There are certain transactions which are not considered as transfers even though there is any transfer of property for the purpose of computation of capital gains.
Few transactions are:
- Any distribution of capital assets on the total or partial partition of a HUF
- transfer of a capital asset under a gift or will or an irrevocable trust;
- any transfer of a capital asset by a company to its subsidiary company
- any transfer, in a scheme of amalgamation,
- any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company, etc
These are few transactions which are not treated as transfer u/s 47 of Income tax Act, 1961.
It is explicable that any transaction that falls u/s 2(47) and involving a Capital Asset that falls u/s 2(14) attracts tax as Capital Gain tax. S. 2(47) cover transactions of almost all sort any road. Withal, the drafters of the Income Tax law had overtly termed certain transactions as those not regarded as Transfer u/s 2(47) of the Act and this is dealt with in S. 47 of the Income Tax Act, 1961. And on those transactions, no Transfer as per S. 2(47) take place as a result of which S. 45, which is the charging section of Capital Gain tax is not attracted.
The Act has incisively classed the section into those applicable for each of the persons as defined u/s 2(31) of the Act, in the sense that several transactions are marked as not regarded as Transfer for each kind of persons under the Income Tax Act, 1961.
Related Cases:
S. 47(iv), 47A, 147, 148, 154, 155(7B) of IT Act, 1961—Reassessment—The assessee claimed exemption from tax on capital arising out of the transfer of the properties to its subsidiary u/s 47(iv) of the Act in the return of income and same was processed u/s 143(1) of the Act. Subsequently, the Assessing Officer issued notices to assessee u/s 148 that the share issue expenses cannot be considered as revenue expenditure and completed the reassessment u/s 143(3) r/w S. 147 of the Act. When the specific provisions u/s 155(7B) provide for the purpose of application of the deemed provisions of S. 47A of the Act, the AO has no authority or jurisdiction to invoke the provisions of S. 147 of the Act which has a wider scope and provides a wider jurisdiction to the AO to reassess income other than the income which is considered as escaped assessment at the time of reopening. The provision of S. 147 of the Act cannot be invoked when the specific remedy is available u/s 155(7B) r/w S. 154 of the Act. Therefore, reopening as well as reassessment are invalid and void ab inito—Sakthi Finance Ltd. vs. ACIT [2010] 2 ITR (Trib) 523 (CHENNAI)
S. 2(47), 45(4), 47(ii) & 145 of IT Act, 1961—Capital gains—S. 45 gets attracted in the case of the transfer of capital asset by way of distribution of capital assets, inter alia, on the dissolution of a firm. When on reconstitution of a firm, new partners are admitted and one new partner took over entire assets and liabilities, it amounts to a transfer of assets on dissolution of a firm and therefore, S. 45(4) of the Act applicable. Thus valuing the closing stock on dissolution of firm at fair market rate is justified—ACIT vs. D. D. International (Global) (2009) 125 TTJ 112 (ITAT-Asr.)
