS

A. Foreign Exchange Management Act, 1999 & the Rules and Regulations prescribed
thereunder

The Foreign Exchange Management Act, 1999 (“FEMA”) regulates the law relating to
foreign exchange in India with the intention of facilitating external trade and cross-border
payments between India and the rest of the world. However, with the intention of preserving
India’s foreign exchange reserves, it imposes certain restrictions on international commercial
operations.

In this regard, it is pertinent to note that Section 3 of FEMA provides that except as otherwise
provided under the provisions of FEMA, “no person shall enter into any financial transaction
in India as consideration for or in association with acquisition or creation or transfer of a right
to acquire, any asset outside India by any person.” 1 In other words, any cross-border financial
transaction is invalid, unless the same is permitted under FEMA. Further, the term “financial
transaction” includes transfer of any security within its scope2.

The present transaction pertains to transfer of shares of a - foreign - wholly owned subsidiary
(“WOS”) to a - foreign – joint venture (“JV”) of the parent company. Therefore, for this
international financial transaction - compliance with the provisions of FEMA, its related rules
and regulations prescribed thereunder is mandatory.

The present transaction for transfer of a foreign security is in the nature of a capital account
transaction as classified under Schedule I of the Foreign Exchange Management (Permissible
Capital Transactions) Regulations, 2000. In this regard, the statute does not expressly deal
with issues pertaining to transfer of a foreign security. Therefore, implications arising from
transfer of foreign security need to be understood from the Master Directions and regulations
issued by the Reserve Bank of India (“RBI”).

1
§. 3(d), Foreign Exchange Management Act, 1999.
2
Ibid.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 11

1. Foreign Exchange Management (Transfer or Issue of any foreign security)
Regulations, 2004

The said regulation is the cornerstone dealing with Outward Direct Investments arising out of
India. In this regard, the relevant provisions that could impact the transaction structuring are
provided hereunder:
 Compliance with provisions of Regulation 6 permits the Indian Party to invest outside
India without seeking prior approval of the RBI. To avail this benefit, the following
conditions prescribed therein ought to be complied with. A select few conditions have
been reiterated hereunder:3
o The cumulative financial commitment of the Indian party in a foreign, Joint
Venture or Subsidiary should not exceed 100% of the net worth of the Indian
Party as on the last audited balance sheet date;
o The foreign entity ought to be engaged in a bona fide business activity;
 Investments into the foreign entity can be funded through various routes. However, with
reference to the transaction at hand, it is pertinent to note that cash remittance by market
purchase and swap of shares are a permissible route for funding the aforesaid transaction4.
 A foreign entity set up by the Indian party is permitted to diversify its activities/ set up a
step down subsidiary/ alter the shareholding pattern5.
 The Indian party may transfer any security of its foreign wholly owned subsidiary/ joint
venture by way of sale to a person resident outside India. In this regard, the conditions
prescribed under Regulation 16 need to be complied with. In case of failure to comply
with the same, special permission from the Reserve Bank of India is required for effecting
the said transfer.
 Lastly, Regulation 20A permits an entity to make an overseas direct investment in the
nature of equity or convertible preference shares for acquiring or setting up a JV/ WOS
outside India. The said permission is subject to compliance with the stipulations of
Schedule V.
Note: The aforementioned regulation has been subsumed in the Master Direction on Direct
Investment by Residents in Joint Ventures (JV) Wholly Owned Subsidiary (WOS) Abroad 6.

3
Regulation 6(2), Foreign Exchange Management (Transfer or Issue of any foreign security) Regulations, 2004
4
Regulation 6(3), Foreign Exchange Management (Transfer or Issue of any foreign security) Regulations, 2004
5
Regulation 13, Foreign Exchange Management (Transfer or Issue of any foreign security) Regulations, 2004
6
Master Direction on Direct Investment Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned
Subsidiary (WOS) Abroad, Master Direction No. 15/2015-16

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 12

2. Foreign Exchange Management (Cross Border Merger) Regulations, 2004

The aforementioned Regulation was recently notified on 20 th March 2018. The objective of
notifying this Regulation was to bring clarity to merger, amalgamation and arrangement
between Indian companies and foreign companies. Further, unlike the erstwhile regime under
the Foreign Exchange Regulation Act, 1973, this regulation now permits an Indian company
to undertake an inbound as well as an outbound merger.

In case the foreign company is a JV/ WOS of the parent - Indian - company, the foreign
company is required to comply with Foreign Exchange Management (Transfer or Issue of
any foreign security) Regulations, 2004. Thus, any merger or amalgamation being
contemplated by BL with any of its foreign subsidiaries for effecting the said transfer is
permissible under the regulations prescribed by FEMA.

3. Master Direction on Direct Investment by Resident in Joint Venture (JV)/ Wholly

Owned Subsidiary (WOS) Abroad

The aforementioned Master Direction has subsumed the Foreign Exchange Management
(Transfer or Issue of any foreign security) Regulations, 2004. Thus, the provisions mentioned
in the said Regulation continue to apply by virtue of this Master Direction notified on 1st
January, 2016.

In addition to incorporating the relevant directions issued in connection with Overseas Direct
Investment, this Master Direction explicitly allows Indian parties to invest through the
medium of a Special Purpose Vehicle7.

The FAQ on Overseas Direct Investment expressly provides that an Indian Party cannot set
up an Indian subsidiary (ies) through its foreign JV or WOS 8. In addition to the same, the
provisions do not permit an Indian Party to acquire a WOS or invest in JV that already has
direct/ indirect investments in India9. Kindly note, the relevance of the aforesaid FAQ will
come to light after analysing the transaction from an Income Tax perspective.

7
Ibid.
8
Reserve Bank of India, RBI Frequently asked Questions on Overseas Direct Investment, RESERVE BANK
OF INDIA (Aug. 12, 2019, 2:59 PM), https://m.rbi.org.in/Scripts/FAQView.aspx?Id=32.
9
Ibid.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 13

Analysis
Pursuant to scrutinizing the facts of the case and analysing the relevant provisions of the
regulations, we have arrived at a conclusion that the transaction for transfer of shares to a
foreign joint venture is a permissible transaction.

In light of the relevant provisions of FEMA the transfer of 30% stake in MEL can be effected
through a cash remittance or a share swap. However, it is pertinent to note that Leofric has no
capital to finance this acquisition. Thus, in light of a lack of funds and restrictive covenants
imposed by the NBB, the only feasible route to finance this acquisition ought to be a share
swap between MEL and Leofric. Additionally, since the Cross Border Merger Regulations
permit merger by/of an overseas entity, BL is permitted to structure the transaction through a
share swap arrangement.

However, it is pertinent to note that BL cannot set up a step-down-subsidiary in India through

any of its foreign entities. The said restriction has been expressly mentioned in the RBI FAQ
on Overseas Direct Investment.10 Conclusively, if the aforementioned caveats are factored
into the structuring of the transaction, the transfer of shares ought to be legitimate.

10
Supra note 8.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 14

B. Income Tax Act, 1961 (“ITA”)

As the tax implications have direct and far-reaching financial impact on the companies and
the shareholders, both in the immediate future and in the long run, special care should be
taken to see that none of the tax considerations is ignored and/or given less importance than
what they deserve unless there are overriding considerations which make it imperative for
those who frame the scheme of amalgamation either to ignore them or to give a secondary
importance to them.11

The requirements under Company law are by and large procedural in nature. It is the
fulfilment of those requirements that results in the scheme of amalgamation being legally
allowed to materialise. However, it is the framing of the scheme of amalgamation with a
special emphasis on tax considerations which would determine in the long run the success or
failure of the scheme.

