Section 71 — Withdrawal of exemption in certain cases
Old Act equivalent: Section 47 (provisos) of IT Act 1961 Sub-part: E.—Capital gains
Statutory Text
(1) The profits or gains arising from the transfer of capital asset not charged under section 67 by virtue of section 70(1)(c) and (d) shall, irrespective of anything contained in the said clauses, be deemed to be income chargeable under the head “Capital gains” of the tax year in which such transfer took place, if at any time before the expiry of eight years from the date of such transfer,— (a) the transferee company converts the capital asset into, or treats it as, stock-in-trade of its business; or (b) the parent company or its nominees or the holding company, ceases or cease to hold the whole of the share capital of the subsidiary company. (2) If any of the conditions laid down in section 70(zd) or (zf) are not complied with, the profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 67 by virtue of such conditions shall be deemed to be the profits and gains chargeable to tax under the head “Capital gains” of the successor company for the tax year in which such conditions are not complied with. (3) If any of the conditions laid down in section 70(ze) are not complied with, the profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 67 by virtue of such conditions shall be deemed to be the profits and gains chargeable to tax under the head “Capital gains” of the successor limited liability partnership or the shareholder of the predecessor company, for the tax year in which such conditions are not complied with. Mode of computation of capital gains.
Sub-sections
Sub-section (1)
The profits or gains arising from the transfer of capital asset not charged under section 67 by virtue of section 70(1)(c) and (d) shall, irrespective of anything contained in the said clauses, be deemed to be income chargeable under the head “Capital gains” of the tax year in which such transfer took place, if at any time before the expiry of eight years from the date of such transfer,— (a) the transferee company converts the capital asset into, or treats it as, stock-in-trade of its business; or (b) the parent company or its nominees or the holding company, ceases or cease to hold the whole of the share capital of the subsidiary company.
Sub-section (2)
If any of the conditions laid down in section 70(zd) or (zf) are not complied with, the profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 67 by virtue of such conditions shall be deemed to be the profits and gains chargeable to tax under the head “Capital gains” of the successor company for the tax year in which such conditions are not complied with.
Sub-section (3)
If any of the conditions laid down in section 70(ze) are not complied with, the profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 67 by virtue of such conditions shall be deemed to be the profits and gains chargeable to tax under the head “Capital gains” of the successor limited liability partnership or the shareholder of the predecessor company, for the tax year in which such conditions are not complied with. Mode of computation of capital gains.
Provisos
None.
Explanations
None.
Tables
None.
Key Structure
- Applies to: Transferee companies that received capital assets from holding/subsidiary companies under section 70(1)(c) and (d); successor companies under section 70(zd) or (zf) (firm-to-company and sole proprietor-to-company conversions); successor limited liability partnerships or shareholders of predecessor companies under section 70(ze) (company-to-LLP conversions).
- Asset type: Capital assets or intangible assets originally transferred under exempt transfer provisions of section 70, and shares in the case of company-to-LLP conversions.
- Conditions: For sub-section (1): exemption is withdrawn if the transferee company converts the capital asset into stock-in-trade or the parent/holding company ceases to hold the whole share capital of the subsidiary. For sub-sections (2) and (3): exemption is withdrawn if any of the conditions prescribed in the respective clauses of section 70 are not complied with.
- Time limits: For holding-subsidiary transfers under sub-section (1), the clawback applies if the triggering event occurs at any time before the expiry of eight years from the date of the original transfer.
- Monetary limits: None specified in this section.
- Exceptions: None specified in this section; this section itself operates as a clawback mechanism against exemptions granted under section 70.
Cross-References
- s067-charging — section 67 is the charging section from which the original exemption under section 70 operated; profits deemed chargeable under “Capital gains” upon withdrawal.
- s070-exempt-transfers — section 70(1)(c) and (d) cover holding-subsidiary exempt transfers subject to clawback under sub-section (1); section 70(zd) and (zf) cover firm/sole proprietor to company succession subject to clawback under sub-section (2); section 70(ze) covers company-to-LLP conversion subject to clawback under sub-section (3).
Amendment Notes
None noted from the extracted pages.