Our company transferred shares to a group entity without consideration. Is that a gift outside capital gains under s.47(iii)?
No, not on these facts. A transfer without a price is not automatically a gift. The Court applied s.122 of the Transfer of Property Act and found neither of the two essentials - the transfer was not voluntary, and it was made for consideration in the shape of the private equity investment the restructuring was built around. The transfer therefore attracted s.45 and was chargeable as capital gains.
Decided by the High Court (Madras High Court - T.S. Sivagnanam and V. Bhavani Subbaroyan JJ.; T.C.A. Nos. 590 and 591 of 2019; AY 2009-10) on 2020-12-10. It bears on section 45, section 47(iii), section 47(iv), section 2(47) of the Income Tax Act 1961, in Capital Gains and Gifts, Shares & Angel Tax matters.
This is the case the department uses against any intra-group transfer documented as a gift. The lesson is that s.47(iii) is not a label you can attach to a no-consideration transfer: the assessee has to show donative intent and an absence of consideration in the wider sense, and a board resolution authorising a transfer 'with or without consideration' as part of a restructuring destroys both. Note also what has changed since - after the Finance (No. 2) Act 2024 amendment a company cannot use s.47(iii) at all, so the question in this form arises only for years up to AY 2024-25.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
In 2008 Redington (India) Limited transferred its entire shareholding in its subsidiary Redington Gulf FZE to Redington International (Holdings) Limited, a Cayman Islands company, without monetary consideration. The transfer took place as part of a restructuring shortly before a private equity investor put USD 65 million into the holding structure at a valuation of USD 239 million, and the intermediate entities in Mauritius and the Cayman Islands had been incorporated shortly before the transfer. The Tribunal had accepted the transfer as a gift exempt under s.47(iii); the Revenue appealed.
The transfer was not a valid gift. There was no voluntary element and it was executed for consideration, so it failed the test in s.122 of the Transfer of Property Act; the transfer attracted s.45 and was chargeable under the head capital gains. The Tribunal's order was reversed.
The Court took the chain of events as a whole rather than looking at the share transfer in isolation. The board resolution authorised the transfer 'with or without consideration', which is inconsistent with an intention to make a gift; the structure was put in place to accommodate a third-party investor who had imposed conditions, so the transfer was not without consideration in any real sense; and the incorporation of the Mauritius and Cayman entities immediately before the transfer showed the arrangement was a means of moving the asset out of India. Missing the essentials of s.122, the transaction could not be brought within s.47(iii), and the ordinary charge under s.45 applied.
Thus, the factual matrix clearly demolishes the case of the assessee, as there is absolutely no voluntary element, it was executed for consideration and therefore, it fails to satisfy the test laid down in Section 122 of the TP Act to qualify as a valid gift.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo, not on these facts. A transfer without a price is not automatically a gift. The Court applied s.122 of the Transfer of Property Act and found neither of the two essentials - the transfer was not voluntary, and it was made for consideration in the shape of the private equity investment the restructuring was built around. The transfer therefore attracted s.45 and was chargeable as capital gains. This was decided by the High Court (Madras High Court - T.S. Sivagnanam and V. Bhavani Subbaroyan JJ.; T.C.A. Nos. 590 and 591 of 2019; AY 2009-10) and bears on section 45, section 47(iii), section 47(iv), section 2(47) of the Income Tax Act 1961. This is the case the department uses against any intra-group transfer documented as a gift. The lesson is that s.47(iii) is not a label you can attach to a no-consideration transfer: the assessee has to show donative intent and an absence of consideration in the wider sense, and a board resolution authorising a transfer 'with or without consideration' as part of a restructuring destroys both. Note also what has changed since - after the Finance (No. 2) Act 2024 amendment a company cannot use s.47(iii) at all, so the question in this form arises only for years up to AY 2024-25. If it applies to you, the first step is this: Before calling an intra-group transfer a gift, test it against s.122 of the Transfer of Property Act - voluntariness, absence of consideration, and acceptance by the donee.