Since, the present transaction would involve dealing with the tax laws of 3 foreign countries,
evaluating the tax implications arising out of the said transfer will pray a crucial role in its
structuring.

1. Capital Gains Tax under the ITA

Any profits or gains arising from transfer of a capital asset is chargeable to income-tax under
the head capital gains.12 The expression capital asset has a wide connotation.13It includes
shares held in a company within its wide ambit.14 Further, the word ‘transfer’ includes sale,
exchange or relinquishment of the asset or the extinguishment of any rights therein. 15 Section
2(47) refers to the extinguishment of any rights in the capital asset; it does not use the
expression ‘the extinguishment of the capital asset or of any rights therein’.16 Therefore
amalgamation would not involve a transfer within 2(47) and no tax under the head ‘Capital
Gains’ would be payable by the shareholders of company.

11
Shodhganga, Chapter-V Taxation Aspects of Mergers and Acquisitions, INFILBET (Aug. 12, 2009, 3:05
PM), http://shodhganga.inflibnet.ac.in/bitstream/10603/103368/13/13_chapter-v.pdf
12
§. 45(1), Income Tax Act, 1961
13
PNB Finance v. CIT (2001) 252 ITR 491 (Del.)
14
Praxair Pacific Ltd. (2010) 326 ITR 276 (AAR)
15
§. 2(47), Income Tax Act, 1961
16
1 N.A. PALKHIVALA, THE LAW AND PRACTICE OF INCOME TAX 771-773 (10th ed. 2014)

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 15

However, in case of cross-border mergers, capital gains tax is exempted only if the intended
merger or amalgamation is compliant with sub-sections (vi) (via) and (vii) of Section 47 of
the ITA. In this regard it is pertinent to note that, an amalgamation or merger is not exempt
from capital gains tax liability if the resultant company is a foreign company. An
amalgamation or merger, whose resultant company is registered in India can avail the
exemption subject to fulfilment of other conditions prescribed by Section 47. An instance of
the said exemption being availed can be found in the case of Star Television Entertainment
Ltd17.

2. General Anti-Avoidance Rulings (“GAAR”)

Further, it is extremely important to take notice of the fact that exemption under section 47
could not be denied to the applicants on the ground that a transfer pursuant to amalgamation
was a legally impermissible step adopted by the applicants only with a view to avoid or evade
the income tax without there being any commercial or business purpose. In other words, the
provisions of GAAR18 cannot be attracted to a merger or an amalgamation. In the case of
Tata Tea Ltd19., it was held that avoidance of capital gains cannot be a reason for refusing
sanction to a scheme which is otherwise lawful particularly when there is no allegation of
fraud or illegality. In the case of CIT v. Leena Sarabhai20 it was held, there is no transfer as
defined under section 2(47) when the assessee receives shares and bonds in exchange of
shares because of amalgamation. A similar view was taken in CIT v. M.Ct. M. Corporation
Pvt. Ltd.21

3. Finance Act, 2019

However, in case the restructuring fails to fall within the ambit of Section 47, capital gains
tax liability – for BL - ought to be attracted at the rate of 10%22 and 15%23 for long term
gains and short term gains respectively. BL will be subject to a surcharge of 12%24 and
Health and Education cess of 4%25 as well.

17
Star Television Entertainment Ltd. (2010) 321 ITR 1 (AAR).
18
Chapter X-A, Income Tax Act, 1961
19
Tata Tea Ltd (2008) SCL 170 (Cal.).
20
CIT v. Leena Sarabhai (1996) 221 ITR 520 (Guj.).
21
CIT v. M. Ct. M. Corporation Pvt. Ltd. (1996) 221 ITR 524 (Mad.).
22
§. 111A, Income Tax Act, 1961
23
§. 112, Income Tax Act, 1961
24
§. 115BBE, Income Tax Act, 1961
25
§. 2(a)(iii), Finance Act, 2019

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 16

4. Transfer Pricing

The ITA requires any income arising from an international transaction to be computed with
regards to its arm’s length price. BL holds more than 26% shares in its joint venture Leofric.
Therefore, Leofric by virtue of Section 92A is an associated enterprise 26 of BL. Further,
Explanation (e) to Section 92B of the Income Tax Act, 1961 includes a transaction of
business restructuring or reorganisation entered between an enterprise and an associate
enterprise within the meaning of the term international transaction.27 Therefore, the present
transfer ought to be scrutinised from the lens of transfer pricing guidelines as well.

Section 92C of the Income Tax Act prescribes six different methods for computing the Arm’s
Length Price of an International Transaction. In this regard, it is pertinent to note that for
taxation purposes, the value of the transaction shall be deemed to be its arm’s length price.
Any attempt by BL to undervalue the proceeds arising from the said transaction might fail to
contribute in reducing its capital gains liability.

Kindly note, in case it is discovered that the said transfer is not valued at the arm’s length
price, any tax liability arising from the same will charged to tax at the normal rates in
force.(i.e. 30% for BL28)

5. DTAA

The India-UK DTAA provides that both the countries may tax capital gains in accordance
with their domestic laws.29 However, the said DTAA also allows foreign tax credit for taxes
paid in the corresponding countries30. Likewise, the India-Brazil DTAA also provides that
both the countries may tax capital gains arising from transfer of shares in accordance with
their domestic laws.31 Further, the India-Brazil DTAA does not provide the benefit of using

26
§. 92A, Income Tax Act, 1961
27
§. 92B, Income Tax Act, 1961
28
Part 2, Paragraph E, Finance Act 2019
29
Article 14, India-UK DTAA, No. GSR 91(E), dated 11-2-1994
30
Article 24, India-UK DTAA, No. GSR 91(E), dated 11-2-1994
31
Article 13, India-Brazil DTAA, Notification No. GSR 381(E), dated 31-3-1992 (amended by Notification No.
SO. 93(E) dated 4-1-2018).

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 17

Foreign Tax Credit. Instead it provides that the Contracting State shall deduct the tax paid in
the other state while computing the income tax payable in its own state.32.

6. Impact on deductibility of expenditures pursuant to a scheme of amalgamation

Amortisation of preliminary expenses 33 – The benefit of amortisation of preliminary expenses

is not lost pursuant to transfer of an Indian company in a scheme of amalgamation. Provided,
the said transfer takes place within the 5 years period of amortisation and the amalgamated
company is an Indian company.

Amortisation of expenditure related to amalgamation34 – An assessee is allowed to amortise

an amount equal to 1/5th of the expenditure incurred for the purposes of amalgamation,
merger or demerger, as the case may be. The said deduction is available for a period of 5
years. The said deduction can be claimed only by an Indian Company.

Analysis
Pursuant to analysing the aforementioned provisions of the Income Tax Act, it can be safely
concluded that BL entity has the option of claiming complete exemption from capital gains if
the transaction can be structured in a manner compliant with Section 47 of the ITA. In case of
its inability to do the same, we expect a tax rate of 20% (along with Surcharge and Health
and Education cess) being levied for the contemplated share transfer.

