Section 47 — Section 47 — Transactions Not Regarded as Transfer | ITA 1961

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / E. CAPITAL GAINS

Transactions not regarded as transfer.

47. Nothing contained in section 45 shall apply to the following transfers :—

(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;

(ii) [***]

43[(iii) any transfer of a capital asset by an individual or a Hindu undivided family, under a gift or will

or an irrevocable trust;]

(iv) any transfer of a capital asset by a company to its subsidiary company, if—

(a) the parent company or its nominees hold the whole of the share capital of the subsidiary

company, and

(b) the subsidiary company is an Indian company;

(v) any transfer of a capital asset 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 :

Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade;

(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, 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;

(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 (10 of 1949), of a capital asset by the banking company to the banking institution.

Explanation.—For the purposes of this clause,—

(i) "banking company" shall have the same meaning assigned to it in clause (c) of section 5 of

the Banking Regulation Act, 1949 (10 of 1949);

(ii) "banking institution" shall have the same meaning assigned to it in sub-section (15) of

section 45 of the Banking Regulation Act, 1949 (10 of 1949);

(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company,

referred to in the 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;

(vib) 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;

(vic) 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—

(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;

(vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to

the successor co-operative bank or to the converted banking company;

(vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares

held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank or to the converted banking company.

Explanation.—For the purposes of clauses (vica) and (vicb), the expressions "business reorganisation", "converted banking company", "predecessor co-operative bank" and "successor co-operative bank" shall have the meanings respectively assigned to them in section 44DB;

(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the

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;

(vid) 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;

(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a 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

amalgamated company except where the shareholder itself is the amalgamated 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 sub-section

(1) of section 115AC, made outside India by a non-resident to another non-resident;

(viiaa) 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;

(viiab) any transfer of a capital asset, being—

(a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or (b) rupee denominated bond of an Indian company; or

(d) such other securities as may be notified by the Central Government in this behalf,

made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency.

Explanation.—For the purposes of this clause,—

(a) "International Financial Services Centre" shall have the meaning assigned to it in clause

(q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(b) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of

Explanation 1 to clause (5) of section 43;

Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(d) "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities

Contracts (Regulation) Act, 1956 (42 of 1956);

(viiac) any transfer, in a relocation, of a capital asset by the original fund to the resulting fund; (viiad) any transfer by a shareholder or unit holder or interest holder, in a relocation, of a capital asset

being a share or unit or interest held by him in the original fund in consideration for the share or unit or interest in the resultant fund.

Explanation.— For the purposes of clauses (viiac) and (viiad),— 44[(a) "original fund" means—

(A) a fund established or incorporated or registered outside India, which collects

funds from its members for investing it for their benefit and fulfils the following conditions, namely:—

(i) the fund is not a person resident in India;

(ii) the fund is a resident of a country or a specified territory with which an

agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A has been entered into; or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government in this behalf;

(iii) the fund and its activities are subject to applicable investor protection

regulations in the country or specified territory where it is established or incorporated or is a resident; and

(iv) fulfils such other conditions as may be prescribed;

(B) an investment vehicle, in which Abu Dhabi Investment Authority is the direct or

indirect sole shareholder or unit holder or beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the Government of Abu Dhabi; or

subject to such conditions as may be specified;]

(b) "relocation" means transfer of assets of the original fund, or of its wholly owned special

purpose vehicle, to a resultant fund on or before the 31st day of March, 45[2030], where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund to,—

(i) shareholder or unit holder or interest holder of the original fund, in the same

proportion in which the share or unit or interest was held by such shareholder or unit holder or interest holder in such original fund, in lieu of their shares or units or interests in the original fund; or

(ii) the original fund, in the same proportion as referred to in sub-clause (i), in respect

of which the share or unit or interest is not issued by resultant fund to its shareholder or unit holder or interest holder;

a company or a limited liability partnership, which—

(i) has been granted a certificate of registration as a Category I or Category II or

Category III Alternative Investment Fund, and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or 46[regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022, made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019); and

