My client is contributing his shares in a project company to a REIT and taking units in exchange. Is that a taxable transfer now?
No. Section 47(xvii) takes out of section 45 any transfer of a capital asset, being a share of a special purpose vehicle, to a business trust in exchange for units allotted by that trust to the transferor, so no capital gain arises on the swap itself. The charge is deferred rather than forgiven: section 49(2AC) provides that where a unit of a business trust became the property of the assessee in consideration of a transfer referred to in section 47(xvii), the cost of acquisition of the unit is deemed to be the cost of acquisition to him of the share, so the whole of the accumulated gain surfaces when the units are sold.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2015-04-01, reported as Clause (xvii) of section 47 and sub-section (2AC) of section 49 of the Income-tax Act, 1961, part of the business trust package introduced by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014), as amended up to 2024. It bears on section 47(xvii), section 49(2AC), section 45, section 10(23FC), section 2(13A), section 115UA, section 2(42A) of the Income Tax Act 1961, in Capital Gains, Charitable Trusts & Exemption, Capital Gains Exemptions and How Tax Law Is Read matters.
This is the provision that makes a REIT or InvIT formation possible at all, because without it the sponsor would face a capital gains charge on contributing project companies to the trust before he had received any cash. Four points decide how it works in practice. First, the exemption is confined to SHARES of a special purpose vehicle: a contribution of the underlying property, or of an interest in a limited liability partnership, or of debt, does not fall within the clause. Second, the consideration must be units allotted by that trust to the transferor — a swap partly for cash takes the transaction outside the clause on its face. Third, the Explanation to the clause defines 'special purpose vehicle' by reference to the Explanation to clause (23FC) of section 10, so the SPV must answer that description and not merely be a company the trust happens to acquire. Fourth, because section 49(2AC) substitutes the cost of the SHARE as the cost of the UNIT, the sponsor's eventual gain on the units is computed against a historic cost that may be decades old, and the holding period and the rate then applicable are those for a unit of a business trust and not those for the share. The Bangalore Tribunal in Embassy Office Parks REIT treats the very existence of section 47(xvii) as proof that shares and units are not the same species of property, which is a useful collateral use of the clause.
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Section 47, headed "Transactions not regarded as transfer", provides at clause (xvii) that nothing contained in section 45 shall apply to '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', with an Explanation that for the purposes of that clause the expression 'special purpose vehicle' shall have the meaning assigned to it in the Explanation to clause (23FC) of section 10. Section 49, headed 'Cost with reference to certain modes of acquisition', provides at sub-section (2AC) that 'Where the capital asset, being a unit of a business trust, became the property of the assessee in consideration of a transfer as referred to in clause (xvii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause.' The two provisions sit alongside their neighbours in the same series: section 47(xvi) (reverse mortgage) and section 47(xviii) (consolidation of mutual fund schemes), and section 49(2AB), (2AD) and (2AE), each of which supplies the substituted cost for the corresponding exclusion.
Statutory position — no holding is asserted; this entry reproduces statutory text. An exchange of shares of a special purpose vehicle for units of a business trust is not a transfer chargeable under section 45, and the cost of acquisition of the units so received is the transferor's cost of acquisition of the shares, so the accrued gain is deferred to the eventual sale of the units.
The pair is a standard roll-over: an exclusion from the charge coupled with a cost substitution, so that the sponsor is not taxed on a reorganisation in which he receives no cash but the tax on the accrued appreciation is preserved and collected at the next taxable event. The exclusion is drafted narrowly by asset (a share), by transferee (a business trust as defined in section 2(13A)) and by consideration (units allotted by that trust to the transferor), which keeps it to the single transaction the business trust regime needs — the sponsor's contribution of project companies at formation. The Explanation ties 'special purpose vehicle' to the same definition used by the exemption in section 10(23FC), so that the entity whose shares are rolled over is the same entity whose interest and dividend the trust will later pass through. Section 49(2AC) then completes the roll-over by carrying the historic cost across from the share to the unit, which is what distinguishes a deferral from an exemption.
(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.