Also, it is advisable that the transaction value is at par with the Arm’s Length Price dictated
by the transfer pricing guidelines prescribed under the ITA. As far as availing any treaty
benefit is concerned, the India-UK as well as India-Brazil Treaty provide no leeway on
income tax liability that could arise from a cross-border transfer of shares.

Therefore, in case of any cross border merger or amalgamation with a foreign company,
capital gains tax liability ought to get attracted.

32
Article 23, India-Brazil DTAA, Notification No. GSR 381(E), dated 31-3-1992 (amended by Notification No.
SO. 93(E) dated 4-1-2018).
33
§. 35D, Income Tax Act, 1961
34
§. 35DD, Income Tax Act, 1961

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 18

C. Companies Act, 2013

Under Company Law, a cross border merger refers to any merger, amalgamation or
arrangement between an Indian company and foreign company in accordance with
Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 as notified under
the Companies Act, 2013.

Section 234 of the Companies Act, 2013 deals with Merger or Amalgamation of company
with a foreign company. Unlike the erstwhile Companies Act, 1956 wherein only inbound
mergers where permitted35, the present statute permits inbound as well as outbound mergers.
The provisions of the Companies Act are in sync with the provisions of FEMA as far as cross
border mergers are concerned. Both permit a cross border merger subject to prior sanction by
the RBI under the Automatic Route or the Approval Route.

In addition to RBI approval, it is imperative that the merger or amalgamation with a foreign
company is compliant with Rule 25A of the Companies (Compromises, Arrangements and
Amalgamations) Amendment Rules, 2017. The Rule provides that a company may merge
with a foreign company if the said company falls within the jurisdictions specified in
Annexure B of the aforementioned Rules36. With reference to the same, we can safely
provide that the Central Bank of Brazil as well as the United Kingdom are a member of the
Bank of International Settlements (“BIS”)37. Therefore, cross border mergers or
amalgamations with the two countries is permissible under the aforesaid rules.

Section 234 of the Companies Act, 2013 also provides that the provisions of Chapter XV of
the Companies Act, 2013 - Compromises, Arrangements and Amalgamations - apply mutatis
mutandis to schemes of cross border mergers and amalgamations. Therefore, any scheme of
cross border M&A ought to be sanctioned by the National Company Law Tribunal before it
can be implemented by the applicant companies.

35
§. 391-394 of the Companies Act, 1956
36
Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2017
37
BIS member Central Banks, BANK OF INTERNATIONAL SETTLEMENTS (Aug. 12, 2019, 03:30 PM)
https://www.bis.org/about/member_cb.htm

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 19

The Companies Act also prohibits holding companies from having 2 layers of subsidiaries
and requires that no investments can be made through more than two layers of investment
companies38.

Analysis
Pursuant to analysing the provisions of the Companies Act, 2013 we can conclude that any
cross border M&A between BL and Leofric to effect the transfer of shares is permissible
under the Companies Act, 2013. However, the said transaction requires approval of the
National Company Law Tribunal (“NCLT”). Since the transfer is for a bona fide business
activity – we believe that securing requisite approvals from the NCLT should not pose a
hindrance.

38
Companies (Restriction on Number of Layers) Rules, 2017

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 20

D. Indian Stamp Act, 1989

Section 56 of the Companies Act, 2013 provides that an instrument for transfer of shares is
compulsory. A company shall not register a transfer of shares unless a proper transfer deed in
Form SH. 4 is executed39. Further, the aforesaid section also requires the instrument of
transfer to be duly stamped as per the stipulations of the Indian Stamp Act, 1989.

The stamp duty payable for transfer of shares is Rs. 0.25 for every Rs. 100 or part thereof of
the market value of shares.40 In case of transfer of shares of a company, it is the seller who is
responsible for payment of stamp duty. 41

Analysis
In the present case, the transfer of shares from BL will attract payment of stamp duty. The
onus for payment of stamp duty shall lie with BL in the present case. Further, the stamp duty
needs to be paid before the transfer of shares is executed.

39
Rule 11, Companies (Share Capital & Debentures) Rules, 2014
40
Order No. S.O. 2189(E) dated Sep. 12, 2008, issued by Department of Revenue (Ministry of Finance)
41
Union of India v. Kullu Valley Transport Ltd. (1958) 28 Comp. Case 29

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 21

 PART 2: ANALYSIS OF UK AND BRAZIL LAWS

E. United Kingdom Laws:

The Companies (Cross Border Mergers) Regulations, 2007

The law governing Mergers and Amalgamations in the United Kingdom (“UK”) is The
Companies (Cross Border Mergers) Regulations, 200742. In case BL is desirous of effecting
the transfer of shares in MEL through a share swap with Leofric, the said transaction ought to
fall within the scope of merger as understood in common parlance. Similarly, the term cross-
border merger connotes a merger between two or more companies governed by the laws of
two difference countries.

The Companies (Cross-Border Mergers) Regulations, 2007 imposes restrictions on the

companies with whom a UK registered company can merge or amalgamate. The said
Regulations recognize three types of mergers, namely – Merger by absorption, Merger by
absorption of a wholly owned subsidiary, Merger by formation of a new company43. Further,
through the definition of transferor company and transferee company it can be inferred that a
UK company can merge or absorb only with a UK company or a company registered in one
of the countries who are a member of the European Economic Area (“EEA”). India is not a
member of the EEA. Therefore, any direct merger between an Indian registered company and
a UK registered company is forbidden under the corporate laws of the United Kingdom.

UK Taxation Laws
Non Resident companies are subject to taxation in UK only if they are carrying on business in
UK. On a prima facie perusal, we believe that BL has no permanent establishment in India.
Therefore, BL will not be liable to any taxation under UK Laws. Additionally, the corporate
tax rate in the United Kingdom is 19%. However from 1st April 2020, the rate will be brought
down to 17%44.

42
The Companies (Cross-Border Mergers) Regulations 2007, 2007 No. 2974,
http://www.legislation.gov.uk/uksi/2007/2974/contents/made
43
Ibid.
44
EY Corporate Tax Worldwide Book, EYGM Ltd. (April 2018, 3:37 PM)
https://www.ey.com/Publication/vwLUAssets/EY_Worldwide_Corporate_Tax_Guide_2018/%24File/EY-2018-
worldwide-corporate-tax-guide.pdf

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 22

Capital gains under UK Laws are taxed at the Corporate Tax Rate itself. Lastly, tax on capital
gains is not levied on a gain on the sale of shares of a UK subsidiary by the foreign non-
resident parent company45.

Analysis
The aforesaid restriction is of great relevance to the structuring of the proposed transfer.
Although the Indian laws permit a UK company to merge with an Indian company or vice
versa, the UK Laws prohibit the same. Further, due to the aforesaid restriction, capital gains
exemption provided under Section 47 of the Income Tax Act, 1961 cannot be availed.

To claim exemption, section 47 requires the resultant company to be an Indian Company.

However, since a UK registered company cannot merge with an Indian company, BL cannot
escape from its liability to pay capital gains for any share transfer arising from the said
transaction.

In this regard, it is pertinent to note that UK company laws do not impose any restriction with
respect to merger of a UK company with another UK registered company46. Therefore, a
subsidiary of BL incorporated in UK can merge with Leofric.

