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Transfer of capital assets by way of exchange

Transfer of capital assets by way of exchange under section 2(47) (i)

Transfer includes exchange. When two persons mutually transfers the ownership of one thing for the ownership of another but none of the things is money, the transaction is called exchange under section 118 of the transfer of property act 1982). The word exchange is not limited to immovable property. It also includes barter of chattels. Thus conversation of preference shares into ordinary shares is an exchange. Similarly where assets are transferred to a company in lieu of allotment of shares it is a case of an exchange and not sale.

Lending of securities under securities lending scheme of SEBI does not results in exchange

The meaning of the word exchange necessarily involves exchange of two different assets. Shares are fungible assets. That is one share of a company is good replacement for another share of the same company. The market does not lay any emphasis on the distinctive numbers. Therefore, when the lender of shares under securities lending scheme of SEBI gets back equitant number of shares of the company with different distinctive numbers, it is not a case of exchange of assets (circular no. 751 dated 10-02-1997).

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