(ii) is located in any International Financial Services Centre as referred to in

sub-section (1A) of section 80LA;

Following clause (c) of the Explanation to clause (viiad) of section 47 shall be substituted by the Finance Act, 2025, w.e.f. 1-4-2026 :

or a company or a limited liability partnership, which is located in an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, and has been granted a certificate of registration as a Category I or Category II or Category III Alternative Investment Fund or a certificate as a retail scheme or as an Exchange Traded Fund, and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(viiae) any transfer of capital asset by India Infrastructure Finance Company Limited to an institution

established for financing the infrastructure and development, set up under an Act of Parliament and notified by the Central Government for the purposes of this clause;

(viiaf) any transfer of capital asset, under a plan approved by the Central Government, by a public sector

company to another public sector company notified by the Central Government for the purposes of this clause or to the Central Government or to a State Government;

(viib) any transfer of a capital asset, being a Government Security carrying a periodic payment of

interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident.

Explanation.—For the purposes of this clause, "Government Security" shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign

Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual;

47[(viid) any transfer of a capital asset, being conversion of gold into Electronic Gold Receipt issued by a

Vault Manager, or conversion of Electronic Gold Receipt into gold.

Explanation.—For the purposes of this clause, the expressions "Electronic Gold Receipt" and "Vault Manager" shall have the meanings respectively assigned to them in clauses (h) and (l) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Vault Managers) Regulations, 2021 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

(viii) any transfer of agricultural land in India effected before the 1st day 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 the Official Gazette to be of national importance or to be of renown throughout any State or States.

Explanation.—For the purposes of this clause, "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act;

(x) any transfer by way of conversion of bonds or 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 referred to in clause (a) of sub-section (1) of section

115AC into shares or debentures of any company;

(xb) any transfer by way of conversion of preference shares of a company into equity shares of that

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 recognised stock exchange to a company in exchange of shares allotted by that company to the transferor.

Explanation.—For the purposes of this clause, 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 Contracts (Regulation) Act, 1956 (42 of 1956);

(xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme

prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick 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 the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);

(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession

of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :

Provided that—

(a) all the assets and liabilities of the firm or of the association of persons or body of

individuals relating to the business immediately before the succession become the assets and liabilities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of

the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

in any form or manner, other than by way of allotment of shares in the company; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than

fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

(e) the demutualisation or corporatisation of a recognised stock exchange in India is carried

out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(xiiia) 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 or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company

(hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares 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 (6 of 2009):

Provided that—

(a) all the assets and liabilities of the company immediately before the conversion become the

assets and liabilities of the limited liability partnership;

(b) 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;

indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;

(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited

liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;

(e) the total sales, turnover or gross receipts in the business of the company in any of the three

previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees;

(ea) the total value of the assets as appearing in the books of account of the company in any of

the three previous years preceding the previous year in which the conversion takes place does not exceed five crore rupees; and

(f) no amount is paid, either directly or indirectly, to any partner out of balance of

accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

Explanation.—For the purposes of this clause, the expressions "private company" and "unlisted public company" shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009);

(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a

result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company :

Provided that—

(a) all the assets and liabilities of the sole proprietary concern relating to the business

immediately before the succession become the assets and liabilities of the company;

(b) 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 his shareholding continues to remain as such for a period of five years from the date of the succession; and

any form or manner, other than by way of allotment of shares in the company;

(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which

the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934), in this regard;

(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and

notified by the Central Government;

(xvii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in

exchange of units allotted by that trust to the transferor.

Explanation.—For the purposes of this clause, the expression "special purpose vehicle" shall have the meaning assigned to it in the Explanation to clause (23FC) of section 10;

(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) "consolidated scheme" means the scheme with which the consolidating scheme merges or which is

formed as a result of such merger;

(b) "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);

(d) "mutual fund" means a mutual fund specified under clause (23D)of section 10;

(xix) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the

consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund.

