Vishnu Textiles Ltd. (VTL), an Indian company, holds 100% shares in Laskhmi Textiles Ltd. (LTL), also an Indian company. LTL had sold shares held by it in Bharat Textiles Ltd. (BTL), an unlisted company, on 21st November

Sale of Shares of Bharat Textiles Limited 'BTL' by Laskhmi Textiles Ltd 'LTL' to Vishnu Textiles Limited 'VTL' on 21st Nov, 2012 Since VTL is an Indian company which holds 100% shares of LTL, the transfer of capital assets, namely, shares of BTL by LTL to VTL would not be treated as transfer for attracting capital gain tax liability as per section 47(v) of the Income Tax Act, 1961. Consequently, no capital gains tax would have been attracted on such transfer in the hands of LTL. Disinvestment by Vishnu Textiles Limited 'VTL' of 10% shares in Laskhmi Textiles Ltd 'LTL' on 25th Feb, 2019 As per section 47A(1) of the Income Tax Act, 1961, where holding company ceases to hold 100% of shares of the subsidiary company before the expiry of a period of eight year from the date of transfer of capital assets, the amount of capital gains not charged to tax at the time of transfer would be deemed to be income chargeable under the head Capital Gains of the previous year in which such transfer took place. In this case, the above deeming provision would apply because the eight year period from the transfer expires on 20th Nov, 2020 and the disinvestment by VTL ltd of 10% shares held in LTL ltd was in February, 2019. So, whatever LTCG was not taxed earlier in the AY 2013-14 will become taxable in AY 2019-20 in the hands of LTL. Particulars Amount (₹) Sale Consideration 5000000 Less: Indexed cost of acquisition (₹ 2180000*200/109) (4000000) LTCG which becomes chargeable to tax 1000000 Tax Liability @ 20.80% [20% + HEC @ 4% on 20%] 208000 Note: Shares transferred to public (Disinvestment) by Vishnu Textiles Limited 'VTL' of 10% shares in Laskhmi Textiles Ltd 'LTL' on 25th Feb, 2019 will also attract tax liability. Surcharge is not considered will computing the capital gain tax liability. Sale of shares of Bharat Textiles Limited 'BTL' by Vishnu Textiles Limited VTL on 23rd Feb, 2019 This transaction would attract capital gains tax in the hands of VTL Ltd. for the AY 2019-20. The Capital Gains would be long term, since the period of holding is more than 24 months. Computation of Capital Gains in the hands of VTL for AY 2019-20 Particulars Amount (₹) Sale Consideration 7200000 Less: Indexed cost of acquisition (₹ 5000000*280/200) Note - 2 (7000000) LTCG 200000 Tax Liability @ 20.80% [20% + HEC @ 4% on 20%] 41600 Note: Surcharge is not considered while computing the capital gain tax liability. The Indexed cost of acquisition has been computed by considering the cost of acquisition at which the shares have been acquired by VTL as per the provision of section 49(3) of the Income-tax Act, 1961.