Section 47-Transactions not regarded as Transfer

Section 47

Section 47 of the Income Tax Act, does not consider the following transactions as transfer. Thus, any gain arising from such transactions is also not taxable under the head ‘Capital Gains’.

Section 47 -Transactions not regarded as Transfer

1. Any distribution of capital assets on the entire or partial partition of a HUF.

2. Any transfer of a capital asset under a will or gift or an irrevocable trust.
Exception: This clause shall not apply to the transfer; under an irrevocable trust or a gift of a capital asset being; shares, warrants or debentures allotted by a company directly or indirectly; to its employees under an 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.

3. Any transfer of a capital asset to the subsidiary company by a parent company.
Provided that the subsidiary company is an Indian company and; the parent company or its nominees hold the whole share capital of the subsidiary company.

4. Any transfer of a capital asset by a subsidiary company to the holding company.
Provided that the holding company is an Indian company and; the holding company holds the whole share capital of the subsidiary company.

Note: Provided that nothing contained in point 3 & 4 shall apply to the transfer of the capital asset made after the 29th February 1988, as stock-in-trade.

5. Any transfer, in the scheme of amalgamation, of a capital asset by an amalgamating company to the amalgamated company; provided that the amalgamated company is an Indian company.

6. Any transfer, in the scheme of amalgamation of a capital asset being; the shares or a share held in an Indian company; by the amalgamating foreign company to the amalgamated foreign company.
Provided that; at least twenty-five percent of the shareholders of an amalgamating foreign company remain the shareholders of the amalgamated foreign company; and this transfer is exempt from tax on capital gains in a country; in which the amalgamating company is incorporated.

7. Any transfer, in the scheme of amalgamation of the banking company with the banking institution, brought & sanctioned into force by the Central Government U/S 45 (7) of the Banking Regulation Act, 1949 (10 of 1949), of the capital asset by a banking company to a banking institution.

Note: Here, “Banking Company” shall have the meaning assigned to it; in section 5(c) of the Banking Regulation Act, 1949 (10 of 1949). “Banking Institution” shall have the same meaning assigned to it; in section 45(15) of the Banking Regulation Act, 1949 (10 of 1949).

8. Any transfer, in the scheme of amalgamation, of the capital asset; being a share of an international company, referred to in the Explanation 5 to clause (i) of section 9(1); which derives, directly or indirectly, its value considerably from the shares or a share of an Indian company; held by the amalgamating international company to the amalgamated foreign company.
Provided that; at least twenty-five percent of the shareholders of the amalgamating international company remain the shareholders of the amalgamated international company; and such transfer is exempt from tax on capital gains in the country; in which an amalgamating company is incorporated.

9. Any transfer of a capital asset, by the demerged company to the resulting company in a demerger; if the resulting company is an Indian company.

10. Any transfer of a capital asset, being the shares or a share held in an Indian company, in a demerger; by the demerged foreign company to the resulting foreign company.
Provided that the shareholders, holding three-fourths or more in the value of the shares of the demerged international company; continue to remain the shareholders of the resulting foreign company and; such transfer is exempt from tax on capital gains in the country; in which the demerged international company is incorporated.

Note: The provisions of section 391 to 394 of the Companies Act, 1956 (1 of 1956); will not apply in the case of demergers, referred here.

11. Any transfer of a capital asset in a business reorganization, by the predecessor co-operative bank to the successor co-operative bank.

12. Any transfer of a capital asset, in a business reorganization, by a shareholder; being the shares or a share held by him, in the predecessor co-operative bank if; the transfer is made in compensation of the allotment to him of any shares or share; in the successor co-operative bank.

Note: For point 11 & 12 here, the expressions “Business Reorganization,” “Predecessor Co-operative bank” & “Successor Co-operative bank” shall hold the meanings ascribed to them in section 44DB respectively.

13. Any transfer of a capital asset, in a demerger; being a share of a foreign company, referred to in the Explanation 5 to clause (i) of section 9(1); which derives, directly or indirectly, its value considerably from the shares or a share of an Indian company; held by the demerged international company to the resulting foreign company.
Provided that; the shareholders, holding three-fourths or more in the value of the shares of the demerged foreign company; continue to remain the shareholders of the resulting foreign company and; such transfer is exempt from tax on capital gains in the country; in which the demerged international company is incorporated.

Note: The provisions of section 391 to 394 of the Companies Act, 1956 (1 of 1956); will not apply in the case of demergers, referred here.