45
Ibid.
46
Part 26: Arrangements and Reconstructions, Companies Act 2006, (August 12, 3:44 PM)
http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 23

F. Brazil Laws

Only a few economic activities such as public health, mail and telegraph, nuclear energy,
airlines with domestic flight concessions, sanitation, and the aerospace industry continue to
be restricted to foreign investors 47. On a, prima facie, perusal we can safely state that there is
no restriction on participation of foreign investors in cocoa cultivation based activities.
However, it is advisable to any potential investor to consult the Brazilian authorities before
acting upon its investment plans. Furthermore, Foreign individuals and entities have the right
to acquire real estate property in Brazil.

In Brazil, capital gains are treated the same as ordinary profits. Since 1st January 2017,
capital gains derived by a non-resident on an investment registered with the central bank are
subject to a progressive withholding tax rate. A tax rate of 22.5% is chargeable on gains over
BRL 30 million. Therefore, sale of shares of a Brazilian entity will be subject to tax in Brazil.

Analysis
A brief perusal of Brazil laws provide that foreign direct investment by Leofric is permissible
in Brazil. However, a direct sale of shares in MEL to any foreign entity will attract a capital
gains tax liability of 22.5% for gains in excess of BRL 30 million. As far as capital gains
from the indirect transfer of shares in MEL – arising from a share swap between two foreign
entities - is concerned, it is advisable to seek clarification from the Brazilian government
authorities.

47
KPMG Invest in Brazil, KPMG (11th ed.), (April 2018, 3:46 PM)
https://assets.kpmg/content/dam/kpmg/pdf/2016/03/brazil-invest-in-oct19.pdf

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 24

 PART 3: PROPOSED TRANSACTION STRUCTURE

In light of the aforementioned restriction and analysis, we firmly believe that the scope for
structuring the prospective transaction is limited. Thus, through a process of elimination we
have concluded that the best way to structure the proposed transaction is by following the
below mentioned steps.

Step 1: Incorporate a wholly owned subsidiary of BL in United Kingdom

The wholly owned subsidiary of BL in United Kingdom shall be incorporated with the
objective of serving as a special purpose vehicle (SPV). The Special Purpose Vehicle shall be
registered a company according to the relevant provisions of The Companies Act, 2006. The
rationale for incorporating a special purpose vehicle specifically in the UK has been
discussed in the forthcoming steps.

Step 2: Transfer the ownership of MEL– in its entirety - to the newly incorporated UK
based subsidiary
The ownership of MEL vests with BL at present. We propose that the entire shareholding of
MEL is transferred to the UK based special purpose vehicle. The aforesaid transfer will
attract capital gains tax liability in India, however UK tax laws exempt capital gains tax
liability arising to a foreign company. In other words, capital gains tax for the aforesaid
transfer will be payable in India as per the Indian tax Laws. However, as far as capital gains
tax payable in the UK is concerned, BL is not liable to pay any tax to UK tax authorities for
the proposed transfer.

The transfer of ownership in MEL through a demerger of BL is inadvisable. BL is a listed

company in India. Therefore it is liable to comply with the provisions of the Securities and
Exchange Board of India Act, 1992 as well. Demerger of a listed company with the resultant
company being registered in UK will add an additional layer of compliance. Further, in case
the resultant company - from a demerger – is a foreign company, capital gains tax exemption
is unavailable. Therefore, a demerger of BL will add unwanted legal complications to the said
transaction.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 25

Likewise, Demerger of Leofric with the resultant company being registered in India is
prohibited under FEMA. As previously discussed, a foreign WOS or a foreign JV cannot be
used to set up a step down subsidiary of the - India registered - parent company in India.

Therefore, setting up a subsidiary of BL in UK and subsequently transferring the

shareholding of MEL to it is the only option at our disposal.

Step 3: Leofric absorbs the Special purpose Vehicle through a merger

As previously discussed, UK company Laws permit merger by absorption of a company
based in UK or the EEA. We propose that Leofric absorbs the SPV set up by BL. As a
consideration for the absorption, Leofric will enter into a share-swap arrangement with the
UK based SPV. Consequently, BL will acquire shares of Leofric and Leofric will acquire the
shares of the UK SPV. On account of acquiring the shares of the SPV, Leofric acquires the
complete shareholding in MEL.

Since, 30% shares of Leofric are held by BCG, absorption of the UK SPV indirectly results in
the transfer of shareholding from BL to BCG. Further, since both the parties are registered in
UK, the aforesaid merger should not attract any capital gains tax liability for either of the
merging parties.

The facts provided to us state that BCG can invest in MEL only through Leofric. Therefore,
since 30% shares of Leofric are held by BCG and the balance 70% shares are held by BL, the
acquisition of shares through Leofric is the most legally viable alternative at the disposal of
the transacting parties.

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 26

A diagrammatic presentation of the proposed transaction is as follows:

Step 1: Incorporate a wholly owned subsidiary of BL in United Kingdom

DBSA 90%
%
30%
60% Leofric BCG

EBSA

100% 70%
BPL
MEL %

100%
UK SPV
%

Step 2: Transfer the ownership of MEL– in its entirety - to the newly incorporated UK
based subsidiary

90%

DBSA %
30%
60% Leofric BCG

EBSA

70%
BPL
MEL 100%
% 100%
UK SPV
%

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 27

Step 3: Leofric absorbs the Special purpose Vehicle through a merger

DBSA 90%
%

Leofric (UK
30%
60% SPV BCG
EBSA Absorbed)

100% 70%
MEL BPL

KEY:
Particulars Indication
a) Shares held by an entity
b) Potential Purchase of shares by an entity
c) Company incorporated in Brazil
d) Company incorporated in Germany
e) Company incorporated in India
f) Company incorporated in UK

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 28

 CONCLUDING REMARKS

In any corporate restructuring transaction, the taxation perspective is the centre-piece. The
said transaction ought to have guided by the same principle. However, owing to the rigidity
of UK Cross-Border merger laws along with the restrictions imposed by FEMA, capital gains
tax liability cannot be avoided in its entirety. Therefore, in spite of all the tax planning
strategies at our disposal, paying no capital gains tax on the aforesaid transfer was
unavoidable.

The only legally compliant way to effect a share swap agreement ought to be through
incorporating a special purpose vehicle of BL in UK. The transfer of shares to a foreign
company does attract a capital gains tax liability in the hands of the transferor company.
However, the subsequent absorption of the UK SPV by Leofric avoids any additional tax
liability arising on the transferor company as well as the transferee company. In other words,
after a - one time - capital gains tax liability being levied upon BL, no additional tax liability
– under the Indian Tax Laws - would be attracted to BL. Further, any future proceeds arising
from MEL would be subject to a lower tax rate under the UK Tax Laws in comparison to
what the proceeds would be subjected to under the Indian tax regime.

Subject to compliance with FEMA, Companies Act and any other domestic laws that the
proposed transaction would be exposed to, we firmly believe that the transaction structure
proposed by us is the most tax efficient and legally viable structure for effecting the transfer
of shareholding from BL to BCG.