S. 47(xiii) & 47A(3) of IT Act, 1961, S. 565, 574, 575 of Companies Act, 1956—Capital gains—Since no capital gains accrued or arose at the time of conversion of partnership firm into a private limited company under part IX of the Companies Act and therefore, notwithstanding the non-compliance with cl. (d) of proviso to S. 47(xiii) of the Act, by reason of premature transfer of shares, the said company is not liable to pay capital gains tax—Umicore Finance Luxembourg, In re. [2010] 230 CTR 218 (AAR)
S. 2(14), 45, 47(iv), 90, 92 to 92E, 115JB, 195 of IT Act, 1961—Minimum Alternate Tax—The provisions of S. 115JB of the Act are not applicable to a foreign company which has no physical presence in India or permanent establishment in India—Praxair Pacific Ltd. In re. (2010) 326 ITR 276 (AAR)
S.2(19AA), 47(iii), 72A,80-IA & 281 of IT Act, 1961, S.391, 393 of Companies Act, 1956—Company—The petitioner company filed a petition to obtain the sanction to a scheme of arrangement u/s 391 to S. 394 and other applicable provisions of Companies Act, 1956, whereby passive infrastructure assets of the petitioner company together with the passive infrastructure assets of other companies shall vest in and become the right, property and assets of Vodafone Essar Infrastructure Ltd., transferee company. Court concluded that proposed scheme of arrangement which contemplates transfer of passive infrastructure of the petitioner and other group companies to another group company without any consideration and thereafter amalgation/merger of the transferee company with another company is explicitly a scheme of tax avoidance as it is devised to artificially deplete taxable profits of the transferor companies apart from evading tax on capital gains by showing the transfer as a gift and therefore, the proposed scheme cannot be sanctioned u/s 391 of the Companies Act, 1956—Vodafone Essar Gujarat Ltd. In re. (2011) 239 CTR 229 (Guj)
S. 2 (42A), 47(iv), 48 & 49(1)(iii)(e) of IT Act, 1961—Capital gains—S. 45 specifies that capital gains tax is leviable on any profit and gains arising out of the transfer of capital asset. S. 47(iv) specifies that nothing contained in S. 45 would apply to the transfer as specified in S. 47(iv), therefore, in these circumstances, whether there is a consideration or non consideration, no transfer of a capital asset by a company to its subsidiary company if it falls within the provisions of S. 47(iv) shall be considered as transfer and the provisions of S. 45 would not apply. Therefore, transfer of trademarks being of capital gains asset, gains arising therefrom are chargeable to capital gain tax and cost of acquisition being indeterminable long-term capital gains is not liable to any tax—Trent Brands Ltd. vs. ITO [2010] 127 TTJ 65* (ITAT-Del F)(UO)
S. 2(14), 2(47), 45 & 47 (xiiia) of IT Act, 1961, of IT Act, 1961—Capital gains—”Capital asset”, as defined u/s 2(14) means property of any kind held by an assessee, whether or not connected with his business. Membership card which confers right on the member to trade in stock and shares in the exchange, is certainly a property. Clause 47A(b) provides for auction sale of the membership after 90 days of declaring a members as defaulter. Since the stock exchange memership card which is sold in auction is property covered by the description capital asset” u/s 2(14), its sale by stock exchange amounts to “transfer” within meaning of S. 2(47)—CDR P. J. Mathew vs. ITO [2010] 230 CTR 398 (KER)
S. 2(47), 45(3), 45(4) & 47(ii) of IT Act, 1961—Capital gains—S. 47 was introduced to take out certain transactions which otherwise are transfers of capital assets and otherwise taxable u/s 45 from being taxed. On the reintroduction of sub-s. (3) and (4) of S. 45 by the Finance Act, 1987, cl. (ii) of S. 47 has been expressly omitted removing the protective umbrella. Where in respect there is transfer of capital asset, by any mode and to ensure the gain being taxed u/s 47 has been amended. Therefore, continuing the business with the new partners who are introduced after retiring the old partners is a transfer of capital assets within the meaning of S. 2(47) attracting the capital transactions in terms of S. 45(4) of the Act—CIT vs. Gurunath Talkies (2009) 226 CTR 474 (Ker)
S. 47(iv), 115JB of IT Act, 1961—Minimum Alternate tax—The method of computing of book profit provided in the Explanation of S. 115JB should be followed while computing the book profit and normal provisions of computation of profit under any head of the Act shall not be applicable. The capital gains exempt u/s 47(iv)/47(v) are computed by taking the cost of acquisition (and in some cases the notional market value as on April 1, 1981) but in the case of book profits, the profits are the simple difference between the sale price and the cost of acquisition. Hence, the capital gains excluded under the IT Act and that as per books are different. Merely because the long-term capital gains are exempted u/s 47(iv) of the Act under the normal provisions of the Act, they cannot also be reduced from the net profit for the purpose of computing book profit u/s 115JB of the Act when Expln. 1 to S. 115JB does not provide for any deduction in terms of S. 47(iv) of the Act. S. 47(iv) has no application in computation of book profit u/s 115JB of the Act. Hence, in absence of any provision for exclusion of exempted capital gains in the computation of book profit u/s 115JB, the assessee is not entitled to the exclusion as claimed—Rain Commodities Ltd. vs. DCIT (2010) 4 ITR (Trib) 551 (ITAT-Hyd.)