14. Any transfer or issue of shares in a scheme of demerger; by the resulting company, to the shareholders of the demerged company; provided the transfer or issue is made in consideration of demerger of the undertaking.

15. Any transfer of a capital asset, in a scheme of amalgamation, by a shareholder; being the shares or a share held by him in the amalgamating company.
Provided that; the amalgamated company is an Indian company and; the transfer is made in remuneration of the allotment to him of any shares or a share in amalgamated company; except in case, where the shareholder itself is the amalgamated company.

An amendment with effect from 1st April 2018

16. Any transfer of a capital asset, made outside India; being a rupee-denominated bond of an Indian company issued outside India; by a non-resident to another non-resident.

17. Any transfer of a capital asset, being a Government Security bearing a periodic payment of interest; made outside India through the mediator dealing in settlement of securities; by a non-resident to another non-resident.

Note: Here, “Government Security” shall have the meaning assigned to it in section 2(b) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

18. Any transfer of Sovereign Gold Bond issued by the Reserve Bank of India; under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual.

19. Any transfer of agricultural land in India effected before the 1st day of March 1970.

20. Any transfer of a capital asset; implying any work of art, archaeological, art or scientific collection, manuscript, book, drawing, painting, print or photograph; to the University or the Government or the National Museum, National Archives, National Art Gallery; or any such other public museum or institution as may be notified by the Central Government; in a Sanctioned Gazette to be of national significance or; to be of renown throughout any States or State.

Note: Here, “University” means a University established or incorporated under or by a Central, State or Provincial Act and; covers an institution disclosed U/S 3 of the University Grants Commission Act, 1956 (3 of 1956); to be the University for that Act.

21. Any transfer by way of conversion of bonds or debentures, or debenture-stock or deposit certificates in any form; of a company into debentures or shares of that company.

22. Any transfer by way of conversion of bonds referred to in section 115AC(1)(a); into shares or debentures of any company.

An amendment with effect from 1st April 2018

23. Any transfer by way of conversion of preference shares of a company into equity shares of that company.

24. Any transfer of a capital asset made on or before the 31st December 1998; by a person (not being a company) being membership of a recognized stock exchange; to a company, in exchange of shares allotted by that firm to the transferor.

Note: Here, the expression “membership of a recognized stock exchange” indicates the membership of a stock exchange in India; which is recognized under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

25. Any transfer of a capital asset, being the land of a sick industrial company, made following a scheme prepared & sanctioned U/S 18 of a Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where the before-mentioned sick industrial company is being controlled by its workers’ co-operative.
Provided that; the before-mentioned transfer is made during the period initiating from the PY in which; the said company has become the sick industrial company U/S 17(1) of that Act and; ending with the PY during which the entire net worth of such company grows equal to/exceeds the accumulated losses.

Note: Here, “Net Worth” shall have the meaning ascribed to it in clause (ga) of section 3(1); of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).

26. Any transfer of a capital asset or an intangible asset to a company by a firm; due to the succession of the firm by a company in a business carried on by a firm or; any transfer of a capital asset to the company; in the course of corporatization or demutualization of a recognized stock exchange in India; due to which such company succeeds a body of individuals or the association of persons.
Provided that;

  • All the assets & liabilities of a firm or body of individuals or the association of persons relating to the business directly before the succession become the assets & liabilities of the company.
  • All the partners of the firm straight before the succession become the shareholders of a company; in the very proportion in which; their capital accounts were in the books of a firm on the date of the succession.
  • The partners of a firm do not receive any remuneration or benefit, directly or indirectly,; in any manner or form, other than by way of allocation of shares in the company.
  • The aggregate of the shareholding in a company of the partners of the firm is fifty percent or more of the entire voting power in a company & their shareholding remains to be as such for five years from the date of the succession.
  • The demutualization or corporatization of a recognized stock exchange in India is carried out as per the scheme for demutualization or corporatization which is sanctioned by the Securities & Exchange Board of India authorized under section 3 of the Securities & Exchange Board of India Act, 1992 (15 of 1992).

27. Any transfer of a capital asset holding a membership right by a member of the recognised stock exchange in India for acquiring of shares & trading or clearing rights received by such member in that recognised stock exchange as per the scheme for demutualization or corporatization which is sanctioned by the Securities & Exchange Board of India authorized under section 3 of the Securities & Exchange Board of India Act, 1992 (15 of 1992).