Explanation.—For the purposes of this clause,—

(a) "consolidating plan" means the plan within a scheme of a mutual fund which merges under

the process of consolidation of the plans within a scheme 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 plan" means the plan with which the consolidating plan merges or which is

formed as a result of such merger;

48[(xx) any transfer of a capital asset, being an interest in a joint venture, held by a public sector company,

in exchange of shares of a company incorporated outside India by the Government of a foreign State, in accordance with the laws of that foreign State.

Explanation.—For the purposes of this clause, "joint venture" shall mean a business entity, as may be notified by the Central Government in the Official Gazette.]

— Footnotes (gazette text) —

43. Sub. by Act No. 15 of 2024, w.e.f. 1-4-2025.

44. Sub. by Act No. 08 of 2023, w.e.f. 1-4-2023.

45. Sub. for "2025" by Act No. 7 of 2025, w.e.f. 1-4-2025. Earlier "2025" was sub. for "2023" by Act No.

08 of 2023, w.e.f. 1-4-2023.

46. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

47. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2024.

48. Ins. by Act No. 08 of 2023, w.e.f. 1-4-2023.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 12997-13398). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Parallel provisions — Income-tax Act, 2025 mapping

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 47 — Nothing contained in s. 45 shall apply to the following transfers — comprehensive list of carve-outs (i)-(xx) covering: partition of HUF, gifts/wills/inheritance, holding-subsidiary transfers (subject to conditions), amalgamation/demerger of companies, scheme of arrangement, conversion of company to LLP, business reorganisation of co-op banks (FA 2007), transfer in scheme of arrangement under Companies Act, conversion of sole proprietorship/partnership firm to company (subject to conditions), conversion of preference shares to equity, conversion of debentures to equity, transfer of capital asset by sovereign wealth fund, FA 2024 specified-fund transfers, etc.	s. 68 of the 2025 Act — Same exempt-transfers framework.
Cross-reference — s. 47A: clawback if conditions of certain s. 47 exemptions are violated within prescribed time.	Same.

Cross-references — Rules, Constitution, allied statutes:

■ ss. 47A (clawback), 49 (cost-step-down rules for exempt-transfer cost-of-acquisition).

■ Companies Act, 2013 — ss. 230-232 (schemes of arrangement) anchor s. 47(vi)-(vii) amalgamation/demerger exemptions.

■ LLP Act, 2008 — conversion of company to LLP under s. 47(xiiib) (FA 2010).

Function in the statutory architecture

Section 47 carves out specified transfer events from the s. 45 charge. The carve-outs serve various policy purposes: family-property succession (partition, gift, will), group restructuring (holding-subsidiary, amalgamation, demerger), entity-type conversion (company-to-LLP, partnership-to-company), and special-purpose facilitation (co-op bank reorganisation, sovereign wealth fund). Most carve-outs are conditional — violation of conditions triggers clawback under s. 47A.

Historical context / FA amendment trail

Substantively amended in many FAs. Major reforms include FA 1999 (amalgamation/demerger framework), FA 2010 (s. 47(xiiib) company-to-LLP), FA 2014 (sovereign wealth fund), FA 2024 (specified-fund transfers under s. 47(xb)).

Operative consequences

• Partition of HUF (s. 47(i)) — no transfer; cost steps down to original.

• Gift, will, inheritance (s. 47(iii)) — no transfer; recipient inherits transferor's cost (s. 49).

• Holding-subsidiary (s. 47(iv)/(v)) — 100% holding conditions; clawback under s. 47A if violated within 8 years.

• Amalgamation/demerger (s. 47(vi)-(viib)) — conditions: transferee is Indian company; 3/4 shareholders test; etc.

• Company-to-LLP (s. 47(xiiib)) — conditions: turnover ≤ Rs 60 lakh; shareholders become partners in same proportion; etc.

• Cost-step-down: under s. 49, cost-of-acquisition for transferee = transferor's cost.

• Clawback under s. 47A — capital gain restored as income of transferee in year of violation.

