BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Transfer Of A Capital Asset [Section 2(47)] for Computing Capital Gain

What is Transfer of Capital Assets [Section 2(47)]:
Transactions Not regarded as Transfer of Capital Assets [Sections 46 and 47]:
Transfer in case of Immovable and Movable Property
Transfer of Capital Asset in Table Chat Format [Section 2(47)]

Capital gain arises only when there is a transfer of capital asset. If the capital asset is not transferred or if there is any transaction which is not regarded as transfer (See para 7.3b), there will not be any capital gain. However, in case of profits or gains from insurance claim due to damage or destruction of property, there will be capital gain although no asset has been transferred in such case.

1. What is Transfer of Capital Assets [Section 2(47)]:

Transfer, in relation to capital asset, includes:

the sale, exchange or relinquishment of the asset; or
the extinguishment of any rights therein; or
the compulsory acquisition thereof under any law; or
in a case where the asset is converted by the owner thereof into, or is treated by him, as stockin-trade of a business carried on by him, such conversion or treatment; or
the maturity or redemption of zero coupon bonds; or
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
any transaction (whether by way of becoming a member of, or acquiring shares in a cooperative 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.

2. Transactions Not regarded as Transfer of Capital Assets [Sections 46 and 47]:

The meaning of transfer is given in section 2(47), whereas transactions not regarded as transfer are covered u/ss 46 and 47. In many transactions although there is a transfer, but these are not considered to be transfer for purposes of capital gains.

Some of the relevant transactions which are not regarded as transfer are:

where the assets of a company are distributed to its shareholders on liquidation of a company, such distribution shall not be regarded as transfer in the hands of the company [Section 46(1)];
any distribution of capital assets on the total or partial partition of Hindu Undivided Family [Section 47(i)];
any transfer of a capital asset under a gift or will or an irrevocable trust [Section 47(iii)];
any transfer of a capital asset by a company to its 100% subsidiary company provided the subsidiary company is an Indian company [Section 47(iv)];
any transfer of a capital asset by a 100% subsidiary company to its holding company, if the holding company is an Indian company [Section 47(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 [Section 47(vi)];
any transfer in a scheme of amalgamation of shares held in an Indian company by the amalgamating foreign company to the amalgamated foreign company if certain conditions are satisfied.
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 [Section 47(vib)];
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 certain conditions are satisfied.
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 [Section 47(vid)];
any transfer by a shareholder, in a scheme of amalgamation, of shares held by him in the amalgamating company if certain conditions are satisfied:
any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to another non-resident; [Section 47(viiaa)]

3. Transfer in case of Immovable and Movable Property

Different rules are applicable in case of movable/immovable assets to find out when a capital asset is “transferred”.

A. Transfer in case of Immovable property when documents are registered -

Title to immovable assets will not pass till the conveyance deed is executed or registered.

B. Transfer in case of Immovable Property when documents are not registered -

Even if the documents are not registered but the following conditions of section 53A of the Transfer of Property Act are satisfied, ownership in an immovable property is “transferred”—

there should be a contract in writing;
the transferee has paid consideration or is willing to perform his part of the contract; and
the transferee should have taken possession of the property.

When these conditions are satisfied, the transaction will constitute “transfer” for the purpose of capital gains.

C. Transfer in case of Movable Property -

Title to a movable property passes at the time when property is delivered pursuant to a contract to sell. Entries in the books of account are not relevant for determining date of transfer.