28. Any transfer of the capital asset or intangible asset to a limited liability partnership; by the private or unlisted public company (hereafter in this clause referred to as the company) or; any transfer of the shares or a share held in the company by a shareholder; due to the conversion of the company into a LLP; in accordance with the provisions of section 56/57 of Limited Liability Partnership Act, 2008 (6 of 2009).
Provided that,

  • All the assets & liabilities of the company directly before the conversion become the assets & liabilities of the LLP.
  • All the shareholders of the company straight before the conversion become the partners of the LLP, and their capital contribution & profit sharing ratio in the LLP is in the same proportion as their shareholding in the company on the day of conversion.
  • The shareholders of the company don’t receive any benefit or consideration, directly or indirectly, in any manner or form; other than by way of share in profit and capital contribution in the limited liability partnership
  • The sum of the profit sharing ratio of the shareholders of a company in the LLP; shall be at least fifty percent at any time during the period of five years from the date of conversion.
  • The total turnover, sales or gross receipts in the business of a company in any of the three PY; preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees.
  • The aggregate value of the assets, appearing in the books of account of a company in any of three PY; preceding the previous year in which the conversion takes place does not exceed five crore rupees.
  • LLP has not paid any amount, either directly/indirectly, to any partner from the balance of accumulated profit; standing in the company’s accounts on the day of conversion; for the period of three years from the date of conversion.

Note: Here, the expressions “private company” and “unlisted public company” shall have the meanings; respectively ascribed to them in Limited Liability Partnership Act, 2008 (6 of 2009).

29. Where the company succeeds a sole proprietary firm in a business carried on by it; due to which the sole proprietary firm sells or otherwise transfers any capital asset or intangible asset to the company.
Provided that,

  • All the assets & liabilities of the sole proprietary firm related to the business directly before the succession becomes the assets & liabilities of the company.
  • The shareholding of the sole proprietor in a company is; not less than fifty percent of the total voting power in a company; and his shareholding continues to remain as such for five years from the date of succession.
  • The sole proprietor does not get any benefit or consideration, directly or indirectly, in any manner or form; other than by way of allocation of shares in the company.

30. Any transfer in the scheme for lending of any securities under an arrangement or agreement, which the taxpayer has entered into with the borrower of so securities & which is subjected to the guidelines issued by the Securities & Exchange Board of India, authorized under section 3 of the Securities & Exchange Board of India Act, 1992 (15 of 1992) or the Reserve Bank of India constituted under section 3(1) of the Reserve Bank of India Act, 1934 (2 of 1934), in this regard.

31. Any transfer of a capital asset in the transaction of the reverse mortgage under a scheme; made and notified by the Central Government.

32. Any transfer of a capital asset, being the share of a special purpose vehicle to a business trust; in exchange of units allocation by that trust to the transferor.

Note: Here, the expression “special purpose vehicle” shall have the meaning assigned to it; in the explanation to clause (23FC) of section 10.

33. Any transfer of a capital asset by the unitholder, being units or a unit; held by him in a consolidating scheme of a mutual fund; made in consideration of the allocation to him of a capital asset, being units or a unit; in a consolidated scheme of the mutual fund.
Provided that; a consolidation is of two or more schemes of (EOF) equity oriented fund or; of two or more schemes of the fund other than equity oriented fund (EOF).

Note: Here;
a. “Consolidated Scheme” means the scheme with which; the consolidating scheme merges or which is formed as a result of such merger.
b. “Consolidating Scheme” means the scheme of the mutual fund which merges under the process of consolidation of the schemes of the mutual fund as per the Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 made under a Securities & Exchange Board of India Act, 1992 (15 of 1992).
c. “Equity Oriented Fund” shall have the meaning ascribed to it in section 10(38).
d. “Mutual Fund” means a mutual fund specified under section 10(23D).

34. Any transfer of the capital asset by a unitholder, being the units or a unit; held by him in a consolidating plan of a mutual fund scheme; made in consideration of the allocation to him of a capital asset, being the units or a unit; in the consolidated plan of that scheme of a mutual fund.

Note: Here;
a. “Consolidating Plan” means a plan within a scheme of a mutual fund which merges under a process of consolidation of the plans within the scheme of mutual fund as per the Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities & Exchange Board of India Act, 1992 (15 of 1992).
b. “Consolidated Plan” means a plan with which the consolidating plan merges or which is formed due to such merger.
c. “Mutual Fund” means a mutual fund defined under clause (23D) of section 10.

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