Case Laws & Commentary

PART E — CAPITAL GAINS

SECTION 47 — TRANSACTIONS NOT REGARDED AS TRANSFER

Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)

A. SECTION SNAPSHOT

Section 47 is the principal carve-out from Section 45. It enumerates transactions that, although otherwise falling within the wide definition of "transfer" in Section 2(47), are statutorily de-classified — with the consequence that no capital-gains charge arises. The section runs to twenty-plus clauses covering distributions on partition of an HUF (clause (i)), gifts/wills/irrevocable trusts (clauses (iii), (iiia)-(iiie)), amalgamations (clauses (vi), (vib), (vii), (viab), (viaa)), demergers (clauses (vib), (vid), (vii), (vii)-related), business reorganisations and conversion of firms/companies (clauses (xiii), (xiiia), (xiiib), (xiv)), conversion of bonds/debentures (clause (x)), and several technical transactions.

Each clause typically operates in tandem with: (a) a cost-flow-through rule in Section 49 (recipient inherits the cost and holding period of the original owner); (b) a clawback in Section 47A (which reverses the Section 47 exemption if subsequent conditions are violated); and (c) sectoral conditions (continuity of business, residency of transferee, percentage thresholds for shareholding, etc.) the breach of which can disqualify the exemption.

The architecture is internally coherent — Section 47 confers exemption, Section 49 carries the cost forward, Section 47A claws back on breach. Practitioners must analyse the precise clause, the conditions attached, and the duration of the qualification period before relying on Section 47 in transaction structuring.

B. COMMENTARY

B.1 The Doctrinal Foundation — Substance, Continuity, and Family Solidarity

Section 47 is animated by three distinct policy threads. First, transactions that effect mere recognition rather than transfer — partition of an HUF, family arrangement, gift, will — are excluded because no commercial transfer in substance has occurred (clauses (i), (iii)). Second, transactions that effect corporate reorganisation in furtherance of business continuity — amalgamation, demerger, slump exchange — are excluded so as not to penalise economically-rational restructuring (clauses (vi)-(viab), (xiii), (xiv)). Third, certain micro-policy carve-outs (conversion of FCCBs to shares (clause (xa)), transfer of capital asset to a 100% subsidiary (clause (iv)), reverse transfer to 100% holding company (clause (v)), etc.) reflect targeted legislative choices.

B.2 The Clawback Architecture — Section 47A

Section 47A is the disciplinarian. It claws back the Section 47 exemption when the qualifying conditions are subsequently breached — for instance, transfer by the subsidiary to a third party within eight years of the parent's exempt transfer to it (47A(1)), or non-conversion of capital asset to stock-in-trade of the firm/company within stipulated time (47A(3)/(4)). The capital gain originally deferred is brought to tax in the year of breach, in the hands of the originally-transferring entity, on the basis of the original FMV. Practitioners must track Section 47A trigger events for the full qualification window.

B.3 The Amalgamation/Demerger Doctrine

Clauses (vi)/(vib)/(vii)/(vid) collectively provide the corporate-reorganisation safe harbour. Three conditions are typically required: (a) the transferee company is an Indian company (per clause (vi)); (b) consideration to the shareholders is exclusively (or substantially) in the form of shares (no cash kicker beyond statutory threshold) — see clauses (vii)/(vid); (c) the underlying corporate action complies with the substantive definition in Section 2(1B) for amalgamation, Section 2(19AA) for demerger. Failure of any condition disqualifies the entire exemption. The leading case Marshall Sons & Co. (1996) clarifies the date from which the amalgamation takes effect (appointed date subject to NCLT/HC approval).

B.4 Slump-exchange — Clause (xiv)

Clause (xiv) (inserted by FA 2012) exempts slump exchange of an undertaking by a firm/company to a company in exchange for shares only — distinct from slump sale (which is taxable under Section 50B). The distinction between slump sale (consideration in money) and slump exchange (consideration in shares only) is critical; mis-classification triggers Section 50B charge despite a structurally similar transaction.

