A Ltd., an Indian company is a wholly owned subsidiary of another Indian company - E Ltd. On 1.10.2020, A Ltd. sold a plot of land to E Ltd. for 35…

(i) Tax implications in the hands of A Ltd. Transfer of plot of land by A Ltd., an Indian subsidiary company to E Ltd., its Indian holding company on 1.10.2020 is not regarded as transfer as per section 47. Hence, there is no tax implications in the hands of A Ltd., being the transferor. However, on conversion of the plot of land into stock in trade by E Ltd. on 1.2.2023 before the expiry of 8 years from the date of transfer, the capital gains exempt from tax by virtue of section 47 will be deemed to be the income of A Ltd. chargeable under the head 'capital gains' of the P.Y. 2020-21, being the year in which such transfer took place. Accordingly, the following amount of long-term capital gains would be chargeable to tax for the A.Y. 2021-22: Capital gains (₹) Full value of consideration 35,00,000 Less: Indexed cost of acquisition [₹ 15,00,000 x 301/148] 30,50,676 Long-term capital gain chargeable to tax for A.Y. 2021-22 4,49,324 (ii) Tax implications in the hands of E Ltd. Conversion of capital asset into stock in trade is a transfer. The profits or gains arising from the conversion will be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold. Hence, nothing is taxable in the hands of E Ltd. in P.Y. 2022-23. Accordingly, on transfer of stock-in trade by E Ltd. the capital gains and business income for the previous year 2024-25 would be as follows: Capital Gains (₹) Fair market value of land on the date of conversion 60,00,000 Less: Indexed cost of acquisition [₹ 35,00,000 x 331/301] 38,48,837 Long-term capital gains chargeable to tax for A.Y.2025-26 21,51,163 Business Income Sale price 65,00,000 Less: Fair market value of land on the date of conversion 60,00,000 Business income chargeable to tax for A.Y. 2025-26 5,00,000