Income from certain transfers not to be treated as capital gains.
47. (1) The income from the following transfers shall not be included in the computation of income under the head "Capital gains", namely:—
(a) distribution of any investment asset on the total or partial partition of a Hindu undivided family;
(b) gift, or transfer under an irrevocable trust, of any investment asset, other than sweat equity share;
(c) transfer of any investment asset under a will;
(d) transfer of any investment asset by a company to its subsidiary company, if
(i) the parent company or its nominees hold the whole of the share capital of the subsidiary company,
(ii) the subsidiary company is an Indian company; and (iii) the subsidiary company treats the asset as an investment asset;
(e) transfer of any investment asset by a subsidiary company to the holding company, if—
(i) the whole of the share capital of the subsidiary company is held by the holding company or its nominees,
(ii) the holding company is an Indian company, and (iii) the holding company treats the asset as an investment asset;
(f) transfer of any investment asset by a predecessor to a successor in a scheme under a business reorganisation if the successor is an Indian company;
Income from certain transfers not to be treated as capital gains.
(g) transfer of any investment asset, being shares held in an Indian company, by an amalgamating foreign company to the amalgamated foreign company, if—
(i) the transfer is effected under a scheme of amalgamation;
(ii) the shareholders holding nor less than three-fourths in value of the shares of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and
(iii) the transfer does not attract tax on capital gains in the country, in which such amalgamating company is incorporated;
(h) transfer of any investment asset being shares held in an Indian company, by a demerged foreign company to the resulting foreign company, if—
(i) the transfer is effected under a scheme of demerger;
(ii) 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;
(iii) the transfer does not attract tax on capital gains in the country, in which such demerged company is incorporated;
(i) transfer of any investment asset, by a banking company to a banking institution, if the transfer is effected under a scheme of amalgamation, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949; 10 of 1949.
(j) transfer of any investment asset by a private company or unlisted public company to a limited liability partnership or any transfer of a share held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008, if— 6 of 2009.
(i) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;
(ii) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;
(iii) 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 the limited liability partnership;
(iv) the aggregate of capital contribution by the shareholders of the company in the limited liability partnership shall not be less than fifty per cent. of the total capital of the limited liability partnership at any time during the period of five years from the date of conversion;
(v) the total sales, turnover or gross receipts in business of the company in any of the three financial years preceding the financial year in which the conversion takes place do not exceed sixty lakh rupees;
(vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profits of the company on the date of conversion, for a period of three years from the said date;
(k) transfer of shares of an amalgamating company by a shareholder under a scheme of business re-organisation, if—
(i) the transfer is made in consideration of the allotment to the shareholder of shares in the successor amalgamated company; and
(ii) the successor is neither a non-resident nor a foreign company;
(l) transfer of shares of a predecessor co-operative bank by a shareholder under a scheme of business reorganisation, if the transfer is made in consideration of the allotment to the shareholder of shares in the successor co-operative bank;
(m) transfer of shares by the resulting company, in a scheme of demerger, to the shareholders of the demerged company, if the transfer is made in consideration of demerger of the undertaking;
(n) transfer of any investment asset by a sole proprietary concern to a company, if —
(i) the sole proprietary concern is succeeded by the company in the business carried on by it;
(ii) all the assets and liabilities of the said concern relating to the business immediately before the succession become the assets and liabilities of the company;
(iii) 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 continues to remain the same for a period of five years from the date of succession;
(iv) the sole proprietor does not receive any consideration or benefit, directly or indirectly, other than by way of allotment of shares in the company;
(o) transfer of any bond or global depository receipt by a non-resident to another non-resident, if the transfer is made outside India;
(p) transfer of any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or any public museum or institution of national importance or of renown throughout any State or States and notified by the Central Government;
(q) transfer by way of conversion of any bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company;
(r) transfer by way of conversion of foreign exchange convertible bond of a company into shares or debentures of that company;
(s) transfer of any securities, if—
(i) the transfer is effected under a scheme for lending of any securities; and
(ii) the scheme is framed in accordance with the guidelines issued by the Securities and Exchange Board of India or the Reserve Bank of India;
(t) transfer of any investment asset, if—
(i) the transferor is a company; and
(ii) the asset of the company is distributed to its shareholders on its liquidation;
(u) transfer of an investment asset being land of a sick industrial company made under a scheme sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 where such company is being managed by its worker co-operative;
(v) transfer of any investment asset in a transaction of reverse mortgage under a scheme notified by the Central Government;
(w) transfer of any beneficial interest in a security by a depository.
(2) The reference to the provisions of sections 391 to 394 (both inclusive) of the Companies Act, 1956 in cluase (74) of section 314 shall not apply in case of demergers referred to in clause (h) of sub-section (1).
(3) The provisions of clause (u) of sub-section (1) shall be applicable in a case where the transfer is made during the period commencing from the financial year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 and ending with the financial year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
(4) In clause (i) of sub-section (1), the expressions—"banking company" and "banking institution" shall have the meaning respectively assigned to them in clause (c) of section 5 and sub-section (15) of section 45 of the Banking Regulation Act, 1949;
(5) In clause (j) of sub-section (1), the expressions "private company" and "public unlisted company" shall have the meaning respectively assigned to them in the Limited Liability Partnership Act, 2008.
(6) In clause (w) of sub-section (1), the expressions "depository" and "security" shall have the meaning respectively assigned to them in clauses (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996.