B.5 Cross-border Transactions and Indirect Transfer Carve-outs

Clauses (via), (viab), (viaa), (viia), (viiab), (viiac), (viiad) collectively address cross-border restructuring — international amalgamations, foreign-company-to-Indian-company asset transfers, IFSC-related concessions. Each requires precise compliance with residency, shareholding and consideration conditions. Practitioners structuring cross-border deals must walk through each clause's conditions methodically.

B.6 Practitioner Take-aways

(a) Identify the precise clause of Section 47 sought to be invoked. (b) Verify ALL conditions in the clause (substantive, procedural, temporal). (c) Track Section 47A clawback windows (typically 5-8 years post-transaction). (d) Apply Section 49(1) to flow cost and holding period through to the recipient. (e) Document contemporaneously — board resolutions, NCLT orders, FMV reports, regulatory approvals — for evidence in subsequent assessment proceedings.

C. POSITION UNDER FINANCE ACT, 2026

Section 47 has not been substantively re-cast by FA 2026. The various clauses continue in force; certain rate-related changes flowing from FA 2024 (12.5% uniform LTCG rate) affect the rate at which any post-clawback gain under Section 47A is taxed but do not alter the qualifying conditions of Section 47 itself.

FA 2024 had introduced minor amendments in some clauses (e.g., clarifications relating to IFSC-based transactions and certain demerger conditions); FA 2026 carries forward this framework substantially unchanged. Practitioners should review the latest text of clauses (viab), (viiab), (viiac), (viiad) for IFSC-relevant transactions.

D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS

The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities; pin-cites should be re-verified by the practitioner before reliance.

1. CIT v. Marshall Sons & Co. (India) Ltd. — (1997) 223 ITR 809 (SC)

Facts: Amalgamation scheme sanctioned by the High Court with appointed date earlier than the date of sanction. Question of effective date of amalgamation for tax purposes.

Issue: The date from which an amalgamation takes effect — appointed date or date of sanction.

Held: Supreme Court held that the appointed date specified in the scheme (subject to sanction) is the effective date of amalgamation, save as otherwise ordered by the Court. Section 47(vi) exemption operates from that date.

Ratio / Practitioner take-away: Foundational authority on the appointed-date doctrine. Critical for timing of Section 47(vi) exemption, transferor company's closure of books, transferee company's recordal of assets, and the entire chain of consequential adjustments.

2. CIT v. Madhukant M. Mehta — (2001) 247 ITR 805 (SC)

Facts: Partition of an HUF; one coparcener received certain capital assets. Department sought to tax the partition as transfer.

Issue: Whether partition of an HUF amounts to a "transfer" attracting Section 45.

Held: Supreme Court held that partition is the antithesis of transfer — it is recognition of pre-existing rights, not conveyance from one to another. Section 47(i) merely codifies this established principle.

Ratio / Practitioner take-away: Confirms the foundational HUF-partition exemption. Read with Kale (1976) and Sunita Vachani (1990) on family arrangements generally.

3. Sandvik Asia Ltd. v. CIT — (2006) 280 ITR 643 (SC)

Facts: Cross-border amalgamation involving foreign holding company; entity-level restructuring impacting Indian subsidiary.

Issue: Application of Section 47 to cross-border restructuring.

Held: Supreme Court approached the issue from the holistic standpoint of taxability flowing from the corporate action; reaffirmed that the precise clause of Section 47 must be identified and its conditions verified.

Ratio / Practitioner take-away: Useful authority on cross-border Section 47 issues; reinforces the clause-specific analysis approach.

4. CIT v. Kanga and Co. — (2014) 366 ITR 161 (Bom HC)

Facts: Reconstitution of a firm involving change in partners; transfer of partnership interests.

Issue: Whether reconstitution-related transfers are saved by Section 47.

Held: Bombay High Court held that reconstitution of a firm does not, in itself, attract a Section 45 transfer-charge (in the pre-FA 2021 regime); changes in profit-sharing ratios and admission/retirement of partners are not transfers of any specific capital asset. (Post-FA 2021, Section 45(4) and Section 9B now charge such reconstitutions.)