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Handle my notice → Ask a CA on WhatsAppNo. Section 47(xvii) takes out of section 45 any transfer of a capital asset, being a share of a special purpose vehicle, to a business trust in exchange for units allotted by that trust to the transferor, so no capital gain arises on the swap itself. The charge is deferred rather than forgiven: section 49(2AC) provides that where a unit of a business trust became the property of the assessee in consideration of a transfer referred to in section 47(xvii), the cost of acquisition of the unit is deemed to be the cost of acquisition to him of the share, so the whole of the accumulated gain surfaces when the units are sold. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 47(xvii), section 49(2AC), section 45, section 10(23FC), section 2(13A), section 115UA, section 2(42A) of the Income Tax Act 1961. It is reported as Clause (xvii) of section 47 and sub-section (2AC) of section 49 of the Income-tax Act, 1961, part of the business trust package introduced by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014), as amended up to 2024. This is the provision that makes a REIT or InvIT formation possible at all, because without it the sponsor would face a capital gains charge on contributing project companies to the trust before he had received any cash. Four points decide how it works in practice. First, the exemption is confined to SHARES of a special purpose vehicle: a contribution of the underlying property, or of an interest in a limited liability partnership, or of debt, does not fall within the clause. Second, the consideration must be units allotted by that trust to the transferor — a swap partly for cash takes the transaction outside the clause on its face. Third, the Explanation to the clause defines 'special purpose vehicle' by reference to the Explanation to clause (23FC) of section 10, so the SPV must answer that description and not merely be a company the trust happens to acquire. Fourth, because section 49(2AC) substitutes the cost of the SHARE as the cost of the UNIT, the sponsor's eventual gain on the units is computed against a historic cost that may be decades old, and the holding period and the rate then applicable are those for a unit of a business trust and not those for the share. The Bangalore Tribunal in Embassy Office Parks REIT treats the very existence of section 47(xvii) as proof that shares and units are not the same species of property, which is a useful collateral use of the clause. If it applies to you, the first step is this: Check that what is being transferred is a SHARE of the special purpose vehicle and that the SPV answers the description in the Explanation to section 10(23FC); a transfer of the property itself, or of debt, or of an LLP interest, is outside the clause.
Section 47, headed "Transactions not regarded as transfer", provides at clause (xvii) that nothing contained in section 45 shall apply to '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', with an Explanation that for the purposes of that clause the expression 'special purpose vehicle' shall have the meaning assigned to it in the Explanation to clause (23FC) of section 10. Section 49, headed 'Cost with reference to certain modes of acquisition', provides at sub-section (2AC) that 'Where the capital asset, being a unit of a business trust, became the property of the assessee in consideration of a transfer as referred to in clause (xvii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause.' The two provisions sit alongside their neighbours in the same series: section 47(xvi) (reverse mortgage) and section 47(xviii) (consolidation of mutual fund schemes), and section 49(2AB), (2AD) and (2AE), each of which supplies the substituted cost for the corresponding exclusion. The matter was decided on 2015-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory text. An exchange of shares of a special purpose vehicle for units of a business trust is not a transfer chargeable under section 45, and the cost of acquisition of the units so received is the transferor's cost of acquisition of the shares, so the accrued gain is deferred to the eventual sale of the units.
The pair is a standard roll-over: an exclusion from the charge coupled with a cost substitution, so that the sponsor is not taxed on a reorganisation in which he receives no cash but the tax on the accrued appreciation is preserved and collected at the next taxable event. The exclusion is drafted narrowly by asset (a share), by transferee (a business trust as defined in section 2(13A)) and by consideration (units allotted by that trust to the transferor), which keeps it to the single transaction the business trust regime needs — the sponsor's contribution of project companies at formation. The Explanation ties 'special purpose vehicle' to the same definition used by the exemption in section 10(23FC), so that the entity whose shares are rolled over is the same entity whose interest and dividend the trust will later pass through. Section 49(2AC) then completes the roll-over by carrying the historic cost across from the share to the unit, which is what distinguishes a deferral from an exemption. In the words reproduced by the source cited on this page: "(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."
It was decided by the CBDT Circulars & Instructions on 2015-04-01 and is reported as Clause (xvii) of section 47 and sub-section (2AC) of section 49 of the Income-tax Act, 1961, part of the business trust package introduced by the Finance (No. 2) Act, 2014 (Act No. 25 of 2014), as amended up to 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 47(xvii), section 49(2AC), section 45, section 10(23FC), section 2(13A), section 115UA, section 2(42A), 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 cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory text. An exchange of shares of a special purpose vehicle for units of a business trust is not a transfer chargeable under section 45, and the cost of acquisition of the units so received is the transferor's cost of acquisition of the shares, so the accrued gain is deferred to the eventual sale of the units. It arises in Capital Gains, Charitable Trusts & Exemption, Capital Gains Exemptions and How Tax Law Is Read matters, on section 47(xvii), section 49(2AC), section 45, section 10(23FC), section 2(13A), section 115UA, section 2(42A) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Check that the entire consideration is units allotted by the business trust to the transferor. Any cash element should be structured and documented separately, because the clause is drafted as an exchange. Record on the file the sponsor's original cost of acquisition of the SPV shares, with proof — that figure becomes the cost of the units under section 49(2AC) and will be needed years later. Do not claim indexation or a stepped-up cost on the units by reference to the swap value; section 49(2AC) fixes the cost at the cost of the share. When the units are eventually sold, compute the gain against that substituted cost and apply the holding period and rate applicable to a unit of a business trust. Where a computation for the swap year has already been filed showing a gain, consider a revised return or a rectification: section 47(xvii) operates to keep the transaction out of section 45 altogether, not as a deduction to be claimed.
