MM TAX CLUB

S.No.

Issue

Clarification

Taxability of share capital held in subsidiary company by the parent company

1.

Whether  the  activity  of holding  shares  by  a  holding company  of  the  subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not.

Securities are considered neither goods nor services in  terms  of  definition  of  goods  under clause (52)  of section 2 of CGST Act and the definition of services under clause (102) of the said section. Further, securities include  ‘shares’  as  per  definition  of  securities  under clause  (h)  of  section  2  of  Securities  Contracts (Regulation) Act, 1956.

This implies that the securities held by the holding company in the subsidiary company are neither goods nor  services.  Further,  purchase  or  sale  of  shares  or securities, in itself is neither a supply of goods nor a supply  of  services.  For  a  transaction/activity  to  be treated as supply of services, there must be a supply as defined under section 7 of CGST Act. It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry ‘997171’ in the scheme of classification of  services  mentioning;  “theservices   provided   by holding  companies,  i.e.  holding  securities  of  (or  other equity  interests  in)  companies  and  enterprises  for  the purpose of owning a controlling interest.”, unless there is a supply of services by the holding company to the subsidiary  company  in  accordance  with  section  7  of CGST Act.

Therefore,  the  activity  of  holding  of  shares  of subsidiary  company  by  the  holding  company  per  se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST.