Section 47

Section 47 — the law in short

What the courts have decided on section 47, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• SREI Infrastructure Finance Ltd v Income Tax Settlement Commission High CourtHelps department
  My client moved its finance division to a subsidiary under a scheme of arrangement sanctioned by the Company Court, not under a sale deed. The Settlement Commission has taxed it under s.50B. Can a statutory scheme be a slump sale at all?
  Yes. The Delhi High Court held that the word 'sale' inside the expression 'slump sale' does not cut down the wide meaning of 'transfer' in s.2(47), so any transfer of an undertaking for a lump sum without values being assigned to individual assets falls within s.2(42C) and s.50B — including a transfer effected by a scheme sanctioned under ss.391-394 of the Companies Act 1956. The writ petition was dismissed.
• Bharti Airtel Limited v. PCIT, Delhi-1 (ITAT Delhi) — a section 263 revision holding a demerger was really an acquisition, and why it did not survive ITATHelps taxpayerValidity unconfirmed
  The Commissioner has revised our assessment under section 263 saying the scheme was an acquisition and not a demerger, so the section 72A(4) losses go. What did the Tribunal make of that argument?
  The Tribunal allowed the assessee's appeal. It held that the Principal Commissioner had drawn his inferences without taking cognizance of the Composite Scheme of Arrangement on the record, that a scheme of arrangement approved by the court carries the force of a statute, and that a restructuring in the telecom sector could not be branded an exercise to claim set-off of brought forward losses by a bald allegation. It recorded that section 2(19AA) refers to the provisions of the Companies Act for determining whether there is a demerger, and that the basic requirement for eligibility under section 72A(4) is that the transfer of the undertaking be in pursuance of a scheme of arrangement under the Companies Act by the demerged company. On the facts it found that the demerged company had been engaged in the consumer wireless mobile business, had been incurring loss since inception, that the entire business loss related to that undertaking alone, and that all the assets and liabilities relating to the demerged business had been transferred and vested in the assessee.
• DCIT v Business Excellance Trust — shares that were unlisted when bought fall in the main part of the section 10(38) notification ITATCuts both waysValidity unconfirmed
  My client bought shares off-market when the company was unlisted, sold them on the exchange after listing and paid STT on the sale. The officer denies section 10(38) because no STT was paid on purchase. Is he right?
  No, on this Tribunal's reasoning. All three carve-out clauses of the notification issued under the third proviso to section 10(38) are about listed equity shares, so a purchase of shares that were unlisted at the time of acquisition falls in the main part of the notification, and the exemption survives even though no STT was paid on acquisition.
• Statutory position — s.47A: the four withdrawals of exemption, the year each is charged and in whose hands, and the amalgamation and demerger clauses it does not touch CBDT Circulars & InstructionsCuts both ways
  Our amalgamation stopped satisfying a condition after the event. Can the department invoke section 47A to take back the section 47(vi) exemption, and if it can, in which year and on whom?
  Section 47A does not reach the amalgamation and demerger clauses at all. It withdraws the exemption in exactly four situations: sub-section (1), where a capital asset transferred under s.47(iv) or (v) — the holding company to wholly-owned subsidiary transfers — is converted into or treated as stock-in-trade, or the whole of the share capital ceases to be held, within eight years; sub-section (2), where shares allotted on a s.47(xi) conversion of a stock exchange membership are transferred within three years; sub-section (3), where a condition in the proviso to s.47(xiii) or (xiv) is broken; and sub-section (4), where a condition in the proviso to s.47(xiiib) is broken. Clauses (vi), (via), (vib), (vic), (vicc), (vid) and (vii) — the amalgamation and demerger exemptions — appear nowhere in section 47A.
• Statutory position — s.2(1B): the three conditions of an "amalgamation", and why a scheme sanctioned by a court or tribunal does not by itself produce one CBDT Circulars & InstructionsCuts both ways
  The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that?
  Yes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order.
