Amendment of section 47.
13. In section 47 of the Income-tax Act,( Amendment of section 47.) with effect from the 1st day of April, 2016,-
(a) after clause (viaa), the following clause shall be inserted, namely:-
“(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held 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;”;
(b) after clause (vicb), the following clause shall be inserted, namely:-
“(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held 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;”;
(c) after clause (xvii), the following clause shall be inserted, namely:-
‘(xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund:
Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund. Explanation.- For the purposes of this clause,-
(a) “consolidating scheme” means the scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992; (15 of 1992 )
(b)”consolidated scheme” means the scheme with which the consolidating scheme merges or which is formed as a result of such merger;
(c) “equity oriented fund” shall have the meaning assigned to it in clause (38) of section 10;
(d) “mutual fund” means a mutual fund specified under clause (23D) of clause 10.’.
Notes on Clauses:
Clause 13 of the Bill seeks to amend section 47 of the Income tax Act relating to transactions not regarded as transfer. The existing provisions contained in section 47 of the Act provide that capital gains are not applicable to the transfers specified in the said section.
Clause (via) of the said section provides that transfer of capital asset being shares of an Indian company by a foreign company to another foreign company under scheme of amalgamation shall not be treated as transfer subject to conditions provided in the said clause. Clause (vic) of the said section provides that transfer of capital asset being shares of an Indian company by a foreign company to another foreign company under a demerger shall not be treated as transfer subject to conditions provided in the said clause.
It is proposed to amend the said section in order to provide that the following transfers shall not be regarded as transfer under said section, namely:-
(i) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause(i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, subject to conditions provided therein;
(ii) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause(i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, subject to conditions provided therein.
It is further proposed to amend section 47 so as to provide that capital gains shall not apply to any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, if the transfer is made in consideration of the allotment to him of any unit or units in the consolidated scheme of the mutual fund under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992. Provided, the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund. It is further proposed to define the terms “consolidating scheme”, “consolidated scheme”, “equity oriented fund” and “mutual fund”.
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent years.
