Whether The Gift Of A Capital Asset By A Corporate Entity Be Subjected To Income Tax?

BACKGROUND

• Capital gains were charged for the first time via the Income Tax and Excess Profit Tax (Amendment) Act, 1947, which inserted section 12B under the Indian Income Tax Act, 1922. Indian Finance Act, of 1949, virtually abolished this levy. The levy of capital gains was revived vide Finance (No. 3) Act, 1956 w.e.f. 1^st April, 1957. Whether at the time of the introduction of capital gains in 1947 or at the stage of the revival of capital gains tax in 1956, the transaction of transfer of a capital asset by way of gift or transfer under irrevocable trust was not considered a transfer for the purpose of capital gains. In other words, the transfer of capital assets by way of gift or under an irrevocable trust was exempt. Such exemption was available to all classes of taxpayers, whether individual, HUF, firm, company, etc.
•  Even under the Income-tax Act, 1961 (ITA), section 47(iii) of ITA provided exemption from capital gains on the transfer of capital assets by way of gift or under an irrevocable transfer. Such exemption was available to all classes of taxpayers. However, vide Finance (No. 2) Act, 2024, w.e.f. 1^st April, 2025 (AY 2025–26 and onwards), section 47(iii) of ITA is substituted to provide
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