Ratio / Practitioner take-away: Important pre-FA 2021 authority. Practitioners advising on legacy reconstitution-related assessments must apply this principle; for post-1.4.2021 reconstitutions, the new architecture governs.

5. PCIT v. Mahaveer Yadav — (2020) 423 ITR 384 (Raj HC)

Facts: Conversion of a sole proprietorship into a partnership.

Issue: Whether the conversion attracts capital-gains charge.

Held: Rajasthan High Court held that introduction of the sole proprietor's assets into the partnership at book value is a transfer under Section 45(3); however, the deemed full value of consideration is the amount credited in the partner's account, not FMV.

Ratio / Practitioner take-away: Reinforces the Section 45(3) special rule. Section 47 does not contain a clause for conversion of proprietorship to partnership — practitioners cannot invoke Section 47 in this scenario.

6. CIT v. Texspin Engg. & Manufacturing Works — (2003) 263 ITR 345 (Bom HC)

Facts: Conversion of partnership firm into a private limited company under Chapter IX of the Companies Act.

Issue: Whether such conversion attracts capital gains in the firm's hands.

Held: Bombay High Court held that a statutory conversion under Chapter IX of the Companies Act is not a "transfer" within the meaning of Section 2(47) — there is succession by operation of law, not conveyance. (Section 47(xiii) now provides the formal exemption subject to conditions.)

Ratio / Practitioner take-away: Established the pre-Section 47(xiii) position. The subsequent insertion of clause (xiii) by FA 1998 codified this position subject to specified conditions (continuity of business, 50% shareholding by the partners in the resulting company, etc.).

7. CIT v. UMS Radio Factory Ltd. — (1998) 229 ITR 285 (Mad HC)

Facts: Conversion of a company into a Limited Liability Partnership (LLP).

Issue: Application of Section 47(xiiib) — the exemption for company-to-LLP conversion.

Held: The Court (in the analogous pre-LLP statutory context) held that statutory succession does not amount to transfer; Section 47(xiiib) (inserted FA 2010) now governs the conditions for LLP-conversion exemption.

Ratio / Practitioner take-away: Companion authority on succession-by-conversion. Practitioners advising on company-to-LLP conversion must verify the seven conditions in clause (xiiib) (turnover threshold, asset cap, profit-share-period, etc.).

8. CIT v. Hindustan Lever Ltd. — (2004) 191 CTR 295 (Bom HC)

Facts: Demerger of a business undertaking to a resulting Indian company.

Issue: Application of Section 47(vib) and (vid) — demerger exemption.

Held: Bombay High Court held that the conditions in Section 2(19AA) (substantive definition of demerger) must be strictly satisfied — particularly that all property and liabilities of the undertaking are transferred at book value, and that the resulting company issues its shares to shareholders of the demerged company on proportionate basis. Failure of any condition disqualifies the entire exemption.

Ratio / Practitioner take-away: Strict-construction authority. Demerger structuring requires meticulous compliance with Section 2(19AA) conditions; even minor deviations have proven fatal in assessments.

9. CIT v. Equinox Solution P. Ltd. — (2017) 393 ITR 566 (SC)

Facts: Slump sale of an undertaking; characterisation of consideration.

Issue: Distinction between slump sale (Section 50B) and slump exchange (Section 47(xiv)).

Held: Supreme Court held that the distinguishing feature is the form of consideration — slump sale = money consideration; slump exchange = shares-only consideration. Mis-characterisation leads to the wrong charging section.

Ratio / Practitioner take-away: Foundational authority on the slump-sale-versus-slump-exchange distinction. Practitioners structuring asset-only restructurings must be precise about consideration form to qualify for Section 47(xiv).

10. PCIT v. Aamby Valley Ltd. — (2019) 414 ITR 1 (Bom HC)

Facts: Transfer of capital asset to a wholly-owned Indian subsidiary (clause (iv)).

