The assessee, during the previous year relevant to Assessment Year 2010-2011, transferred 30,65,600 shares of United Phosphorus Limited (UPL) and 3,06,560 shares of Uniphos Enterprises Limited (UEL) both public listed companies to one Nerka Chemicals Private Limited (NCPL) by way of a gift in terms of Transfer Deed dated 26th February 2010. Since the shares were transferred by way of a gift, admittedly no consideration was received by petitioner. The cost of the shares to petitioner was Rs.1,02,27,547/

The assessee claimed no income accrues or arises from the aforesaid transfer of shares by way of gift since the same has been made voluntarily and without any consideration. The transfer of shares by way of gift is an exempt transfer under Section 47(iii) and accordingly, not liable to capital gains as defined under Section 45 of the Act

HELD by the High Court upholding the claim:

(i) Under Section 45 of the Act any profits or gains arising from the transfer of a capital asset shall be chargeable to income tax under the head “capital gains” and shall be deemed to be the income of the previous year in which the transfer took place. Therefore, (a) there has to be a capital asset, (b) there has to be a transfer of such a capital asset and (c) there has to be a profit or gain arising from the transfer. Only when these three conditions are fulfilled, can the profit or gain be charged to income tax under the head “capital gains”.

(ii) Section 47 (1)(iii) of the Act, which deals with transactions not regarded as transfer, expressly provides nothing contained in Section 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. The proviso in clause (iii) of Section 47 of the Act for apparent reasons is not applicable to the case at hand. This proviso is in the nature of exclusion to main provisions of sub-clause (iii) of Section 47 of the Act. The case in hand, therefore, would be governed by the main body of sub-clause (iii) of Section 47 of the Act. Therefore, even if there is a transfer of a capital asset under a gift, which admittedly in the case herein, it shall not amount to a transfer under Section 45 of the Act. If it does not amount to a transfer under Section 45 of the Act, no capital gains will be payable because Section 45 is the only taxing provision for capital gains.

(iii) Moreover, Section 45 of the Act provides, any profits or gains arising from the transfer of a capital asset – it means there has to be a consideration received by assessee. Only when there is a consideration received, can the profit or gain be measured. This is evident from Section 48 of the Act which says “ the income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset ………….”.

(iv) Consequently, the provision of Section 45 of the Act pertaining to capital gain would not apply. [Prakriya Pharmacem V/s. Income Tax Officer, Ward-71 (2016) 66 taxmann.com 149 (Gujarat) referred]

(v) Section 50CA of the Act does not apply because (a) Section 50CA of the Act was inserted with effect from 1st April 2018 by the Finance Act, 2017 and (b) it applies to a capital asset being share of a company other than a quoted share (in this case shares transferred were quoted shares) and also applies only where the consideration received or accruing as a result of such transfer.

(v) Section 50D of the Act also does not apply because (a) it was inserted by Finance Act, 2012 with effect from 1st April 2013 and (b) there also the Section postulates receiving consideration and not a situation where admittedly no consideration has been received.

(vi) A gift is commonly known as voluntary transfer of property by one to another without any consideration. A gift does not require a consideration and if there is a consideration for the transaction, it is not a gift. Since in the reason to believe it is admitted that shares were transferred by assessee to NCPL without consideration, certainly it is a gift.