S. 47 (v) of the Income Tax Act provides that a transfer of a capital asset by a subsidiary company to its holding company shall not be regarded as a “transfer” if the whole of the share capital of the subsidiary company is held by the holding company. The Companies Act stipulates that a private company should have a minimum of two shareholders. Accordingly, two shares of the said subsidiary were held by a director of the assessee and not by the assessee itself. The Bombay High Court negated the argument of the Tax Department that the assessee is not entitled to the benefit of the section. The Court held that a strict or mechanical interpretation making the statutory provision redundant should not be adopted, otherwise there will not be any situation in which s. 47(v) can apply, which cannot be the intention of the legislature.
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