"Transactions" Not Regarded As “Transfers” @ Capital Gain
Not every kind of transfer of a capital asset subjects the gains therefrom to capital gains tax. This is because there are certain kinds of transfers which are not regarded as covered under the charging Section 45 and consequently any capital gains made by an assessee as a result of transfer of a capital asset in those cases would be wholly exempt from tax. The following are the types of such transfers which are not regarded as “transfers” for the purposes of capital gains tax as per Section 47:
(i) any distribution of capital asset on the
total or partial partition of a Hindu undivided family;
(ii) omitted.
(iii) 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
(iv) 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;
(v) 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;
(vi) 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 instituion;
(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;
(vie) 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;
(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, 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 11 5AC,
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, manIscript,
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.
Explana&n — For the purposes of this clause , “University” means a University established or incorporated by or under a Central, State or Provincial Act and indudes an institution dedared 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, or 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 11 5AC into shares or
debentures of any company (added by the Finance Bill w.e.f. the AY 2008-09);
(xi) any transfer made on or before the 31 St 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, mae 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; (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; and (e) the corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualization 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 rights 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).
(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 or the
Reserve Bank of India constituted under sub-section (1) of Section 3 of the
Reserve Bank of India Act, 1934, in this regard.