Sd/-
Transaction Counsel representing Compos Mentis LLP

WRITTEN OPINION DRAFTED FOR BHOJANAM LTD (BL.) 29

 1ST NATIONAL CORPORATE RESTRUCTURING COMPETITION, 2019
SYMBIOSIS LAW SCHOOL, HYDERABAD

TEAM CODE - 110

1ST NATIONAL CORPORATE RESTRUCTURING COMPETITION - 2019

SYMBIOSIS LAW SCHOOL, HYDERABAD

BEFORE THE BOARD OF DIRECTORS - BHOJANAM LIMITED (BL)

WRITTEN SUBMISSIONS BY
COMPOS MENTIS LLP

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TABLE OF CONTENTS
List of Abbreviations ................................................................................................................. 3

Index of Authorities ................................................................................................................... 4

List of Cases ........................................................................................................................... 4

International Conventions ...................................................................................................... 4

Rules & Regulations .............................................................................................................. 4

Articles ................................................................................................................................... 5

Online Resources ................................................................................................................... 5

Parties of The Case Vehicle ....................................................................................................... 7

Brief of The Case Vehicle.......................................................................................................... 8

Submissions ............................................................................................................................. 10

[I]. Bhojanam Limited (BL) To Gift its Wholly owned Subsidiary Company, Marrom-Escuro
Ltda (MEL) To Chocolat Des Leofric Limited (LEOFRIC) ................................................... 10

[II]. Acquisition of Shares of Marrom-Escuro Ltda (MEL) By Chocolat Des Leofric Limited
(LEOFRIC) .............................................................................................................................. 18

Conclusion ............................................................................................................................... 20

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LIST OF ABBREVIATIONS

BL Bhojanam Limited

EBSA El Bombón S.A

Leofric Le Chocolat des Leofric Limited

BCG Bonum Cibum GmbH

DBSA Del Bombon SA

MEL Marrom-Escuro Ltda

LLP Limited Liability Partnership

Co. Company

Anr Another

SCC Supreme Court Cases

AIR All India Reporter

Ltd Limited

V. Versus

ITAT Income Tax Appellate tribunal

Vol. Volume

Art. Article

IT Act Income Tax Act

Ed. Edition

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INDEX OF AUTHORITIES

LIST OF CASES

S.No Name of the Case & Citation

1. Amiantit International Holding Ltd, In re. [2010] 230 CTR 19 (AAR)
2. CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC)
3. Dana Corporation, In re. [2009] 227 CTR 441(AAR)
4. Deere and Company, In re [2011] 337 ITR 277 (AAR)
5. Goodyear Tire and Rubber Co., In re. [2011] 334 ITR 69 (AAR)
6. In re Amiantit International Holding Ltd. [2010] 189 Taxman 149 (AAR -
New Delhi)
7. Ku. Sonia Bhatia vs. State of UP &Ors., 1981 SCR(3) 239
8. Redington (India) Limited v. JCIT [TS-419-ITAT-2014(CHNY)]
9. Union of India vs. Kulu Valley Transport Ltd. (1958) 28 Comp. case 29
10. Vanenburg Group B.V., In re. [2007] 289 ITR 464 (AAR)

INTERNATIONAL CONVENTIONS

1. Section 90 of the Income-Tax Act, 1961 - Double Taxation Agreement - Agreement

For Avoidance of Double Taxation And Prevention of Fiscal Evasion With Foreign
Countries – Brazil.
2. Agreement between the Government of Republic of the India and the Government of
the German Democratic Republic for the avoidance of double taxation with respect to
taxes on income and on capital.
3. Convention Between the Government of the Republic of India and the Government of
the United Kingdom of Great Britain and Northern Ireland for the avoidance of
Double Taxation And The Prevention of Fiscal Evasion With Respect to Taxes on
Income And Capital Gains.

RULES & REGULATIONS

1. Foreign Exchange Management (Transfer or Issue of Any Foreign Security)

(Amendment) Regulations, 2004, Notification No. FEMA 120/ RB-2004 dated: July
7, 2004.

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2. Foreign Exchange Management (Transfer or Issue of any Foreign Security)
(Amendment) Regulations, 2017, Notification No.FEMA.369/2017-RB.
3. Foreign Exchange Management (Cross Border Merger) Regulations, 2018,
Notification No. FEMA.389/2018-RB.
4. Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016,
Master Direction DNBR. PD. 003/03.10.119/2016-17.
5. Master Circular on Direct Investment by Residents in Joint Venture (JV)/
Wholly Owned Subsidiary (WOS) Abroad, Master Circular No.11/2013-14.

ARTICLES

1. Ajay Kr. Sharma, Cross Border Merger Control by the Competition Commission of
India: Law and Practice, 2015 FREILAW: FREIBURG L. STUDENTS J. 11, 20
(2015).
2. Skpgroup.com. (2019). SKP Tax Alert Volume 7 Issue 5. [online] Available at:
https://www.skpgroup.com/data/mailer/skp_tax_alert_volume_7_issue_5_Chennai-
ITAT-holds-that-a-company-can-make-gifts-and-transfer-of-shares-without-
consideration-is-not-taxable.html [Accessed 12 Aug. 2019].
3. Home.kpmg.(2019).[online]Available:
https://home.kpmg/content/dam/kpmg/pdf/2014/07/Redington-India-Limited.pdf
[Accessed 12 Aug. 2019].
4. Indirect Transfer of Shares, [2015] 62 taxmann.com 138.
5. Cross border mergers will soon be a reality, [2018] 92 taxmann.com 139.
6. Vodafone Dilemma – Indirect controlling interest or a remote connection, [2010] 19
CPT 125.

ONLINE RESOURCES

1. Hein Online, https://home.heinonline.org [Accessed 10 Aug. 2019].

2. Lexis India, https://www.lexisnexis.com/in/legal [Accessed 10 Aug. 2019].
3. Manupatra, http://www.manupatrafast.com [Accessed 10 Aug. 2019].
4. SCC Online, http://www.scconline.com [Accessed 10 Aug. 2019].
5. Westlaw India, http://www.westlawindia.com [Accessed 10 Aug. 2019].
6. Cambridge University E-books, https://www.cambridge.org/core [Accessed 10 Aug.
2019].

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7. eJurix, http://www.ejurix.com [Accessed 10 Aug. 2019].
8. JSTOR, www.jstor.org [Accessed 10 Aug. 2019].
9. Taxmann, https://www.taxmann.com/[Accessed 10 Aug. 2019].
10. Casemine.com. https://www.casemine.com/login [Accessed 10 Aug. 2019].

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PARTIES OF THE CASE VEHICLE

I. Bhojanam Limited (BL) - India - The Company is the parent company of Leofric holding
70% of the total shares. BL also holds 100% shares of MEL. Leofric is the Investment
Company and acts according to the BL strategies.

II. Le Chocolat des Leofric Limited (Leofric) - United Kingdom (UK) – The Company
holds 90% shares in DBSA and 60% shares in EBSA. Leofric is a investment company and
has taken loans from Nulla Bonna Bank due to which they have no capital left.

III. Bonum Cibum GmbH (BCG) - Germany - The Company holds 30% shares in Leofric.
BCG is the largest Service provider in cacao and chocolate related business in Brazil and it
has good connections with Brazil Government. Due to their internal structure, BCG can only
invest through Leofric in Brazil.

IV. Marrom Escuro Ltda (MEL) – Brazil – The Company is a wholly owned subsidiary of
BL. With a capital of 100 Million Dollars BL has acquired the MEL to develop 13
plantations in Brazil.

V. Del Bombon SA (DBSA) – Brazil – Leofric holds 90% of the shares in DBSA, which is a
part of the investment strategy to secure best cacao for their chocolate production of BL. The
Government of Brazil holds 10% of DBSA.

VI. El Bombón S.A. (EBSA) – Brazil - Leofric holds 60% of the shares in EBSA which is
incorporated in Brazil. This is also an investment strategy of BL.

