Section 47(xvii) — the law in short
What the courts have decided on section 47(xvii), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Embassy Office Parks REIT v DCIT — a REIT cannot amortise its IPO expenses under section 35D(2)(c) because it is not a company
ITATHelps departmentValidity unconfirmed
Our REIT incurred large expenses on its initial public offer and listing. Can it write them off over ten years under section 35D like a listed company?
No, on the Bangalore Tribunal's reasoning. Clause (c) of section 35D(2) opens with the words 'where the assessee is a company', and a SEBI-registered Real Estate Investment Trust constituted under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, so the deduction is unavailable however closely the public issue of units resembles a public issue of shares. The Tribunal held those opening words to be a conscious legislative limitation and not surplusage, refused to read units as shares, and dismissed the appeal.
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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
CBDT Circulars & InstructionsCuts both ways
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.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.