S. 47 of the IT Act, 1961—Capital gains—Even assuming that the amount is on account of transfer of goodwill, the same cannot be brought to tax as the transaction enjoyed exemption u/s 47(iv) of the IT Act 1961—CIT vs. Coats of India Ltd.
S. 2(19) & 47(vib) of the IT Act, 1961—Capital gains—For qualifying as a demerger for the purpose of S. 47(vib) all the conditions laid down in S. 2(19AA) have to be satisfied—Avaya Global Connect Ltd. vs. ACIT (2009) 122 TTJ 300 (ITAT-Mum)
Income Tax Act, 1961, section 47(iv)—Capital gains—Following question has been referred: “Whether the Tribunal was right in law and on the facts in deleting the addition of Rs. 1,85,93,546 holding that the amount in question represented capital gain and the said capital gains was exempt u/s 47(iv) of the IT Act?” While disposing of the reference, the High Court of Gujarat held that: “The order made by the Apex Court in the case of Union of India & Ors. vs. Kaumudini Narayan Dalal & Anr., reported in (2001) 249 ITR 219, wherein, it is held that “it is not open to the Revenue to accept the judgment in case of one assessee and challenge its correctness in the case of other assessee without just cause” applies with full force. No distinguishing feature has been pointed out and hence in absence of any just cause the question referred to the Court requires to be answered in the affirmative upholding the view taken by the Tribunal considering the fact that in case of Sercon (P.) Ltd. similar issue stands concluded against the Revenue. The question is, therefore, answered in the affirmative, that is, in favour of assessee and against the Revenue.”—CIT vs. Shahibaug Enterprises (P.) Ltd. 6 ITCD 89 [2010] 320 ITR 695 (Guj)
S. 45, 47(iii), 49(1)(ii) of IT Act, 1961—Interpretation of taxing statue—The definition in S. 2(xii) or in S. 4(1) of the Gift-tax Act, 1958 cannot be imported for the purpose of construing the word “gift” occuring in S. 47(iii) of IT Act, 1961, since the scope of the two Act are different—M. Suseela vs. ITO [2010] 2 ITR (Trib) 760 (ITAT-VISHAKHAPATNAM)
S. 47, r/w S. 45 of IT Act, 1961, art. 13 of the DTAA between India and Swiss Confederation (Capital Gains)—Capital Gains—The term ‘merger’ is not defined in the Companies Act or in the Income-tax Act. S. 2(1B) of the Income-tax Act defines ‘amalgamation’ in relation to companies as meaning ‘merger’ of one or more companies with another company, or merger of two or more companies to form one company. S. 47(via) exempts any transfer of a similar capital asset by a foreign amalgamating company to the amalgamated foreign company on the condition therein being satisfied—Credit Suisse (International) Holding AG.