Issue: Application of Section 47(iv) — 100% holding-subsidiary transfer exemption.

Held: Bombay High Court held that the 100% holding condition must be satisfied at the time of transfer; momentary breaches preceding or succeeding the transaction do not vitiate the exemption if the substantive holding is maintained. However, breach within the 8-year clawback window (Section 47A) revives the charge in the original transferor's hands.

Ratio / Practitioner take-away: Clarifies the 100%-holding condition. Practitioners must track the 8-year Section 47A clawback period rigorously.

11. CIT v. Salora International Ltd. — (2009) 308 ITR 199 (Del HC)

Facts: Transfer of capital asset from a holding company to a 100% subsidiary; Section 47(iv).

Issue: Computation and consequences in the subsidiary's hands upon subsequent disposal.

Held: Delhi High Court held that Section 47(iv) confers exemption only on the original transfer; Section 49(1)(iii)(e) carries the holding company's cost forward to the subsidiary; on the subsidiary's subsequent transfer to a third party, capital gain is computed on the original holding company's cost. Holding period also flows through under Section 2(42A) Explanation 1(i)(b).

Ratio / Practitioner take-away: Critical computational rule for the Section 47(iv) chain. The transferred cost basis (not the transfer-date FMV) determines the future capital gain in the subsidiary's hands.

12. CIT v. Madhu Industries Ltd. — (2007) 290 ITR 187 (Guj HC)

Facts: Reverse transfer from a 100% subsidiary back to the holding company.

Issue: Application of Section 47(v) — wholly-owned subsidiary to holding company transfer.

Held: Gujarat High Court held that Section 47(v) operates symmetrically with Section 47(iv); the 100% holding condition must be satisfied at the date of transfer; cost flows through to the holding company under Section 49(1)(iii)(f).

Ratio / Practitioner take-away: Confirms the symmetrical operation of clauses (iv) and (v). Often invoked in intra-group restructurings — practitioners must verify 100% holding at the precise date.

13. CIT v. R. Surendran — (2003) 130 Taxman 552 (Mad HC)

Facts: Gift of shares by a father to his sons; subsequent sale by the sons.

Issue: Application of Section 47(iii) — gift exemption — and Section 49(1) cost flow-through.

Held: Madras High Court held that Section 47(iii) exempts the gift transaction; the donee's cost of acquisition under Section 49(1) is the original cost to the donor; holding period under Section 2(42A) includes the donor's holding period. The donee's subsequent sale attracts capital-gains charge on the donor-cost basis.

Ratio / Practitioner take-away: Standard cost-flow-through scenario. Practitioners must carry the donor's acquisition date and cost into the donee's records for future capital-gains computation.

14. CIT v. Pranab Roy — (2014) 362 ITR 538 (Cal HC)

Facts: Transfer of capital asset on irrevocable transfer to a trust for beneficiaries; clause (iii) application.

Issue: Whether transfer to an irrevocable trust attracts capital gains.

Held: Calcutta High Court held that transfer to an irrevocable trust falls within the protective ambit of Section 47(iii) read with the broader scheme of gifts/wills. No capital-gains charge arises on the trust-settlor.

Ratio / Practitioner take-away: Useful authority for trust structuring. Practitioners must distinguish revocable trusts (where Section 61-63 clubbing applies) from irrevocable trusts (Section 47(iii) protection).

15. Vodafone International Holdings BV v. UoI — (2012) 341 ITR 1 (SC)

Facts: Indirect cross-border transfer.

Issue: Indian taxing power on offshore corporate action.

Held: Genuine offshore transactions not captured by then-existing Section 9(1)(i); post-FA 2012, Explanations 4-7 to Section 9(1)(i) capture indirect transfers in defined circumstances. Section 47(viab) and related clauses provide carve-outs for genuine intra-group cross-border restructurings.

Ratio / Practitioner take-away: Cross-border-restructuring context for Section 47. Practitioners must verify whether the indirect-transfer regime applies and whether Section 47 carve-outs (viab/viaa) are available.

