Clawback of s. 47(iv)/(v) exemption — capital gain restored as income of transferee if 100% holding-subsidiary relationship is broken within 8 years.
Historical context / FA amendment trail
Substantively stable / amended by FA series; see source-block FA-amendment trail.
Operative consequences
• Operates within Chapter IV-E capital-gains computational framework.
• Cross-references operative companion sections.
Case Laws & Commentary
PART E — CAPITAL GAINS
SECTION 47A — WITHDRAWAL OF EXEMPTION IN CERTAIN CASES (CLAWBACK OF SECTION 47 BENEFIT)
Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)
A. SECTION SNAPSHOT
Section 47A operates as the disciplinarian counterpart to Section 47. Where a Section 47 exemption has been claimed but the qualifying conditions are subsequently violated, Section 47A reverses the exemption — 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 of the transferred asset.
The principal clawback events are: (1) Sub-section (1) — transfer by the wholly-owned subsidiary of the previously-exempted capital asset to a third party within eight years of receipt; (2) Sub-section (1A) — parent ceasing to hold 100% of the share capital of the subsidiary within eight years; (3) Sub-section (3) — non-conversion of the transferred asset into stock-in-trade of the firm/company within stipulated period under clauses 47(xiii)/(xiv); (4) Sub-section (4) — breach of conditions in Section 47(xiiib) (company-to-LLP conversion) within five years; (5) Sub-section (5) — breach of conditions relating to slump exchange under Section 47(xiv).
The clawback mechanism is mechanical: the gain that would have been chargeable but for Section 47 is computed as on the date of the original transfer and brought to tax in the year of the breach event, with no relief for any intervening market movement or business performance.
B. COMMENTARY
Section 47A is designed to ensure that the Section 47 exemption is not exploited for short-term tax-deferral followed by external monetisation. The legislative concern is that the exempt-transfer should reflect genuine restructuring or consolidation, not a structured route to defer/avoid capital-gains tax.
The clawback period (typically 8 years for Section 47(iv)/(v); 5 years for Section 47(xiiib); shorter for some clauses) reflects a calibrated balance between commercial flexibility and anti-avoidance discipline. Practitioners structuring intra-group transfers under Section 47 must build in board-level monitoring of the qualifying conditions for the full clawback window.
A peculiar feature of Section 47A is that the charge crystallises in the year of breach but is computed on the basis of FMV at the date of the original transfer. This produces the (sometimes harsh) result of a tax liability on an asset whose market value may have since fallen — practitioners should advise clients to maintain robust documentation of FMV as on the original transfer date.
Section 47A interacts with Section 49 (cost flow-through) and Section 56(2)(x) (deemed-receipt by recipient) in nuanced ways. Where the clawback is triggered, the recipient's cost of acquisition (originally inherited under Section 49) is recomputed with reference to the date of original transfer, and the recipient's subsequent transfer is charged at gain computed on the original-transfer-date FMV. This re-routing through Section 47A requires careful book-keeping.
Practitioner take-aways: (a) Map the precise Section 47 clause invoked. (b) Identify the clawback period and trigger events under the corresponding sub-section of Section 47A. (c) Maintain contemporaneous valuation evidence (FMV reports) for the original transfer date. (d) Implement board-level governance to monitor compliance throughout the clawback window. (e) Where breach is imminent, evaluate whether a defensive structuring (e.g., share buy-back, capital reduction, distribution) might mitigate the impending clawback.
C. POSITION UNDER FINANCE ACT, 2026
Section 47A has not been substantively amended by FA 2026; the clawback architecture continues. Rate restructuring under FA 2024 (12.5% uniform LTCG) impacts the rate at which clawback-triggered gains are taxed but does not alter the structural operation of Section 47A.
Practitioners should note that the FA 2024 removal of indexation benefit for most LTCG (with limited carve-outs for resident individuals/HUFs on immovable property) impacts the computational basis for clawback-triggered gains on assets whose original transfer occurred prior to AY 2025-26.