S. 45(4), 47(ii), of IT Act, 1961—Capital gains—In the case of the dissolution of a firm, only the firm is taxable on capital gains u/s 45(4) of the Act and not the partner but it is from the A.Y. 1988-89 because upto the A.Y. 1987-88, S. 47(ii) of the IT Act, 1961, excluded transactions of dissolution of the firms—Chalasani Venkateswara Rao vs. ITO [2012] 349 ITR 423 (AP)
S. 45(4), 47(xiii), of IT Act, 1961—Capital gains—In the case of revaluation of assets and its conversion of firm into a private limited company does not attract provisions of S. 45(4) of the Act—ITO vs. Alta Inter-Chem Industries [2012] 20 ITR (Trib) 103 (ITAT-Ahd)
S. 45, 47 of IT Act, 1961—Capital Gains—S. 47(ii) was omitted by the Finance Act, 1987, w.e.f. April 1, 1988 and sub-s. (3) and (4) of S. 45 were inserted by the Finance Act, 1987, w.e.f. April 1, 1988. According to S. 47(ii), distribution of capital assets on the dissolution of a firm, body of individuals or other association of persons does not constitute ‘transfer’ of a capital asset for the purpose of attracting the provisions on capital gains—Midland Theatres vs. ACIT [2013] 350 ITR 676 (MAD)
S. 47 of IT Act, 1961—Capital Gains—To claim benefit u/s 47 assessee must be a wholly owned subsidiary of the holding company. Merely because the assessee was a subsidiary of “Sunair Hotels Ltd.” benefit u/s 47(v) cannot be claimed. The requirement is more stringent—CIT vs. Sunaero Ltd.
Reference:
As Per Section 47, of the Income Tax Act, 1961-
Transactions not regarded as transfer.
47. Nothing contained in section 45 shall apply to the following transfers :—
(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;
(ii) any transfer of a capital asset under a gift or will or an irrevocable trust :
[Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under [any Employees’ Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf]
(iii) any transfer of a capital asset by a company to its subsidiary company, if—
(a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and
(b) the subsidiary company is an Indian company;
(iv) any transfer of a capital asset by a subsidiary company to the holding company, if—
(a) the whole of the share capital of the subsidiary company is held by the holding company, and
(b) the holding company is an Indian company
[Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;]
(v) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company;]
(via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if—
(a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and
(b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated;
(viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution.
—For the purposes of this clause,—
(i) “banking company” shall have the same meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) “banking institution” shall have the same meaning assigned to it in sub-section (15) of section 45 of the Banking Regulation Act, 1949 (10 of 1949);]
(vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;
(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if—
(a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated :
Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause;
(vica) any transfer in a business reorganization, of a capital asset by the predecessor co-operative bank to the successor co-operative bank;
(vicb) any transfer by a shareholder, in a business reorganization, of a capital asset being a share or shares held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank.
Explanation.—For the purposes of clauses (vica) and (vicb), the expressions “business reorganisation”, “predecessor co-operative bank” and “successor co-operative bank” shall have the meanings respectively assigned to them in section 44DB;]
(vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;]
(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if—
(a) the transfer is made in consideration of the allotment to him of any share or shares in the [amalgamated company except where the shareholder itself is the amalgamated company, and]
(b) the amalgamated company is an Indian company;
(viia) any transfer of a capital asset, being bonds or [Global Depository Receipts] referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident;]
(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970;
(ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States.
—For the purposes of this clause, “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act;
(x) any transfer by way of conversion of [bonds or] debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company;]
(xa) any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section 115AC into shares or debentures of any company;]
(xi) any transfer made on or before the 31st day of December, [1998] by a person (not being a company) of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor.
Explanation.—For the purposes of this clause, the expression “membership of a recognised stock exchange” means the membership of a stock exchange in India which is recognised under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers’ co-operative :
Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.—For the purposes of this clause, “net worth” shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);]
(xiii) [any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of [demutualisation or] corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :]
Provided that—
(a) all the assets and liabilities of the firm [or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company;
(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;
(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and
(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;
(e) the [demutualisation or] corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for [demutualisation or] corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]
(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]
(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 (6 of 2009):
Provided that—
(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;
(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;
(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;
(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;
(e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and
(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.
—For the purposes of this clause, the expressions “private company” and “unlisted public company” shall have the meaningsrespectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009);]
(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :
Provided that—
(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company;
(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and
(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company;
(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) [or the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934)], in this regard;]
(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government.]