Section 2 (47) of the Income tax Act, 1961 has been a very tricky definition section dealing with the term ‘transfer’. As many as 6 on date clauses therein set the parameter to judge the effect of a capital account transaction. But the hidden list is endless as the term “Transfer” has been defined in inclusive manner so that Courts have always held a view that it is a word of the widest import and includes every act by which property may pass from one person to another. This therefore desired insertion of sections to either hold a transaction as not amounting to transfer ( section 49 of 1961 Act) specifically or to provide exemptions ( sections 54 onwards ) to avoid undue hardship upon the assessee. In other words one wrong (inclusive definition) has lead to serious complications. Exemptions are manipulated and fought over in several forums. Transfers are denied in several situations and so on.
Several amendments were made in such inclusive definition from time to time consequent to legal developments. Moreover with every amendment started another legal fight on to whether the effect of such amendment is clarificatory or substantive in nature. So there have been battles fought forward, backward and sideways.
In the new code there are as many as 16 clauses or instances of transfer situations in clause 287 of section 284 so that keeping such definition still in inclusive style is ruthless. Sixteen clauses in one go is clearly an exhaustive coverage so that anything beyond such number would be unreasonable. If we leave such definition as inclusive we will witness yet another round of long series of litigation and that would squarely go against the theme of the direct tax code. Experience has shown that the term ‘transfer’ has been a matter of big debate in Courts and Tribunal. As always the Assessing Officer would allege that there was a transfer hence capital gains would be exigible. Assessee would dispute such fact hence leading to a long chasing legal battle. This is notwithstanding the fact that capital gain would have been offered to tax in preceding or succeeding year in any case so that revenue/assessee has nothing really to gain much.
What if one were to compute his or her capital gains on the date of receipt of consideration in all cases as a percentage of consideration or assigned value less cost/indexed cost. In fact under the present Income tax Act there is a provision for taxing capital gains even on receipt basis in certain situations such as compulsory acquisition case or viz a viz realisation of value with reference to loss of assets.
In other words one could do away with transfer definition and its ill effects and charge capital gain tax at the time of receipt of sale consideration whether in cash or in kind. In the consequence all exempted transactions under new code section 45 parallel to section 49 entries may be lifted from the Code. For instance property received on gift or partition or under a may be made subject to capital gains tax apart from other mentioned situations.
In fact section 46 of the new code give financial year of taxability in as much as nine situations. Somewhere it states that date of possession would be the charging date, somewhere date of realisation of money or asset or somewhere it is the financial year in which the transfer took place. In other words the new code adds to some new innovative complications to bring capital gain tax.
But on top of this in the residuary situation the date of transfer would always be a matter requiring discussion and debate and would always pose problems. Thus it is better to do away with the concept of transfer as one regarded as inclusive definition and set a new formula of capital gains taxation viz a viz charge in the financial year in which the money or assets are realised. In the alternate the definition of transfer must be redefined in exhaustive manner to avoid any interpretation disputes.
Gopal Nathani
FCA