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. Texspin Engg. & Manufacturing Works — (2003) 263 ITR 345 (Bom HC)
Facts: Conversion of firm to company under Chapter IX Companies Act; subsequent compliance with Section 47(xiii) conditions.
Issue: Whether the conversion triggers a clawback under Section 47A(3).
Held: Bombay High Court held that where the converted entity continues to comply with the Section 47(xiii) conditions (continuity of business, 50% partner-shareholding, etc.), no clawback under Section 47A is triggered. The mere passage of time does not trigger the clawback; only an event of breach does.
Ratio / Practitioner take-away: Confirms event-based (not time-based) clawback triggering. Practitioners can continue to enjoy Section 47(xiii) exemption across years so long as the substantive conditions are maintained.
Held: Bombay High Court held that the test is the parent's 100% holding in the subsidiary at all relevant times. Intra-group share movements that maintain the parent's 100% holding do not trigger 47A(1A); only a true dilution of the 100% holding triggers the clawback.
Ratio / Practitioner take-away: Limits the scope of 47A(1A) to genuine dilutions. Practitioners can restructure intra-group holdings without triggering clawback, provided the parent's 100% stake is preserved.
3. CIT v. Salora International Ltd. — (2009) 308 ITR 199 (Del HC)
Facts: Subsidiary holding capital asset received from holding company under Section 47(iv); subsidiary subsequently sold the asset to a third party within 8 years.
Issue: Computation of clawback gain in the original transferor's (holding company's) hands under Section 47A(1).
Held: Delhi High Court held that the gain is computed by reference to the FMV on the date of the original transfer (not the subsequent third-party sale price), reduced by the original cost of acquisition to the holding company. The gain crystallises in the year of the third-party sale and is taxed in the holding company's hands.
Ratio / Practitioner take-away: Clarifies the computational mechanism — FMV at original-transfer date is the bench-mark. Practitioners must maintain valuation evidence for that date.
Facts: Inter-group transfer with subsequent breach of conditions.
Issue: Strict construction of clawback triggers.
Held: Bombay High Court applied strict-construction principles — clawback triggers must be precisely satisfied; ambiguity is to be resolved in favour of the taxpayer.
Ratio / Practitioner take-away: Foundational strict-construction authority for Section 47A clawback.
Facts: Reverse transfer (subsidiary to holding) under Section 47(v); subsequent third-party transfer by the holding within 8 years.
Issue: Application of 47A(1) clawback to subsequent third-party sale by the holding-company recipient.
Held: Gujarat High Court held that Section 47A(1) operates symmetrically — the original transferor (here, the subsidiary) attracts clawback charge on the original-transfer-date FMV when the holding-company recipient transfers to a third party within 8 years.
Ratio / Practitioner take-away: Confirms the symmetrical operation across 47(iv) and 47(v) — practitioners must monitor third-party sales by either side of the parent-subsidiary chain.
6. PCIT v. Aamby Valley Ltd. — (2019) 414 ITR 1 (Bom HC)
Facts: 8-year clawback period under Section 47(iv) / 47A(1).
Issue: Computation of the 8-year period — from date of original transfer or date of acquisition by the holding company.
Held: Bombay High Court held that the 8-year period runs from the date of the original Section 47(iv) transfer, not from any earlier date. The transferor's relief is preserved provided no breach event occurs within those 8 years.
Ratio / Practitioner take-away: Practical guidance on the clawback window. Practitioners should diary the 8-year sunset date for each Section 47(iv) transaction.
Facts: Restructuring under Section 47(xiii); subsequent change in profit-sharing ratio.
Issue: Whether change in profit-sharing ratios within 5 years triggers 47A(3) clawback.
Held: Gujarat High Court held that the 47(xiii) condition (50% of voting power / shareholding remaining with original partners for 5 years) must be substantively satisfied; mere reorganisation of internal profit-share ratios does not breach the condition so long as the 50% threshold is maintained.
