In a scheme of amalgamation, Mr. M's 2,000 shares in the amalgamating company are replaced by 1,000 shares of the amalgamated Indian company. The market value of the new holding is Rs 50,000 higher. The capital gains chargeable in Mr. M's hands for the year of the swap are:
ANil, since the exchange is not treated as a transfer
BRs 50,000, the appreciation in market value
CTaxable on the full market value of the new shares
DHalf the appreciation, as share count halved
Answer & Solution
Correct answer: A. Nil, since the exchange is not treated as a transfer
1. Section 47(vii) excludes from 'transfer' the transfer of shares in the amalgamating company in consideration of allotment of shares in the amalgamated company.
2. The condition is satisfied here: the amalgamated company is an Indian company and the shareholder received shares in it.
3. With no transfer, no capital gains arise in the year of the swap; the gain is deferred until the new shares are sold (cost of old shares carries over under section 49(2)).
4. Option B taxes notional appreciation, which the Act does not do without a transfer.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 24_
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