What the courts have decided on section 47A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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PCIT v Mobisoft Tele Solutions P Ltd
High CourtHelps taxpayerValidity unconfirmed
My proprietary concern was taken over by a company and the proprietor took some cash as well as shares. The AO is invoking s.47A(3) against the company. Can he, when we never claimed s.47(xiv)?
No. The Punjab and Haryana High Court held that s.47A applies only if it is established that s.47 was pressed into service; in the absence of any finding that s.47 was invoked to claim exemption from capital gains on the succession, the deeming provision in s.47A(3) cannot be invoked. On the facts, s.47(xiv) had no application at all because the proprietor had received cash consideration of Rs.5,81,231, contrary to proviso (c), and had not received shares as consideration for the brand name.
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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.
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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.
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.