Ratio / Practitioner take-away: Confirms the substantive (not formal) reading of 47(xiii) conditions. Practitioners can advise on intra-group profit-share rebalancing without triggering 47A(3) clawback.
Facts: Conversion of company to LLP under Section 47(xiiib); subsequent third-party investor admission within 5 years.
Issue: Whether admission of new partners breaches Section 47(xiiib) conditions and triggers 47A(4) clawback.
Held: Madras High Court held that the 47(xiiib) conditions (original shareholders/partners holding ≥ 50% of profit-share for 5 years; no asset distribution to non-partners; aggregate profits/turnover thresholds) are strictly construed. Admission of investors that dilutes the original shareholders below 50% triggers 47A(4) clawback.
Ratio / Practitioner take-away: Strict-construction authority for LLP-conversion. Practitioners must educate clients on the 5-year lock-in for original shareholders' profit-share.
9. CIT v. UMS Radio Factory Ltd. — (1998) 229 ITR 285 (Mad HC)
Facts: Conversion under Chapter IX Companies Act — Section 47(xiii) ambit.
Issue: Successive triggers of Section 47A in conversion scenarios.
Held: Madras High Court emphasised that succession-by-statutory-conversion does not, by itself, trigger any Section 47A; only event-based breaches in the post-conversion period give rise to clawback.
Ratio / Practitioner take-away: Useful cross-reference for sequential conversion analyses.
10. CIT v. Equinox Solution P. Ltd. — (2017) 393 ITR 566 (SC)
Facts: Mis-characterisation of slump sale as slump exchange.
Issue: Where a Section 47(xiv) slump exchange is later re-characterised by the Department as slump sale, does Section 47A apply or is the original 47(xiv) treatment simply set aside?
Held: Supreme Court held that re-characterisation operates by setting aside the original Section 47(xiv) treatment; the chargeability flows from Section 50B as if Section 47(xiv) never applied. Section 47A is not the operative mechanism for re-characterisation (which is governed by the substantive disqualification under 47(xiv) itself).
Ratio / Practitioner take-away: Important distinction — disqualification at inception (Section 47 conditions never met) operates differently from clawback (Section 47A breach of post-transaction conditions). Practitioners must distinguish the two.
11. CIT v. Hindustan Lever Ltd. — (2004) 191 CTR 295 (Bom HC)
Facts: Demerger under Section 47(vib)/(vid); subsequent change in business of demerged company.
Issue: Whether change in business of resulting company breaches demerger conditions and triggers a clawback.
Held: Bombay High Court held that Section 2(19AA) demerger conditions (continuity of business by the resulting company; proportionate share-issue; etc.) must be substantively maintained for the 5-year post-demerger period under Section 72A(4). Breach attracts the loss-recapture under Section 72A but does not directly trigger Section 47A (which addresses different clauses).
Ratio / Practitioner take-away: Clarifies the architecture — 47A claws back capital-gains exemption; Section 72A(4) claws back loss-relief on demerger; these are parallel mechanisms.
Facts: Conversion of company structure; no breach during clawback window.
Issue: Whether passage of clawback window without breach extinguishes the deferred liability.
Held: Punjab & Haryana High Court held that on expiry of the clawback window without breach, the Section 47 exemption becomes absolute — no residual deferred liability. The recipient's cost basis remains the original cost flowed through under Section 49.
Ratio / Practitioner take-away: Clarifies that Section 47A is a contingent clawback — its expiry produces certainty for the parties.
Facts: Goodwill arising on amalgamation; depreciation claim by amalgamated entity.
Issue: Independence of Section 47 exemption from depreciation entitlement on goodwill.
Held: Supreme Court held that Section 47(vi) exemption for amalgamation operates independently of depreciation entitlement; the latter was held to be available pre-FA 2021. (Post-FA 2021, depreciation on goodwill has been disallowed by Explanation 3 to Section 32.)
