Under Section 47, the following transactions are not regarded as transfers. Hence any gain arising from such transactions is also not taxable under the head ‘Capital Gains’.
(i) Any distribution of capital asset on the total or partial partition of Hindu Undivided Family.
But this provision will not be applicable if the assets of the HUF are sold by Karta and cash is realised and after that the cash is distributed among the members. In this case HUF shall have to pay tax on any gain which has accrued to it on sale of assets.
(iii) Any transfer of assets under a gift or will or an irrevocable trust.
This clause shall not be applicable to transfer under a gift or irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under the Employees’ Stock Option or stock purchase scheme.
(iv) Any transfer of capital assets by a company to its subsidiary company, if
(a) The parent company or its nominees hold the whole of share capital of the subsidiary, and
(b) The subsidiary company is an Indian company.
(v) Any transfer of capital assets 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.
The Finance Act 1988 has added an explanation according to which the provisions of points (iv) and (v) above shall not be applicable if an asset is converted into stock- in-trade. This provision is applicable from 29th Feb. 1988.
(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 provided
(a) at least 25% 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 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 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 section 5(c) of the Banking Regulation Act, 1949
(ii) “banking institution” shall have the same meaning assigned to it in section 45(15) of the Banking Regulation Act, 1949.
(vib) Transfer of assets on demerger
(a) Any transfer of a capital asset owned by a demerged company to the resulting Indian company under a scheme of demerger [Section 47(vib)]
(b) In case demerger of foreign companies is taking place and capital asset in the nature of shares of an Indian company held by such demerged company are transferred to resulting foreign company, it shall not be regarded as transfer if
(i) The shareholders holding not less than 3/4th in value of shares remain shareholders of the resulting company ; and
(ii) there is no tax on such capital gain in the country in which such foreign demerged company is incorporated. [Section 47(vic)]
(c) Any transfer of shares by the resulting company (under the scheme of demerger), if such transfer is made in consideration of demerger.
(vii) Any transfer by a shareholder in a scheme of amalgamation of 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 amalgamating 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 sec. 115 AC(l) (units purchased in foreign currency) shall not be regarded as transfer, if such transfer is made outside India by a non-resident to another non-resident.
(viii) Any transfer of agricultural land in India affected before 1st 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 Official Gazette to be of national importance or to be of renown throughout any State or States.
(x) Any transfer by way of conversion of bonds, 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 (as referred in Section 1 15AC(1)(a)) 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 stock exchange of a recognised stock exchange to a company in exchange of shares allotted by that company to the transfer. These shares cannot be transferred for 3 years.
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 Contract (Regulation) Act, 1956 (42 of 1956).
(xii) Any transfer of a capital asset, being land of a sick industrial company, under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act 1985 (1 of 1986) where such 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 such has become a sick industrial company and ending with the previous year in which the entire networth of such company becomes equal to or exceeds the accumulated losses.
(xiii) When any capital or intangible asset owned by a firm is transferred to a compamy which has succeeded the firm, it shall not be regarded as transfer if
(a) all the assets and liabilities of the firm existing on the date of succession are taken over by the company,
(b) all the partners of the firm become shareholders of the company in same proportion in which their capitals existed on the date of succession,
(c) the partners do not receive any other benefit except allotment of shares in such company, and
(d) the shareholding of all the partners of the firm in the succeeding company is not less than 50% of voting power on the date of succession and remains so for 5 succeeding years.
(xiiia) With effect from 1-4-2004 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, corporatisation which is approved by the Securities and Exchange Board of India. [Section 47(xiiia)]
(xiiib) Any transfer of a capital asset or intangible asset by a private company or unlisted public company to a limited liability partnership (LLP) or any transfer of a share or shares held
in the company by a shareholder as a result of conversion of the company into limited liability partnership under the provisions of section 56 or 57 of Limited Liability Partnership Act, 2008, shall not be regarded as transfer on fulfilment of the following conditions
(a) All the assets and liabilities of the company immediately before the conversion become the assets and liability of the limited liability partnership;
(b) All the shareholders of the company immediately before the conversion become the partner of the limited liability partnership (LLP) and their capital distribution and profit sharing ratio in the LLP 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 LLP;
(d) The aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than 50% at any time during the period of 5 years from the date of conversion;
(e) The total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed 60 lath; and
(J) No amount is paid, either directly or indirectly, to any partner out of balance of accumulated profits standing in the accounts of the company on the date of conversion for a period 3 years from the date of conversion.
(xiv) When any capital or intangible asset owned by a sole proprietary concern is transferred to a company which has succeeded the sole proprietary concern, it shall not be regarded as transfer if
(a) all the assets and liabilities of the sole proprietary concern existing on the date of succession are taken over by the company,
(b) shareholding of the sole proprietor in the company is not less than 50% of voting power on the date of succession and remains so for 5 succeeding years, and
(c) the sole proprietor does not receive any other benefit except allotment of shares in such company.
(xv) In case there is transfer due to lending of securities by its holder under an agreement with the borrower and as per guidelines issued by Securities Exchange Board of India, or by R.B.I. it shall not be deemed as transfer.
(xvi) Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by Central Government.
(xvii) In case a private company or unlisted public company is converted into a limited liability partnership; the transfer of capital assets or intangible assets to Limited Liability Partnership or a shareholder transfers shares held in such a company, such transfer shall not be regarded as transfer if certain conditions are fulfilled.