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BRIEF OF THE CASE VEHICLE

1. Bhojanam Limited (BL) which is a listed company registered in India and the Company
Holds the 70% of Le Chocolat des Leofric Limited (Leofric) which is an investment
company incorporated in United Kingdom (UK). And the rest 30% shares of Leofric are
owned by Bonum Cibum GmbH (BCG), a German Company. BCG is the largest service
providers in cacao and chocolate related business in Brazil and have strong connections with
the Government of Brazil. Leofric holds 60% of the shares of El Bombón S.A. (EBSA)
which is a company incorporated in Brazil.
2. As a part of their investment strategy to secure the best cacao for their chocolate
production, BL has acquired another plantation through its subsidiary Leofric named Del
Bombon SA (DBSA) in which Leofric is holding 90% of the company and 10% is held by
the Government of Brazil.
3. BL has now entered into a Greenfield project with the Government of Brazil to develop 13
plantations. BL has acquired the plantations through a wholly-owned subsidiary called
Marrom-Escuro Ltda (MEL) incorporated in Brazil with a capital of 100 million dollars.
For further development of the project, BL would need the expertise of BCG for the Brazil
region. After negotiations, BCG has stated that they would provide their expertise in
consideration of 30% equity in MEL.
4. BCG has also stated that due to their internal investment structure they can invest in Brazil
only through Leofric. However, Leofric has no capital to make the acquisition and has
already leveraged its shareholdings in EBSA and DBSA to raise capital for investments made
in EBSA and DBSA.
5. The Nulla Bonna Bank (“Bank”) giving the loan to Leforic has laid down some
restrictive covenants as under:
5.1. The shareholding in EBSA and DBSA cannot be transferred without the prior
approval of the Bank.
5.2. Leforic will have to take prior permission of the Bank before any other loan is
taken.

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Figure 1.0 depicting the brief facts

Figure 1.0

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SUBMISSIONS

[I]. BHOJANAM LIMITED (BL) TO GIFT ITS WHOLLY OWNED SUBSIDIARY COMPANY,
MARROM-ESCURO LTDA (MEL) TO CHOCOLAT DES LEOFRIC LIMITED (LEOFRIC)

It is proposed before the Board of Directors of BL (Bhojanam Limited) that the particular
MEL (Marrom-Escuro Ltda), which is a wholly owned subsidiary company of BL i.e.; 100%
shares are owned by BL, can be gifted to Leofric (Chocolat des leofric limited).

Leofric is an investment company which is located in UK (United Kingdom) and BL owns

70% of the shares in this company. Previously, Leofric has invested in DBSA and EBSA as
according to the business strategy of BL. It is suggested to transfer 100% shares of MEL to
Leforic by that the BL holds 70% of MEL and 30% will be taken over by BCG as a
consequence. The transfer of 30% of the shares in MEL to BCG through Leofric is also
fulfilled and it is an efficient procedure if we could transfer those share by GIFT.

A gift is a transfer of movable or immovable property from one to another without

consideration. Shares owned by a person can be gifted to another person (relative or
otherwise) by following a certain procedure. Since gifting constitutes a transfer, and the
transfer is for no consideration, such a transfer can be carried out using the “off market
transfer” mechanism.

Delivery Instruction Slips (DIS)

 Donor of shares has to fill out a DIS and submit the same to Depository Participant
(DP). It should mention the DP ID, DP name, client ID of the donee and name, ISIN,
and number of shares to be transferred. Execution date must be mentioned. This is an
instruction to the DP.

Receipt Instruction
 The donee has to fill out a receipt instruction and submit it to his DP. The shares
received from the donor’s DP will be credited to donee’s DP account once the receipt
Instruction is received. Details such as DP ID, name, and needs to be mentioned.

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Process
 Once the DIS or receipt instructions are received, duplicate copy is returned to
respective parties. Details mentioned in delivery instruction and receipt instruction
must match. Transfer takes place on execution date mentioned by the parties.
 Since shares are considered “movable property”, it is not mandatory to execute a gift
deed. However, in order to create a legal record, it is best to execute a gift deed on an
appropriate stamp paper
 If the gift of shares is being made to a “relative” as defined by the Income Tax Act, it
will not be subject to tax. Also if the value of shares is less than Rs. 50,000, the same
is not taxable in the hands of the donee, even if he is not a “relative” as per the Act.

COMPLIANCE WITH TAX LAWS:

Gift of shares of one foreign subsidiary to another foreign subsidiary without

consideration is not liable to capital gains tax

In case the transfer of 100% shares of MEL to Leforic, BL holds 70% of MEL and 30%
will be taken off by BCG as a consequence and this is exempted under the head of capital
gains. In the case of Redington India Ltd vs. DCIT 1 , issue under consideration before
coordinate bench of this tribunal was of a “gift” by assessee therein of shares of its wholly-
owned subsidiary to another group company with an objective of raising funds for expansion
of business as a part of corporate restructuring. It was observed by coordinate bench of this
tribunal that the transfer of shareholding in wholly-owned subsidiary to another group
company without any consideration was with the intention that post transfer; the transferee
company would also be a wholly owned subsidiary. The issue raised by assessing officer
therein was that such transfer could not be termed as gift for lack of natural love and affection
and therefore would not be covered by exclusion under section 47 (iii) of the act. On perusal
of the decision it is observed that the genuinity of the transfer of shares without consideration
was not questioned by the authorities below and therefore this Tribunal decided that gift for
the purposes of Gift Tax Act, 1958 qualifies a property in money or monies worth to be
transferred to a person who includes "company" as well. It was observed therein that in Gift
Tax Act, 1958, there's no attributes like love and affection.

1
Redington (India) Limited v. JCIT, [TS-419-ITAT-2014(CHNY)].

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 However, it was held that transfer of shares in a subsidiary, by way of a ‘gift’, was not
taxable as capital gains under section 45 of the Income-tax Act, 1961 (the Act).
Moreover, such a gift was eligible for exemption under section 47(iii) of the Act. It
was further held that under section 48 of the Act, the computation mechanism failed
where shares were transferred without consideration. Lastly, it held that the arm’s
length price (ALP) computation did not extend to international transactions where
taxable income did not arise

Transfer should be without consideration:

 The transfer of 100% shares of MEL to Leofric should be made be without

consideration. In the case of CIT vs. B. C. Srinivasa Setty2 , the Tribunal held that as
the transfer of shares was made without consideration, the foremost ingredient of the
computation provision was missing, and as such, capital gains tax could not be
computed under section 48 of the Act. This led to a situation where section 45 of the
Act could not be invoked and the charge of capital gains taxation failed.
 In the case of In re Amiantit International Holding Ltd.3, This is so far the only the
AAR dealing directly with the issue. The crux of the matter is that a Bahrain based
company transferred shares of its Indian based subsidiary to its cyprus associate
enterprise without any consideration pursuant to a corporate restructuring. Since the
situs of incorporation of the company whose shares are transferred is India, the Indian
revenue authorities have the jurisdiction to tax the transaction. The main issue decided
by the AAR is whether in case of shares transferred to an associated enterprise, the
Indian TPP would apply. The AAR in a well-reasoned judgment ruled that since the
transfer is without consideration, there is no question of applying the touch stone of
the ‘arm’s length price’ to determine a capital gain which could not be computed and,
hence, ruled that the authorities could not ram the TPP down the assessee’s throat and
tax an income which is not there.
 Also, Section 92 of the Act was a machinery provision. The section provided for
determination of the ALP in certain cases. It would be applicable only if the
transaction resulted in taxable income in the hands of the taxpayer. In cases where

2
CIT v. B. C. Srinivasa Setty ,[1981] 128 ITR 294 (SC).
3
In re Amiantit International Holding Ltd. [2010] 189 Taxman 149 (AAR - New Delhi)

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there was no transaction which resulted in taxable income, the transfer pricing
provision could not be applied4.

