Under the scheme of demerger of B Ltd. effective from 1 April 2X13, pharma division of B Ltd. has been demerged into C Ltd. The main intention of…

Under the scheme of demerger of B Ltd. effective from 1 April 2X13, pharma division of B Ltd. has been demerged into C Ltd. The main intention of setting up C Ltd. is to construct and maintain various pharma projects demerged from B Ltd. A Ltd. holds 51% stake ownership and B Ltd. holds 49% stake ownership in C Ltd. The operations of C Ltd. are conducted through the Board of Directors who are nominated by A Ltd. and B Ltd. in equal proportion. A Ltd. has the exclusive right over the construction/structural design of the pharma projects. B Ltd. does not have any control over making structural changes. Further, all the cheques irrespective of value are processed and approved by A Ltd. Also, all product pricing decisions and marketing strategy are solely undertaken at the discretion of A Ltd. and do not require any approval from B Ltd. A trust named “ABC Foundation” has been formed on 1 April 2XX5. This trust has been recognised under the Income-tax Act. The core objectives of the trust are promoting education, training and research. Decision will be taken by the majority and the composition of trustees has effectively only three members (namely Mr. X, Mr. Y and Mr. Z) who are closely related to A Ltd. and who actively participate in the operations and management of A Ltd. Apart from them, the other seven trustees are independent to A Ltd. and does not have any relation with Mr. X and Mr. Y. A Ltd. has constructed five schools and transferred the same to ABC Foundation on an arm's length price. A Ltd. has been benefited from economies of scale and synergy benefits by selling these schools. There are no continuing benefits from these schools. A Ltd. has contributed ₹ 10 crores during the financial year 2X16-2X17 to the trust on account of statutory compliances namely Section 135 of the Companies Act, 2013 and claimed 50% eligible deduction under the Income-tax Act. Employees of A Ltd. get a discount of 20% on school fees paid by them towards education of their children at these schools. The discount is not provided by ABC Foundation, instead the cost is borne by A Ltd.