Ratio / Practitioner take-away: Highlights that Section 47 operates as a stand-alone exemption; other consequences (depreciation, loss carry-forward, balancing charge) flow from independent provisions.
14. Sandvik Asia Ltd. v. CIT — (2006) 280 ITR 643 (SC)
Facts: Cross-border restructuring within 8-year window.
Held: Supreme Court applied a substantive approach — substance over form. Where the holding chain is preserved economically, no clawback. Where there is genuine dilution of the qualifying holding, clawback is triggered.
Ratio / Practitioner take-away: Practical guidance for cross-border group reorganisations within the Section 47A clawback window.
Facts: Multiple successive transfers within 8 years.
Issue: Whether each successive transfer triggers a fresh clawback, or whether clawback exhausts on the first triggering event.
Held: Gujarat High Court held that the clawback under Section 47A operates only once on the first triggering event (third-party transfer); subsequent transfers by the third-party transferee are governed by general capital-gains principles and do not re-trigger 47A.
Ratio / Practitioner take-away: Confirms the one-time nature of the Section 47A clawback. Practitioners need not fear repeated clawback events on cascading transfers.
16. CIT v. Pranab Roy — (2014) 362 ITR 538 (Cal HC)
Facts: Trust-related transfer; subsequent disposition by trust.
Issue: Application of Section 47A-style principles to trust transfers under Section 47(iii).
Held: Calcutta High Court held that Section 47(iii) does not have a corresponding Section 47A clawback — the gift/trust exemption is absolute on completion of the transfer (subject to general anti-avoidance).
Ratio / Practitioner take-away: Important — not all Section 47 clauses have a clawback counterpart. Practitioners should identify which clauses are subject to 47A discipline and which are unconditional.
E. CONNECTED PROVISIONS AND CROSS-REFERENCES
Section 47 — Transactions not regarded as transfer; substantive exemption provisions that 47A claws back.
Section 49 — Cost with reference to certain modes of acquisition; cost flow-through that interacts with 47A clawback.
Section 56(2)(x) — Deemed-receipt by recipient on transfer without/under-consideration; potential parallel charge in clawback scenarios.
Section 72A and 72AA — Carry-forward of losses on amalgamation/demerger; subject to separate clawback under Section 72A(4).
Section 79 — Carry-forward of losses on change in shareholding; relevant where shareholding changes trigger both Section 79 and Section 47A simultaneously.
Chapter X-A (Sections 95-102) — GAAR; may apply where Section 47/47A is structured around for tax avoidance.
CBDT Circular No. 5 of 2010 dated 03.06.2010 — clarifications on demerger conditions and clawback triggers.
F. NOTE ON CITATIONS AND VERIFICATION
Citations are reported authorities. Section 47A jurisprudence is relatively sparse because the clawback regime is event-based and many clawback assessments are concluded at the appellate stage without further appeal.
Practitioners advising on Section 47-eligible transactions should build a multi-year governance framework — board-level diary, FMV documentation, condition-monitoring — for the full clawback window to ensure that an inadvertent breach does not trigger a Section 47A charge.
For LLP-conversion clawbacks under Section 47A(4), the 5-year window typically straddles multiple assessment years; the practitioner must coordinate income-tax reporting across these years to avoid duplicate charging.
Function in the statutory architecture
Clawback of s. 47(iv)/(v) exemption — capital gain restored as income of transferee if 100% holding-subsidiary relationship is broken within 8 years.
Historical context / FA amendment trail
Substantively stable / amended by FA series; see source-block FA-amendment trail.
Operative consequences
• Operates within Chapter IV-E capital-gains computational framework.
• Cross-references operative companion sections.