In 2008 Redington (India) Limited transferred its entire shareholding in its subsidiary Redington Gulf FZE to Redington International (Holdings) Limited, a Cayman Islands company, without monetary consideration. The transfer took place as part of a restructuring shortly before a private equity investor put USD 65 million into the holding structure at a valuation of USD 239 million, and the intermediate entities in Mauritius and the Cayman Islands had been incorporated shortly before the transfer. The Tribunal had accepted the transfer as a gift exempt under s.47(iii); the Revenue appealed. The matter was decided on 2020-12-10 by the High Court (Madras High Court - T.S. Sivagnanam and V. Bhavani Subbaroyan JJ.; T.C.A. Nos. 590 and 591 of 2019; AY 2009-10). On those facts the High Court held as follows. The transfer was not a valid gift. There was no voluntary element and it was executed for consideration, so it failed the test in s.122 of the Transfer of Property Act; the transfer attracted s.45 and was chargeable under the head capital gains. The Tribunal's order was reversed.
The Court took the chain of events as a whole rather than looking at the share transfer in isolation. The board resolution authorised the transfer 'with or without consideration', which is inconsistent with an intention to make a gift; the structure was put in place to accommodate a third-party investor who had imposed conditions, so the transfer was not without consideration in any real sense; and the incorporation of the Mauritius and Cayman entities immediately before the transfer showed the arrangement was a means of moving the asset out of India. Missing the essentials of s.122, the transaction could not be brought within s.47(iii), and the ordinary charge under s.45 applied. In the words reproduced by the source cited on this page: "Thus, the factual matrix clearly demolishes the case of the assessee, as there is absolutely no voluntary element, it was executed for consideration and therefore, it fails to satisfy the test laid down in Section 122 of the TP Act to qualify as a valid gift."
It was decided by the High Court on 2020-12-10. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 45, section 47(iii), section 47(iv), section 2(47), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The transfer was not a valid gift. There was no voluntary element and it was executed for consideration, so it failed the test in s.122 of the Transfer of Property Act; the transfer attracted s.45 and was chargeable under the head capital gains. The Tribunal's order was reversed. It arises in Capital Gains and Gifts, Shares & Angel Tax matters, on section 45, section 47(iii), section 47(iv), section 2(47) of the Income Tax Act 1961, and was decided by Madras High Court - T.S. Sivagnanam and V. Bhavani Subbaroyan JJ.; T.C.A. Nos. 590 and 591 of 2019; AY 2009-10. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read the board resolutions and the transaction documents as the officer will: language authorising a transfer 'with or without consideration' shows there was no donative intent. For any transfer on or after 1 April 2025, check whether the transferor is an individual or an HUF - s.47(iii) no longer covers a gift by a company or a firm. Where the entity receiving the shares is newly incorporated shortly before the transfer, expect the chain of events to be read as a whole rather than transaction by transaction.
Still good law. The itatonline digest of the judgment records no appeal or subsequent history, and no page fetched records a Supreme Court decision on it - so its status above the High Court is unverified rather than confirmed. Separately, the statutory setting has changed: s.47(iii) was amended by the Finance (No. 2) Act 2024 with effect from 1 April 2025 to read 'any transfer of a capital asset by an individual or a Hindu undivided family, under a gift or will or an irrevocable trust' (source: https://www.taxtmi.com/article/detailed?id=12855), so a company can no longer claim the clause at all. The reasoning on what makes a gift survives; the fact pattern cannot recur. That finding was checked against a published source, which is linked on this page, on 2026-08-20. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment ran on several issues besides the gift - transfer pricing risk adjustment, a trademark fee claim and guarantee additions - and this entry deals only with the s.47(iii) point. No reporter citation for the judgment appeared on any page fetched, so none is given. The substantial questions of law as framed refer to s.47(iv) as well; the reasoning summarised here is the Court's treatment of the transaction as a gift. Whether any appeal was carried to the Supreme Court has not been established. The livelaw report gives the date as 15 December 2020 while the judgment itself and the itatonline digest give 10 December 2020; the judgment date is used here. The entry does not deal with the transfer pricing or trademark fee issues decided in the same judgment, and does not state the quantum of the capital gains finally assessed beyond the figure of over Rs. 600 crores reported in the commentary. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The transfer was not a valid gift. There was no voluntary element and it was executed for consideration, so it failed the test in s.122 of the Transfer of Property Act; the transfer attracted s.45 and was chargeable under the head capital gains. The Tribunal's order was reversed.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
The firm revalued its land and credited the surplus to the partners' capital accounts. Is that taxable?
The AO says I sold below market value and wants to tax the difference. Can he do that?