(a) Transfer—U/s 2(47) of Income-tax Act 1961, the term ‘transfer’ has been defined as Transfer in relation to a capital asset includes :
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or
(vi) any transaction (whether by way of becoming a member of, a acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property.
(vii) maturity or redemption of a zero coupon bond.
Clarification of the expression “Transfer” [Explanation 2 to Section 2(4 7)] [w.r.e.f. 1-4-1962]
“Transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or unconditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a Co. registered or incorporated outside India.
In this definition the word ‘transfer’ represents the sale, exchange or relinquishment of the assets. The ownership of the asset has to change to make a complete transfer. Eric L. Kohler has defined transfer as “The passage of property usually with title, or of services from one person to another.” The asset may be transferred under free-will or under compulsion. The scheme of capital gain taxation includes both the types of transfer, voluntary or involuntary. As such any sale of asset of debtor under the court order will be ‘transfer’ under the provision of this Act.
It is immaterial whether the assets are transferred by the owner himself or on his behalf by some other person. Assets of the firm under dissolution are sold by a commissioner or receiver under the order of court and if there is capital gain, the firm under dissolution will pay tax on such capital gain.
The compulsory acquisition of an asset by Government also constitutes ‘transfer’ and any gain arising from such transaction will also be considered as ‘Capital Gains’. The meaning of word ‘transfer’ is not restricted only to transfers by act of parties : compulsory acquisition of the property also amounts to a transfer. [Vadilal Soda Ice Factory v. CIT (1917) 80 I.T.R. 711]. “A running concern’s sale by a firm to a company (newly formed) will also be considered as transfer.”