Transfer Of Fintech App To Subsidiary Is Transfer Of Going Concern: Karnataka AAR

The Karnataka Authority for Advance Ruling (AAR) has held that the GST exemption is available on the transfer of an independent part of business pertaining to mobile software.

The two-member bench of M.P. Ravi Prasad and Kiran Reddy T. has observed that the transfer of an independent part of business pertaining to the "Loan Front" app, a mobile software, qualifies as a transfer of going concern, and the said activity amounts to "service by way of transfer of going concerned as an independent part" and thus is exempt from GST.

The applicant is a start-up based in Bengaluru, incorporated with a focus on providing data analytics and digital marketing services, and registered under the CGST/KGST Act 2017. The applicant owns a mobile application, developed and owned by them, called "Loan Front," which is a fintech product and is used as a digital platform to facilitate the lending of short-term personal loans. The applicant intends to transfer the said mobile application software to their wholly-owned subsidiary, Vaibhav Vyapaar Private Limited (VVPL).

The applicant sought an advance ruling in respect of the determination of the liability to pay tax on the transfer of part of their business, i.e., the "Loan Front" app, a mobile software. As a result, the application is valid under Section 97(2)(e) of the CGST Act 2017.

The AAR noted that the transfer of business pertains to the "Loan Front" app sought to be sold, which is a fully functional part of the business, and the transaction contemplates the transfer of the entire aforesaid business to a new person (VVPL), who would not only enjoy a right over the assets but also take over the liabilities. It thus assumes that there will be business continuity because the part of the business that is said to be functional is decided to be transferred to a new owner as a whole. Thus, it amounts to the transfer of a going concern, the independent part of the business.

Applicant's Name: Capfront Technologies Pvt. Ltd.

Date: 12.12.2022

Click Here To Read The Ruling