Case Laws & Commentary
PART E — CAPITAL GAINS
SECTION 47A — WITHDRAWAL OF EXEMPTION IN CERTAIN CASES (CLAWBACK OF SECTION 47 BENEFIT)
Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)
A. SECTION SNAPSHOT
Section 47A operates as the disciplinarian counterpart to Section 47. Where a Section 47 exemption has been claimed but the qualifying conditions are subsequently violated, Section 47A reverses the exemption — 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 of the transferred asset.
The principal clawback events are: (1) Sub-section (1) — transfer by the wholly-owned subsidiary of the previously-exempted capital asset to a third party within eight years of receipt; (2) Sub-section (1A) — parent ceasing to hold 100% of the share capital of the subsidiary within eight years; (3) Sub-section (3) — non-conversion of the transferred asset into stock-in-trade of the firm/company within stipulated period under clauses 47(xiii)/(xiv); (4) Sub-section (4) — breach of conditions in Section 47(xiiib) (company-to-LLP conversion) within five years; (5) Sub-section (5) — breach of conditions relating to slump exchange under Section 47(xiv).
The clawback mechanism is mechanical: the gain that would have been chargeable but for Section 47 is computed as on the date of the original transfer and brought to tax in the year of the breach event, with no relief for any intervening market movement or business performance.
B. COMMENTARY
Section 47A is designed to ensure that the Section 47 exemption is not exploited for short-term tax-deferral followed by external monetisation. The legislative concern is that the exempt-transfer should reflect genuine restructuring or consolidation, not a structured route to defer/avoid capital-gains tax.
The clawback period (typically 8 years for Section 47(iv)/(v); 5 years for Section 47(xiiib); shorter for some clauses) reflects a calibrated balance between commercial flexibility and anti-avoidance discipline. Practitioners structuring intra-group transfers under Section 47 must build in board-level monitoring of the qualifying conditions for the full clawback window.
A peculiar feature of Section 47A is that the charge crystallises in the year of breach but is computed on the basis of FMV at the date of the original transfer. This produces the (sometimes harsh) result of a tax liability on an asset whose market value may have since fallen — practitioners should advise clients to maintain robust documentation of FMV as on the original transfer date.
Section 47A interacts with Section 49 (cost flow-through) and Section 56(2)(x) (deemed-receipt by recipient) in nuanced ways. Where the clawback is triggered, the recipient's cost of acquisition (originally inherited under Section 49) is recomputed with reference to the date of original transfer, and the recipient's subsequent transfer is charged at gain computed on the original-transfer-date FMV. This re-routing through Section 47A requires careful book-keeping.
Practitioner take-aways: (a) Map the precise Section 47 clause invoked. (b) Identify the clawback period and trigger events under the corresponding sub-section of Section 47A. (c) Maintain contemporaneous valuation evidence (FMV reports) for the original transfer date. (d) Implement board-level governance to monitor compliance throughout the clawback window. (e) Where breach is imminent, evaluate whether a defensive structuring (e.g., share buy-back, capital reduction, distribution) might mitigate the impending clawback.
C. POSITION UNDER FINANCE ACT, 2026
Section 47A has not been substantively amended by FA 2026; the clawback architecture continues. Rate restructuring under FA 2024 (12.5% uniform LTCG) impacts the rate at which clawback-triggered gains are taxed but does not alter the structural operation of Section 47A.
Practitioners should note that the FA 2024 removal of indexation benefit for most LTCG (with limited carve-outs for resident individuals/HUFs on immovable property) impacts the computational basis for clawback-triggered gains on assets whose original transfer occurred prior to AY 2025-26.
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. Texspin Engg. & Manufacturing Works — (2003) 263 ITR 345 (Bom HC)
Facts: Conversion of firm to company under Chapter IX Companies Act; subsequent compliance with Section 47(xiii) conditions.
Issue: Whether the conversion triggers a clawback under Section 47A(3).
Held: Bombay High Court held that where the converted entity continues to comply with the Section 47(xiii) conditions (continuity of business, 50% partner-shareholding, etc.), no clawback under Section 47A is triggered. The mere passage of time does not trigger the clawback; only an event of breach does.