Essentials to be followed:

 The essential ingredients of a valid gift were the existence of a property, voluntary
nature of the transfer, and absence of any consideration. As a pre-condition for
making a valid gift, the law did not prescribe any attributes like “love and affection”.
The Supreme Court case5, which held that one should not try to confuse the purpose
of making a gift with consideration.
 Accordingly, the Tribunal accepted the legal capacity of the assessee to gift its shares
in RGF Gulf to RIHL. The Tribunal further held that where there was no specific rider
in section 47(iii) of the Act in respect of a person eligible for claiming exemption
under section 47(iii) of the Act, there was no need to read down the law to make an
interpretation that a company could not claim exemption under section 47(iii) of the
Act6.

Stamp Duty:

 The 0.25% is the stamp duty fixed to pay as per the Indian Stamp Act, 1999 for
transmission of shares. However, in case the shares are in dematerialized form then no
stamp duty can be levied. In the case of transfer of shares of a company, it is the
seller who is responsible for payment of stamp duty7.Hence, it is better to convert
the shares in to dematerialize by that it can also escape from the stamp duty. There by
BL can avoid stamp duty respectively8.

Permission for Direct Investment in certain cases9

(1) Subject to the conditions specified in sub-regulation (2), (and Regulation 7 in case
investment in financial services sector) an Indian party may make direct investment in a Joint
Venture or Wholly Owned Subsidiary outside India.

4
Vanenburg Group B.V., In re. [2007] 289 ITR 464 (AAR)/ Dana Corporation, In re. [2009] 227 CTR
441(AAR)/ Amiantit International Holding Ltd, In re. [2010] 230 CTR 19 (AAR)/ Goodyear Tire and Rubber
Co., In re. [2011] 334 ITR 69 (AAR)/ Deere and Company, In re [2011] 337 ITR 277 (AAR)
5
Ku. Sonia Bhatia vs. State of UP &Ors., 1981 SCR(3) 239
6
Supra 1
7
Union of India vs. Kulu Valley Transport Ltd. (1958) 28 Comp. case 29
8
Joint ventures & Merges and Acquisitions in India, Seth Dua and Associates, Lexis Nexis, Pg. 505.
9
Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004
Notification No. FEMA 120/ RB-2004 dated: July 7, 2004.

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(2) (i) The total financial commitment of the Indian party in Joint Ventures/Wholly Owned
Subsidiaries shall not exceed 100% of the net worth of the Indian Party as on the date of the
last audited balance sheet;
Explanation: - For the purpose of the limit of 100% of the net worth the following shall be
reckoned, namely:
(a) Cash remittance by market purchase and /or equivalent rupee investments in case of Nepal
and Bhutan
(b) Capitalization of export proceeds and other dues and entitlements as mentioned in
Regulation 11;
(c) fifty per cent of the value of guarantees issued by the Indian party to or on behalf of the
joint venture company or wholly owned subsidiary.
(d) Investment in agricultural operations through overseas offices or directly
(e) External Commercial Borrowing in conformity with other parameters of the ECB
guidelines
Notwithstanding anything contained in these Regulations investment in Pakistan shall not be
permitted.
(ii) The direct investment is made in an overseas JV or WOS engaged in a bonafide
business activity.
(iii) The Indian Party is not on the Reserve Bank’s Exporters caution list /list of
defaulters to the banking system circulated by the Reserve Bank or under
investigation by any investigation /enforcement agency or regulatory body.
(iv) The Indian party has submitted up to date returns in form APR in respect of all its
overseas investments;
(v) The Indian Party routes all transactions relating to the investment in a Joint
Venture/Wholly Owned Subsidiary through only one branch of an authorised dealer
to be designated by it.
Explanation: -
The Indian Party may designate different branches of authorised dealers for different
Joint Ventures/Wholly Owned Subsidiaries outside India.
(vi) The Indian Party submits form ODA, duly completed, to the designated branch of
an authorized dealer.
(3) Investment under this Regulation may be funded out of one or more of the following
sources, namely: -

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i. out of balance held in the Exchange Earners' Foreign Currency account of the Indian party
maintained with an authorised dealer in accordance with Regulation 4 of Foreign Exchange
Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000;
ii. drawal of foreign exchange from an authorised dealer in India not exceeding 100 % of the
net worth of the Indian Party as on the date of last audited balance sheet;
Explanation: - For the purpose of the limit of 100% of the net worth the following shall be
reckoned, namely:
(a) Cash remittance by market purchase
(b) Capitalization of export proceeds and other dues and entitlements as mentioned in
Regulation 11 and 12;
(c) fifty per cent of the value of guarantees issued by the Indian party to or on behalf of the
Joint Venture Company or Wholly Owned Subsidiary
(d) utilization of the amount raised by issue of ADRs/GDRs by the Indian party;
(e) External Commercial Borrowing in conformity with other parameters of the ECB
guidelines.
Explanation:
for the purpose of reckoning net worth of an Indian party, the net worth of its holding
company (which holds at least 51% stake in the Indian Party) or its subsidiary company (in
which the Indian party holds at least 51% stake) may be taken into account to the extent not
availed of by the holding company or the subsidiary independently and has furnished a letter
of disclaimer in favour of the Indian Party;
Provided further that the ceiling mentioned in sub-clause (2)(i) shall not apply where
the investment is made out of balances held in its EEFC account, maintained in
accordance with the Foreign Exchange Management (Foreign Currency Accounts by
a Person Resident in India) Regulations, 2000, as amended from time to time.
(4) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint
Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment,
provided that the Indian Party has made investment by way of contribution to the equity
capital of the Joint Venture.
(5) An Indian Party may make direct investment without any limit in any foreign security out
of the proceeds of its international offering of shares through the mechanism of ADR and/or
GDR: -
Provided that

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(a) the ADR/GDR issue has been made in accordance with the Scheme for issue of
Foreign Currency Convertible Bonds and Ordinary Shares (through Depository
Receipt Mechanism) Scheme 1993 and the guidelines issued thereunder from time to
time by the Central Government;
(b) the Indian Party files with the designated authorised dealer in form ODA full
details of the investment proposed.
(6)(a) For the purposes of investment under this Regulation by way of remittance from India
in an existing company outside India, the valuation of shares of the company outside India
shall be made, -
(i) where the investment is more than USD 5 (Five) million, by a Category I Merchant
Banker Registered with Securities and Exchange Board of India (SEBI), or an
Investment Banker/Merchant Banker outside India registered with the appropriate
regulatory authority in the host country; and
(ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant.
(b) For the purposes of investment under this Regulation by acquisition of shares of an
existing company outside India where the consideration is to be paid fully or partly by issue
of the Indian party’s shares, the valuation of shares of the company outside India shall in all
cases, be carried out by a Category I Merchant Banker registered with the Securities and
Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India
registered with the appropriate regulatory authority in the host country.
Further Regulation 10 (A) (b) states any share/convertible debenture of an Indian
Company, by way of sale, shall obtain the Government Approval for the transfer and
thereafter apply to the Reserve Bank for its approval, which may be granted subject to such
conditions as are considered necessary by Reserve Bank, including price at which such sale
may be made.
Hence as on date most of NBFC activities are under 100% automatic route which does not
require any government approval, therefore, the issue is to get the Prior Approval from
Reserve Bank of India to transact the Transfer of Indian Company Shares to PROI.
Transfer by way of sale of shares of a JV/WOS10
No Indian party is entitled to sell any share or security held by it in a joint venture or wholly-
owned subsidiary outside India, to any person, except as otherwise provided in the FEMA
laws or with the permission of the RBI.

