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Capital
Gains
Transactions
not regarded as transfer under the income tax act
The
Income Tax Act also exempts certain transactions from being covered
under the definition of transfer. These are more specifically contained
in section 46 & 47 of the Income Tax Act. In brief the transactions
not regarded as transfer are as under :-
-
where the assets of a company are distributed to its share holders
upon its liquidation, the distribution is not regarded as transfer.
However where a share holder receives any money or other assets
on the date of distribution which exceeds in value, the amount
of dividend within the meaning of section 2(22)(c), the excess
is chargeable under the head capital gains.
-
any distribution of capital assets on the total or partial partition
of a huf is not regarded as transfer.
- where
a capital asset is transferred under a Gift or a Will or under
an Irrevocable trust, the transaction is not treated as transfer
as per the Income Tax Act.
-
the transfer of a capital asset to an Indian subsidiary company
by a parent company or its nominees who hold the entire share
capital of the Indian subsidiary company is not regarded as transfer.
- any
transfer of a capital asset by a wholly owned subsidiary company
to its Indian holding company is also not regarded as transfer
for the purposes of capital gains. However in respect of (d) &
(e) above the transfer of a capital asset as stock in trade is
covered by the provisions of capital gains.
- any
transfer in a scheme of amalgamation of a capital asset by the
amalgamating company to an Indian amalgamated company is also
not a transfer for the purposes of capital gains.
-
in the case where the amalgamating and the amalgamated companies
are both foreign companies, the transfer of shares held in the
Indian company by the foreign amalgamating company to the foreign
amalgamated company is not regarded as a transfer for the purposes
of capital gains if at least 25% of the share holders of the amalgamating
foreign company continue to remain share holders of the amalgamated
foreign company and if such transfer does not attract tax on capital
gains in the country in which the amalgamating company is incorporated..
- any
transfer by a share holder, in a scheme of amalgamation, of share
or shares held by him in the amalgamating company in consideration
of the allotment of any share or shares in the amalgamated Indian
company is not regarded as a transfer for the purposes of capital
gains.
- where
a non resident transfers any bond or shares of an Indian company
which were issued in accordance with any scheme notified by the
Central Government for the purposes of section 115AC or where
the non resident transfer any bonds or shares of a public sector
company sold by the government and purchased by the non resident
in foreign currency, such a transfer is not regarded as a transfer
for the purposes of capital gains,provided the transfer of the
capital asset is made outside India by the non resident to another
non resident.
-
where any assessee transfers any work of art, archaeological or
art collection, book, manuscript, drawing , painting, photograph
or print to a University, the National Museum, the National Art
Gallery, the National Archives, to the Government or to any other
notified institution of national importance it is not considered
as transfer for the purposes of capital gains.
-
any transfer by way of conversion of a company's bonds or debentures,
debenture-stock or deposit certificates held in any form into
shares and debentures of that company is not regarded as transfer
for the purpose of capital gains.
-
where a non corporate person transfers its membership of a recognised
stock exchange in India to a company in exchange of shares allotted
by that company is not regarded as a transfer for the purposes
of capital gains provided that such transfer was made on or before
31st day of December, 1998. The exemption shall lapse if the shares
received by the assessee are transferred within three years of
the date of transfer of the membership.
- any
transfer of a land of a sick industrial company which is being
managed by its Worker's Cooperative is not regarded as transfer
for the purposes of capital gain if the transfer is made under
a scheme prepared and sanctioned under section 18 of the Sick
Industrial Companies (Special Provisions) Act, 1985. This exemption
is operative only in the period commencing from the previous year
in which the said company became a sick industrial company under
section 17(1) of that Act and ending with the previous year during
which the entire net worth of such company become equal to or
exceeded the accumulated losses. The net worth is as defined in
the Sick Industrial Companies Act.
- with
effect from 1-4-99 the process of sale or transfer of any capital
or intangible asset of a firm is not regarded as a transfer for
the purposes of capital gains where it is on account of the succession
of the firm by a company in the business carried on by it. This
exemption is dependent on the fulfilment of the following conditions
:-
-
all the assets and liabilities of the firm before the uccession
and relating to the business should become the assets and
liabilities of the company.
- all
the partners of the firm before the succession should become
share holders of the company in the same proportion in which
their capital accounts stood in the books of the firm on the
date of succession.
- the
partners of the firm should not receive any consideration
or benefit, directly or indirectly, in any form or manner,
other than by allotment of shares in the company.
- the
aggregate share holding in the company by such partners should
remain more than 50% of the total voting power for a period
of 5 years from the date of succession.
-
with effect from 1-4-99 where a sole proprietary concern is succeeded
by a company in the business carried on by it and as a result
of which the sole proprietory sells or transfers any capital asset
or intangible asset to the company, such transfer shall not be
regarded as transfer for the purposes of capital gains. This exemption
is available only if the following conditions are fulfilled:-
-
all the assets and liabilities of the business of the sole
proprietary concern should become the assets and liabilities
of the company.
-
the share holding of the sole proprietor should be more than
50% of the total voting power in the company for a period
of 5 years from the date of succession.
- the
sole proprietor should not receive any consideration or benefit,
directly or indirectly, in any form or manner, other than
by way of allotment of shares in the company.
-
with effect from 1-4-99 any transfer in a scheme for lending of
any securities under an agreement or arrangement which the assessee
enters into with the borrower of such securities shall not be
regarded as a transfer for the purposes of capital gains.This
is subject to the guidelines issued by the Securities and Exchange
Board of India on the issue.
Where
in the transaction of lending of a different set of distinctive
numbers of the shares or received back ,the same would not be considered
as exchange of asset within the definition of capital asset since
the meaning of the word exchange necessarily involves exchange of
two different assets. Thus where the asset received back is not
different from what was lent in the above scheme of lending, no
transfer is there for the purposes of capital gain as long as the
assets received back represent the same fraction of the ownership
of the company.
The
exemptions referred above are not final and can be withdrawn under
specified circumstances as mentioned in section 47A of the Income
Tax Act.
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