Section 47A of the Income Tax Act lays down provisions on withdrawing exemption in certain cases. There are Four Clauses in Income Tax Section 47(A). In this article we will cover the total scope of Section 47A, Situations where the granted exemption is withdrawn under section 47A of the Income Tax Act, Case Laws covering Section 47A.
Transfer to Subsidiary – Section 47A Income Tax Act
Section 47A provides that if, at any time, before the expiry of eight years from the date of transfer of a capital asset by a company to its wholly owned subsidiary company as provided in clauses (iv) or (v) of Section 47,
or by the subsidiary company to the holding company respectively, such capital asset is converted by the transferee company into or is treated by it as, stock-in-trade of its business, or the parent company (or its nominee) or the holding company ceases to hold the whole of the share capital of the subsidiary company before the expiry of the period of eight years aforesaid, the amount of capital gains exempted from tax by virtue of the provisions contained in Section 47 will be deemed to be income of the transferor company chargeable under the head “capital gains” of the year in which such transfer took place.
Stock Exchange – Section 47A Income Tax Act
In terms of Section 47A(2) where a person gets exemption from capital gains tax on transfer of his membership in a recognised stock exchange during the course of corporatisation of his business in terms of Section 47(xi) and he within three years from the date of such transfer sells any of the shares allotted in lieu thereof by the company, the capital gains exempted vide Section 47(xi) will become the capital gains of the previous year in which the shares are transferred.
Conditions under Section 47A Income Tax Act
In terms of Section 47A(3) inserted by Finance (No. 2) Act, 1998, if the conditions stipulated regarding the succession of proprietary concern or firm by the company whereby capital gain is not levied, are not complied with the benefits availed by the sole proprietor or the firm, as the case may be, shall be deemed to be profit and gains of the successor company chargeable to tax in the year in which infringement takes place.
Deemed Profits – Section 47A Income Tax Act
As per section 47A(4) where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with.