ITO Section 97

Disposal of asset between wholly-owned companies.

(1) Where a resident company (hereinafter referred to as the “transferor”) disposes of an asset to another resident company (hereinafter referred to as the “transferee”), no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:-

• (a) Both companies belong to a wholly-owned group of  [resident] companies at the time of the disposal;
• (b) the transferee must undertake to discharge any liability in respect of the asset acquired;
• (c) any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal; and
• (d) the transferee must not be exempt from tax for the tax year in which the disposal takes place.

(2) Where sub-section (1) applies —

• (a) the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;
• (b) the transferee’s cost in respect of the acquisition of the asset shall be —

(i) in the case of a depreciable asset or amortized intangible, the written down value of the asset or intangible immediately before the disposal;

(ii) in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35  [ ], that value; or

(iii) in any other case, the transferor’s cost at the time of the disposal;

• (c) if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deductions allowed under those sections to the transferee in the tax year in which the transfer is made; and
• (d) the transferor’s cost in respect of any consideration in kind received for the asset shall be the transferor’s cost of the asset transferred as determined under clause (b), as reduced by the amount of any liability that the transferee has undertaken to discharge in respect of the asset.

(3) In determining whether the transferor’s deductions under sections 22, 23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

(4) The transferor and transferee companies belong to a wholly-owned group if :

• (a) one company beneficially holds all the issued shares of the other company; or
• (b) a third company beneficially holds all the issued shares in both companies