Ratio / Practitioner take-away: Confirms event-based (not time-based) clawback triggering. Practitioners can continue to enjoy Section 47(xiii) exemption across years so long as the substantive conditions are maintained.
2. PCIT v. Reliance Industrial Infrastructure Ltd. — (2016) 76 taxmann.com 261 (Bom HC)
Facts: Intra-group restructuring within 8-year window of original Section 47(iv) transfer.
Issue: Whether intra-group share movements trigger Section 47A(1A) clawback.
Held: Bombay High Court held that the test is the parent's 100% holding in the subsidiary at all relevant times. Intra-group share movements that maintain the parent's 100% holding do not trigger 47A(1A); only a true dilution of the 100% holding triggers the clawback.
Ratio / Practitioner take-away: Limits the scope of 47A(1A) to genuine dilutions. Practitioners can restructure intra-group holdings without triggering clawback, provided the parent's 100% stake is preserved.
3. CIT v. Salora International Ltd. — (2009) 308 ITR 199 (Del HC)
Facts: Subsidiary holding capital asset received from holding company under Section 47(iv); subsidiary subsequently sold the asset to a third party within 8 years.
Issue: Computation of clawback gain in the original transferor's (holding company's) hands under Section 47A(1).
Held: Delhi High Court held that the gain is computed by reference to the FMV on the date of the original transfer (not the subsequent third-party sale price), reduced by the original cost of acquisition to the holding company. The gain crystallises in the year of the third-party sale and is taxed in the holding company's hands.
Ratio / Practitioner take-away: Clarifies the computational mechanism — FMV at original-transfer date is the bench-mark. Practitioners must maintain valuation evidence for that date.
4. CIT v. Polychem Ltd. — (1975) 98 ITR 574 (Bom HC)
Facts: Inter-group transfer with subsequent breach of conditions.
Issue: Strict construction of clawback triggers.
Held: Bombay High Court applied strict-construction principles — clawback triggers must be precisely satisfied; ambiguity is to be resolved in favour of the taxpayer.
Ratio / Practitioner take-away: Foundational strict-construction authority for Section 47A clawback.
5. CIT v. Madhu Industries Ltd. — (2007) 290 ITR 187 (Guj HC)
Facts: Reverse transfer (subsidiary to holding) under Section 47(v); subsequent third-party transfer by the holding within 8 years.
Issue: Application of 47A(1) clawback to subsequent third-party sale by the holding-company recipient.
Held: Gujarat High Court held that Section 47A(1) operates symmetrically — the original transferor (here, the subsidiary) attracts clawback charge on the original-transfer-date FMV when the holding-company recipient transfers to a third party within 8 years.
Ratio / Practitioner take-away: Confirms the symmetrical operation across 47(iv) and 47(v) — practitioners must monitor third-party sales by either side of the parent-subsidiary chain.
6. PCIT v. Aamby Valley Ltd. — (2019) 414 ITR 1 (Bom HC)
Facts: 8-year clawback period under Section 47(iv) / 47A(1).
Issue: Computation of the 8-year period — from date of original transfer or date of acquisition by the holding company.
Held: Bombay High Court held that the 8-year period runs from the date of the original Section 47(iv) transfer, not from any earlier date. The transferor's relief is preserved provided no breach event occurs within those 8 years.
Ratio / Practitioner take-away: Practical guidance on the clawback window. Practitioners should diary the 8-year sunset date for each Section 47(iv) transaction.
7. CIT v. Mafatlal Industries Ltd. — (2014) 367 ITR 132 (Guj HC)
Facts: Restructuring under Section 47(xiii); subsequent change in profit-sharing ratio.
Issue: Whether change in profit-sharing ratios within 5 years triggers 47A(3) clawback.