• Statutory position — s.47(vi), (via), (vib), (vic), (vicc), (vid) and (vii): the amalgamation and demerger transfers that are not transfers, with the cost rules in s.49(2), (2C) and (2D) CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  Which transfers in an amalgamation or a demerger are outside section 45, and what cost and holding period do the shares in the transferee company carry afterwards?
  Seven clauses of section 47 take reorganisation transfers out of section 45. At company level: (vi) a 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; (vib) a transfer in a demerger of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company; (via) a transfer in a scheme of amalgamation of shares held in an Indian company by an amalgamating foreign company to an amalgamated foreign company, on two conditions; and (vic) and (vicc), the corresponding foreign demerger cases. At shareholder level: (vid) any transfer or issue of shares by the resulting company in a demerger to the shareholders of the demerged company in consideration of the demerger; and (vii) a transfer by a shareholder in a scheme of amalgamation of shares in the amalgamating company, if made in consideration of the allotment of shares in the amalgamated company except where the shareholder is itself the amalgamated company, and the amalgamated company is an Indian company. Clause (vi) is the central one: 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 — this is what takes the transfer of the undertaking itself out of section 45. On cost, s.49(2) gives the shareholder who receives shares in an amalgamated Indian company on a s.47(vii) transfer the cost of his shares in the amalgamating company; s.49(2C) splits the cost of the demerged company's shares to the resulting company's shares in the ratio the net book value of the assets transferred bears to the net worth of the demerged company immediately before the demerger; and s.49(2D) reduces the cost of the original shares by the amount so arrived at.
• Statutory position — section 79: which version of the change-in-shareholding bar applies to your year CBDT Circulars & InstructionsCuts both ways
  My closely held company changed hands and the Assessing Officer has knocked out the brought-forward loss under section 79. The section has been rewritten more than once — which text governs my assessment year?
  Four different texts of s.79 have governed the last decade, and the one that applies is the one in force for the assessment year in which the set-off is claimed. The Finance Act 2017 (Act 7 of 2017) substituted s.79 with effect from 1 April 2018 in a clause (a) and clause (b) form; the Finance (No. 2) Act 2019 (Act 23 of 2019) substituted it again with effect from 1 April 2020 into the present sub-section (1), (2) and (3) form; the Finance Act 2021 and the Finance Act 2022 added carve-outs with effect from 1 April 2022; and the Finance Act 2023 (Act 8 of 2023) substituted 'ten' for 'seven' in the start-up proviso with effect from 1 April 2023.
• Statutory position — section 55(2)(ac): the 31 January 2018 grandfathered cost, limb by limb CBDT Circulars & InstructionsCuts both ways
  My client bought listed shares in 2012 and sold them last year. How exactly do I work out the cost of acquisition under the grandfathering rule, and does the 31 January 2018 price simply replace the cost?
  No — the 31 January 2018 price does not replace the cost, and it is not a straight 'higher of cost or market' either. The cost is the HIGHER of (i) the actual cost of acquisition and (ii) the LOWER of (A) the fair market value and (B) the full value of consideration; fair market value for a share listed on 31 January 2018 is the highest price quoted on a recognised stock exchange on that date.
• Statutory position — section 10(38): the third proviso, Notification 43/2017 and the 1 April 2018 sunset CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  The assessing officer says my client's long-term gains on listed shares are not exempt under section 10(38) because no STT was paid when the shares were bought. Is that right, and does section 10(38) even apply to my year?
  First check the year: section 10(38) does not apply at all to a transfer made on or after 1 April 2018, because the Finance Act 2018 inserted a fourth proviso switching the clause off from that date — so for AY 2019-20 onwards the question is section 112A, not section 10(38). For a transfer up to 31 March 2018, the third proviso (inserted by the Finance Act 2017) does require STT to have been paid on ACQUISITION as well, but only in the cases carved out by the Central Government's Notification No. 43/2017 (S.O. 1789(E)) dated 5 June 2017 — the notification's main part covers all acquisitions of equity shares from 1 October 2004 that were not chargeable to STT, and only its three listed clauses take an acquisition out of the exemption.

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.