10
Regulation 16, FEMA 19

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(c) RBI approval in special cases
In the event the Indian company does not satisfy the eligibility conditions under regulations
as stated hereinabove, it may make an application to the RBI for special approval.34 Such
application for direct investment in joint venture/wholly-owned subsidiary outside India, or
by way of exchange of shares of a foreign company, is to be made in Form ODI, or in Form
ODB, respectively. In considering the application, the RBI may take into account the
following factors:
(i) Prima facie viability of the joint venture/wholly-owned subsidiary abroad.
(ii) Contribution to external trade and other related benefits.
(iii) Financial position and business track record of the Indian company and the foreign
company; and
(iv) Expertise and experience of the foreign company in the same or related line of activity of
the joint venture or the wholly-owned subsidiary abroad.
PROCEDURE TO BE FOLLOWED AS PER RBI GUIDELINES:

FEMA and RBI Guidelines:

 The guidelines have been notified by the Reserve Bank of India vide Notification No.
FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, which can be
accessed at the Reserve Bank’s website http://www.rbi.org.in/scripts/Fema.aspx. A
Master Direction titled ‘Master Direction on Direct Investment by Residents in Joint
Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad’ has been issued. The
Master Directions consolidate instructions on rules and regulations framed by the
Reserve Bank under various Acts including banking issues and foreign exchange
transactions and is available at ‘Notification’ Section on RBI’s website
https://www.rbi.org.in.

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[II]. ACQUISITION OF SHARES OF MARROM-ESCURO LTDA (MEL) BY

CHOCOLAT DES LEOFRIC LIMITED (LEOFRIC)

It is proposed before the Board of Directors of BL (Bhojanam Limited) that the particular
MEL (Marrom-Escuro Ltda), which is a wholly owned subsidiary company of BL i.e.; 100%
shares are owned by BL, can be acquired by Leofric (Chocolat des leofric limited).

TAX EFFECT ON THIS TRANSFER

With reference to the Finance Bill 2018 the Government has come up with an insertion to
section 112A under the Income Tax Act, 1961. The new section 112A has been inserted in
order to levy long-term capital gain tax on the transfer of equity share, units of equity
oriented funds and units of the business trust. The main object behind the introduction of new
section 112A, as provided by the Government, is that the exemption from long-term capital
gain tax on transfer of equity share, units of equity oriented funds and units of business trust
has led to significant erosion in the tax base resulting in loss of revenue and due to abusive
use of tax, arbitrage opportunities had been created because of the said exemption. Before
Amendment of Section 112A Before Assessment Year 2018-2019, long-term capital gain tax
on transfer of equity share, units of equity oriented funds and units of business trust was
exempted as per provisions of section 10 (38). After Amendment of Section 112A

With effect from 1st April, 2018, provisions of section 10 (38) will not be applicable to any
income arising from transfer of equity share, units of equity oriented funds and units of
business trust. From 1st April, 2018, provisions of section 112A shall be applicable to tax
income arising from transfer of equity share, units of equity oriented funds and units of
business trust. Applicability of Section 112A Section 112A shall be applicable from 1st
April, 2018 (A.Y. 2019-2020). Transaction affecting levy of capital gain on transfer of equity
share, units of equity oriented funds and units of business trust shall be governed by the
provisions of section 112A from the effective date. Section 112A shall be applicable only in
case where Securities Transaction Tax (popularly known as STT) has been paid at the time of
transfer, and also on an acquisition in case of equity share / units of equity oriented funds.
Income Tax Rate under Section 112A When provisions of section 112A are applicable, long-
term capital gain tax @10% shall be levied. Further, in order to levy long term capital gain
tax @10%, the capital gain should be exceeding INR 1 Lakh. Calculating Long-Term Capital
Gain under Section 112A First and second proviso to section 48 i.e. benefit of indexation of

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cost of acquisition and cost of improvement shall not be allowed while calculating long term
capital gain tax under section 112A. Further, in case of NRI, benefit of indexation and benefit
of calculation of capital gain in foreign currency will not be allowed in cases where section
112A is applicable. Cost of acquisition for the assets acquired before 1st February, 2018,
shall be higher of the following; The actual cost of acquisition, and The lower of the fair
market value of such assets and the full value of consideration received or accruing as a result
of the transfer of the capital asset. Fair market value should be calculated in following
manner –

 Fair market value for capital assets listed on recognized stock exchange as on 31st January,
2018 shall be –

 Fair market value shall be the highest price of the capital asset quoted on 31st January,
2018.

 Fair market value in case if there is no trading of the capital asset on 31st January, 2018
will be highest price of the capital asset quoted on date immediately preceding 31st January,
2018 when the asset was last traded.

 Fair market value of capital assets is a unit and is not listed on recognized stock exchange
as on 31st January, 2018 shall be –

 In such case, fair market value of such capital assets shall be net asset value of the
capital asset as on 31st January, 2018. Fair market value in other case shall be – In case of
equity share which are not listed in the stock exchange as on 31st January, 2018, however,
the same has been listed on stock exchange on the date of transfer – Fair market value in such
case shall be an amount which bears to the cost of acquisition the same proportion as cost
inflation index for the F.Y. 2017-18 bears to the cost inflation index for the first year in
which the asset was held or for the year beginning on 1st April, 2001, whichever is later.
Deductions under section 80C to 80U and/or rebate under section 87A shall not be allowed to
the effect of capital gain levied effecting provisions of section 112A.

HENCE, THE MEL NEEDS TO PAY @10% TAX AS PER 112A OF THE
INCOME TAX ACT, 1961 W.R.T TRANSFER

CONCLUSION
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Basing upon above submissions, there are two reasonable methods available to the BL
Company. Firstly, Section 112A shall be applicable only in case where Securities Transaction
Tax (popularly known as STT) has been paid at the time of transfer, and also on an
acquisition in case of equity share / units of equity oriented funds. Income Tax Rate under
Section 112A when provisions of section 112A are applicable, long-term capital gain tax
@10% shall be levied. Further, in order to levy long term capital gain tax @10%, the capital
gain should be exceeding INR 1 Lakh. Without prejudice to the above Secondly, It is
suggested to transfer 100% shares of MEL to Leforic by that the BPL holds 70% of MEL and
30% by BCG as a consequence. The transfer of 30% of the shares in MEL to BCG through
Leofric is very efficient if we transfer those share by mode of Gift. As we know that the Gift
of shares of one foreign subsidiary to another foreign subsidiary without consideration is not
liable to capital gains tax. If the shares are converted to dematerialize from then stamp duty
cannot be levied. THEREFORE, gifting of the shares of MEL to Leofric is the best method to
opt.

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