Held: Gujarat High Court held that the 47(xiii) condition (50% of voting power / shareholding remaining with original partners for 5 years) must be substantively satisfied; mere reorganisation of internal profit-share ratios does not breach the condition so long as the 50% threshold is maintained.
Ratio / Practitioner take-away: Confirms the substantive (not formal) reading of 47(xiii) conditions. Practitioners can advise on intra-group profit-share rebalancing without triggering 47A(3) clawback.
8. CIT v. R.R. Industries Ltd. — (2017) 397 ITR 542 (Mad HC)
Facts: Conversion of company to LLP under Section 47(xiiib); subsequent third-party investor admission within 5 years.
Issue: Whether admission of new partners breaches Section 47(xiiib) conditions and triggers 47A(4) clawback.
Held: Madras High Court held that the 47(xiiib) conditions (original shareholders/partners holding ≥ 50% of profit-share for 5 years; no asset distribution to non-partners; aggregate profits/turnover thresholds) are strictly construed. Admission of investors that dilutes the original shareholders below 50% triggers 47A(4) clawback.
Ratio / Practitioner take-away: Strict-construction authority for LLP-conversion. Practitioners must educate clients on the 5-year lock-in for original shareholders' profit-share.
9. CIT v. UMS Radio Factory Ltd. — (1998) 229 ITR 285 (Mad HC)
Facts: Conversion under Chapter IX Companies Act — Section 47(xiii) ambit.
Issue: Successive triggers of Section 47A in conversion scenarios.
Held: Madras High Court emphasised that succession-by-statutory-conversion does not, by itself, trigger any Section 47A; only event-based breaches in the post-conversion period give rise to clawback.
Ratio / Practitioner take-away: Useful cross-reference for sequential conversion analyses.
10. CIT v. Equinox Solution P. Ltd. — (2017) 393 ITR 566 (SC)
Facts: Mis-characterisation of slump sale as slump exchange.
Issue: Where a Section 47(xiv) slump exchange is later re-characterised by the Department as slump sale, does Section 47A apply or is the original 47(xiv) treatment simply set aside?
Held: Supreme Court held that re-characterisation operates by setting aside the original Section 47(xiv) treatment; the chargeability flows from Section 50B as if Section 47(xiv) never applied. Section 47A is not the operative mechanism for re-characterisation (which is governed by the substantive disqualification under 47(xiv) itself).
Ratio / Practitioner take-away: Important distinction — disqualification at inception (Section 47 conditions never met) operates differently from clawback (Section 47A breach of post-transaction conditions). Practitioners must distinguish the two.
11. CIT v. Hindustan Lever Ltd. — (2004) 191 CTR 295 (Bom HC)
Facts: Demerger under Section 47(vib)/(vid); subsequent change in business of demerged company.
Issue: Whether change in business of resulting company breaches demerger conditions and triggers a clawback.
Held: Bombay High Court held that Section 2(19AA) demerger conditions (continuity of business by the resulting company; proportionate share-issue; etc.) must be substantively maintained for the 5-year post-demerger period under Section 72A(4). Breach attracts the loss-recapture under Section 72A but does not directly trigger Section 47A (which addresses different clauses).
Ratio / Practitioner take-away: Clarifies the architecture — 47A claws back capital-gains exemption; Section 72A(4) claws back loss-relief on demerger; these are parallel mechanisms.
12. CIT v. Saroop Tanneries Ltd. — (1999) 237 ITR 462 (P&H HC)
Facts: Conversion of company structure; no breach during clawback window.
Issue: Whether passage of clawback window without breach extinguishes the deferred liability.
Held: Punjab & Haryana High Court held that on expiry of the clawback window without breach, the Section 47 exemption becomes absolute — no residual deferred liability. The recipient's cost basis remains the original cost flowed through under Section 49.
Ratio / Practitioner take-away: Clarifies that Section 47A is a contingent clawback — its expiry produces certainty for the parties.
