The meaning of exchange under section 2(47) of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of exchange.
Meaning of exchange defined by court
The phrase ‘exchange’ used in section 2(47) of the Income Tax Act came up before various high courts as detailed under :
1. Hon’ble Supreme Court explained the meaning of ‘exchange’ while delivering judgment in CIT Vs. Rasiklal maneklal (HUF)  43 taxman 259/177 ITR 198 (SC) as under :
Meaning : An exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another.
2. Hon’ble Karnataka High Court explained the meaning of ‘exchange’ while delivering judgment in Jayakumari And Dilharkumari Vs. CIT  29 taxman 177 (Kar.) as under :
Meaning : Mere conversion of one currency into another currency cannot be considered as ‘exchange’. The exchange in the context must mean transfer of one capital asset for another capital asset. Like a sale, it requires two persons. There cannot be a sale to oneself. So too in the case of exchange.
3. Hon’ble Bombay High Court explained the meaning of ‘exchange’ while delivering judgment in CIT Vs. Rasiklal Maneklal (HUF)  95 ITR 656 (Bom.) as under :
Meaning : Section 118 of the transfer of property act, 1882 provides that when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an ‘exchange’. The definition of the word ‘exchange’ is not limited to immovable property.
‘Exchange’ is not only exchange of lands but also barter of goods. Even the dictionary meaning of the word ‘exchange’ is not different from the one given for the word in the transfer of property act. Several meanings are given for the word ‘exchange’ in the concise oxford dictionary, but the relevant meaning for the purpose is ‘the thing exchanged for another’.
Thus, if regard be had to the definition of the word ‘exchange’ as given in the transfer of property act, or even if regard be had to the meaning of that word as understood in common parlance, the following facts or circumstances must exist before a transaction of change can come into effect as understood in law or in common parlance.
A transaction of exchange presupposes existence of different properties owned by different persons; that as a result of the transaction of exchange both the properties continued to exist; that as a result of such a transaction both the properties continue to be owned by two different parties but the ownership of one property is transferred to the owner of the other and vice versa.
Section 2(47) of Income Tax Act
2.(47) “transfer”, in relation to a capital asset, includes,—
(i) the sale, exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or
(iva) the maturity or redemption of a zero coupon bond; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation 1.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA.
Explanation 2.—For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;
In this article, you can get guidance from high courts on the meaning of exchange under section 2(47) of the Income Tax Act.
Updated up to Finance Act 2021