Still good law. Both provisions have been read on the Department's current published texts of section 47 and section 49, each under the correct section heading and each naming the Income-tax Act, 1961; the surrounding clauses (xvi) and (xviii) and sub-sections (2AB), (2AD) and (2AE) were transcribed in sequence so that the clause labels could not be misread. The Bangalore Tribunal in Embassy Office Parks REIT v. DCIT, at its paragraph 25, refers to section 47(xvii) in the same terms as granting 'a specific exemption for the transfer of shares of a special purpose vehicle to a business trust in exchange for units of that business trust'. No later published version of either section has been traced, and no amendment footnote attached to these provisions has been read, so neither the commencement nor the absence of a later amendment has been verified from an amendment note. A practitioner relying on clause (xvii) should also keep in mind what it does not do: it takes the swap out of the charge under section 45, and section 49(2AC) carries the cost of the shares over to the units, so the gain is deferred and not forgiven. It surfaces when the units are sold, and the period of holding of the units is fixed by section 2(42A) and not by the period for which the shares were held. Two conditions on the clause itself have to be checked before it is relied on. The transfer must be of a capital asset, being a share of a special purpose vehicle, and the consideration must be units allotted by the business trust; a swap for anything else, or a transfer of anything else, is outside the clause. And 'special purpose vehicle' takes its meaning from the Explanation to section 10(23FC), which is not set out on this page and must be read from the Act. No source could be cited for that finding. 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 commencement date given here is NOT sourced from an amendment footnote and should be confirmed. The Department's current published texts of section 47 and section 49, both naming the Income-tax Act, 1961, carry clause (xvii) and sub-section (2AC) in the words reproduced above, but neither carries an amendment footnote attached to them. Older published versions of both sections, from 2012, carry neither provision, and versions from 1993 stop far earlier. The date of 1 April 2015 is stated on the footing that section 47(xvii) and section 49(2AC) form part of the same business-trust package as Chapter XII-FA, whose insertion by Act No. 25 of 2014 with effect from 1 April 2015 is taken from an amendment footnote on section 115UA — that is an inference from the structure of the package, not a footnote about these two provisions, and it should be verified against the Gazette text of the Finance (No. 2) Act, 2014. Note also that the text of the Explanation to section 10(23FC), to which the Explanation to clause (xvii) refers for the meaning of 'special purpose vehicle', has not been read, because the published texts of section 10 available here stop well before that clause. Neither provision carries a corresponding deeming for the period of holding in the texts read, so the reference in section 2(42A) to a unit of a business trust has not been traced; the Bangalore Tribunal notes at its paragraph 25 that section 2(42A), Explanation 1(i)(hf) prescribes a separate holding period for a unit of a business trust, but that Explanation has not itself been read. One corroboration narrows the inference without closing it: section 30 of the Finance Act, 2015, which amended section 115JB with effect from 1 April 2016, already refers to "notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47", so clause (xvii) was on the statute book before 1 April 2016 and cannot have been inserted later than that. The Finance (No. 2) Act, 2014 itself has not been read, and the commencement day is still unverified. The date in `decided_on` is the commencement date inferred for section 47(xvii) and section 49(2AC) — 1 April 2015 — and not a decision date; as stated above, that date is itself an inference and not sourced from an amendment footnote. 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.
Statutory position — no holding is asserted; this entry reproduces statutory text. An exchange of shares of a special purpose vehicle for units of a business trust is not a transfer chargeable under section 45, and the cost of acquisition of the units so received is the transferor's cost of acquisition of the shares, so the accrued gain is deferred to the eventual sale of the units.
TaxSphere, “Statutory position — section 47(xvii) with section 49(2AC): swapping SPV shares for business trust units is not a transfer, and the gain is deferred to the sale of the units”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-47-xvii-and-49-2ac-swapping-spv-shares-for-business-trust-units/ (validity last checked 2026-09-08)
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