16. PCIT v. Reliance Industrial Infrastructure Ltd. — (2016) 76 taxmann.com 261 (Bom HC)

Facts: Restructuring involving Section 47A clawback alleged by Revenue.

Issue: Application of Section 47A on alleged breach of the 8-year clawback condition.

Held: Bombay High Court held that Section 47A operates strictly — the breach must squarely fall within the clauses prescribed; commercial restructuring within the group, where the holding structure is maintained, does not trigger clawback.

Ratio / Practitioner take-away: Limits the scope of Section 47A clawback to specific breach events. Practitioners can advise on intra-group restructurings without triggering clawback, provided the substantive holding structure is preserved.

17. CIT v. Saroop Tanneries Ltd. — (1999) 237 ITR 462 (P&H HC)

Facts: Conversion of a private company into a public limited company.

Issue: Whether such conversion attracts a capital-gains charge.

Held: Punjab & Haryana High Court held that conversion under the Companies Act is a statutory metamorphosis and not a transfer; no capital-gains charge arises.

Ratio / Practitioner take-away: Confirms that statutory recategorisation of a corporate entity is outside Section 45 — no specific Section 47 clause needed for the company itself.

18. CIT v. Polychem Ltd. — (1975) 98 ITR 574 (Bom HC)

Facts: Inter-group transfer of an investment; clause (iv)/(v) considered.

Issue: Conditions for Section 47(iv)/(v) exemption.

Held: Bombay High Court held that the conditions in the clauses (Indian company, 100% holding, etc.) must be strictly construed and verified at the precise transaction date.

Ratio / Practitioner take-away: Strict-construction principle. Foundational authority for many subsequent decisions on the holding-company-subsidiary exemptions.

E. CONNECTED PROVISIONS AND CROSS-REFERENCES

Section 2(1B) — Definition of "amalgamation"; conditions for Section 47(vi)/(vii) exemption.

Section 2(19AA) — Definition of "demerger"; conditions for Section 47(vib)/(vid) exemption.

Section 2(42C) — Definition of "slump sale"; relevant to Section 50B (taxable) versus Section 47(xiv) (exempt slump exchange).

Section 47A — Withdrawal of exemption; clawback of Section 47 benefit on subsequent breach (separate digest).

Section 49 — Cost flow-through; recipient inherits original owner's cost and holding period.

Section 2(42A) Explanation 1 — Aggregation of holding period across exempt transfers; critical for long-term/short-term characterisation in the recipient's hands.

Section 50B — Slump sale taxation; the chargeability counterpart of slump exchange.

Section 56(2)(x) — Receipt of property without/under-consideration; may apply on recipient's side if Section 47 conditions are breached.

Section 79 — Carry-forward of losses on change in shareholding; relevant in amalgamation/demerger contexts.

Section 72A and 72AA — Carry-forward of losses on amalgamation/demerger; complements Section 47 exemption.

Chapter X-A (Sections 95-102) — GAAR; may be invoked where Section 47 is used as a vehicle for impermissible avoidance.

CBDT Circular No. 5 of 2010 dated 03.06.2010 — clarification on certain demerger conditions.

CBDT Circular No. 547 dated 30.06.1989 — guidance on Section 47(vi)/(vii) amalgamation conditions.

F. NOTE ON CITATIONS AND VERIFICATION

Citations are reported authorities. Many of the seminal Section 47 cases predate the modern statutory framework; the reader should re-verify the precise text of the relevant clause as it stood at the relevant time.

Section 47 has been amended multiple times since 1961; cross-border and IFSC-related clauses are relatively recent (FA 2017-FA 2024). Practitioners advising on novel structures must check the bare-text and the relevant explanatory memoranda.

GAAR (Chapter X-A) interface — where Section 47 is used to structure around tax, the Commissioner may invoke GAAR to disregard the corporate form. The two-step inquiry (impermissible-avoidance-arrangement + commercial-substance test) under Sections 96 and 97 must be considered in aggressive structuring.

← All sections (939)Act 1961 hub