Exchange according to the Transfer of Property Act
Section 118 of the Transfer of Property Act defines ”exchange” as follows:
”When two persons, mutually transfer the ownership of one thing in exchange for the ownership of another, neither thing or, both things being money only, such a transaction is called an ”exchange”.”
The definition of exchange is not limited to immovable property. Exchange is, therefore, not only the exchange of lands, but also the barter of goods. If one of the items that is transferred is money, the transaction is not an exchange but a sale because the price is money, only. However, money, in one form, may be exchanged for money in another form. So, also, an exchange of one stamp for another is not a sale. A sale should, always, be for a price. On the other hand, in the case of an exchange, the transfer of ownership of one thing is not completed by paying a price or a promise thereof, but, only by a transfer of another thing, in return. So, a transaction, where the consideration for the transfer of certain properties is shares in a limited company, is considered to be an exchange. [Commissioner of I-Tax vs. Motor and General Stores (P) Ltd AIR 1968 SC 200 supra]
The ownership of one party must be exclusive of the ownership of the other. Therefore, a partition is not an exchange. A transfer by a husband to a wife, in discharge of her claim to maintenance, is not an exchange, as the wife transfers no ownership in anything.
If the lessee surrenders a lease and, the landlord grants him the lease of another property, the transaction is not an exchange. If both parties are not the same there cannot be an exchange.
Illustration: ”A” transfers to ”B”, a house worth Rs.1, 500, and ”B” transfers to ”A”, a field worth Rs. 1,000, and Rs. 500, cash. The transaction is an exchange.