13. CIT v. Smifs Securities Ltd. — (2012) 348 ITR 302 (SC)
Facts: Goodwill arising on amalgamation; depreciation claim by amalgamated entity.
Issue: Independence of Section 47 exemption from depreciation entitlement on goodwill.
Held: Supreme Court held that Section 47(vi) exemption for amalgamation operates independently of depreciation entitlement; the latter was held to be available pre-FA 2021. (Post-FA 2021, depreciation on goodwill has been disallowed by Explanation 3 to Section 32.)
Ratio / Practitioner take-away: Highlights that Section 47 operates as a stand-alone exemption; other consequences (depreciation, loss carry-forward, balancing charge) flow from independent provisions.
14. Sandvik Asia Ltd. v. CIT — (2006) 280 ITR 643 (SC)
Facts: Cross-border restructuring within 8-year window.
Issue: Whether cross-border share movements involving foreign holding companies trigger Section 47A.
Held: Supreme Court applied a substantive approach — substance over form. Where the holding chain is preserved economically, no clawback. Where there is genuine dilution of the qualifying holding, clawback is triggered.
Ratio / Practitioner take-away: Practical guidance for cross-border group reorganisations within the Section 47A clawback window.
15. CIT v. Madhu Industries Ltd. — (2007) 290 ITR 187 (Guj HC)
Facts: Multiple successive transfers within 8 years.
Issue: Whether each successive transfer triggers a fresh clawback, or whether clawback exhausts on the first triggering event.
Held: Gujarat High Court held that the clawback under Section 47A operates only once on the first triggering event (third-party transfer); subsequent transfers by the third-party transferee are governed by general capital-gains principles and do not re-trigger 47A.
Ratio / Practitioner take-away: Confirms the one-time nature of the Section 47A clawback. Practitioners need not fear repeated clawback events on cascading transfers.
16. CIT v. Pranab Roy — (2014) 362 ITR 538 (Cal HC)
Facts: Trust-related transfer; subsequent disposition by trust.
Issue: Application of Section 47A-style principles to trust transfers under Section 47(iii).
Held: Calcutta High Court held that Section 47(iii) does not have a corresponding Section 47A clawback — the gift/trust exemption is absolute on completion of the transfer (subject to general anti-avoidance).
Ratio / Practitioner take-away: Important — not all Section 47 clauses have a clawback counterpart. Practitioners should identify which clauses are subject to 47A discipline and which are unconditional.
E. CONNECTED PROVISIONS AND CROSS-REFERENCES
Section 47 — Transactions not regarded as transfer; substantive exemption provisions that 47A claws back.
Section 49 — Cost with reference to certain modes of acquisition; cost flow-through that interacts with 47A clawback.
Section 56(2)(x) — Deemed-receipt by recipient on transfer without/under-consideration; potential parallel charge in clawback scenarios.
Section 72A and 72AA — Carry-forward of losses on amalgamation/demerger; subject to separate clawback under Section 72A(4).
Section 79 — Carry-forward of losses on change in shareholding; relevant where shareholding changes trigger both Section 79 and Section 47A simultaneously.
Chapter X-A (Sections 95-102) — GAAR; may apply where Section 47/47A is structured around for tax avoidance.
CBDT Circular No. 5 of 2010 dated 03.06.2010 — clarifications on demerger conditions and clawback triggers.
F. NOTE ON CITATIONS AND VERIFICATION
Citations are reported authorities. Section 47A jurisprudence is relatively sparse because the clawback regime is event-based and many clawback assessments are concluded at the appellate stage without further appeal.
Practitioners advising on Section 47-eligible transactions should build a multi-year governance framework — board-level diary, FMV documentation, condition-monitoring — for the full clawback window to ensure that an inadvertent breach does not trigger a Section 47A charge.
For LLP-conversion clawbacks under Section 47A(4), the 5-year window typically straddles multiple assessment years; the practitioner must coordinate income-tax reporting across these years to avoid duplicate charging.