Gift u/s 56(2)(vii)

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Free acquisition of property or acquisition of property for a consideration which is less than true value, generally, is not considered as an income of the buyer. There might be several reasons for such concession like good bargaining power of the buyer, constraint before seller, payment of consideration through unaccounted money, etc. The Government is considering such discount as an application of undisclosed income of the buyer. With intention to levy tax on such undisclosed income, the Government has introduced section 56(2)(vii) and created a legal fiction. However, avoidance in capital gain tax by seller is plugged, to some extent, through section 50C.

Scope & Coverage

The provision is applicable to Individual & HUF in respect of following receipts from unrelated person:

  • Receipts of Money without consideration

  • Receipt of Immovable Property without consideration

  • Receipt of Immovable Property against less consideration

  • Receipts of Movable Asset without consideration

  • Receipts of Movable Asset against less consideration

Conditions & Consequences

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Consequence

The whole of the aggregate value of such sum shall be considered as income of that previous year.

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  1. During the previous year, such individual or HUF has received any sum of money (cash, cheque, draft, etc.) from one or more persons

  2. Such sum is received without consideration

  3. The aggregate value of such receipt during the previous year exceeds Rs.50,000

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  1. During the previous year, such individual or HUF has received immovable property

  2. Such immovable property is received without consideration.

  3. The stamp duty value of such property exceeds Rs.50,000

  4. Such asset is a capital asset in hands of recipient.

Also Read  Firm Assessment
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Consequence

The stamp duty value of such property shall be considered as income of that previous year.

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Consequence

The stamp duty value of such property Less consideration paid, shall be considered as income of the previous year.

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  1. During the previous year, such individual or HUF has received immovable property

  2. Such immovable property is received for a consideration

  3. Such consideration is less than the stamp duty value of the property by an amount exceeding Rs.50,000.

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Where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken. This benefit is available only in a case where the amount of consideration or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property.

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  1. During the previous year, such individual or HUF has received movable property from one or more persons

  2. Such movable property is received without consideration or for a consideration which is less than Fair Market Value

  3. The aggregate fair market value of such receipts during the previous year exceeds Rs.50,000

  4. Such asset is a capital asset in hands of recipient.

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Consequence

The aggregate fair market value of such property Less consideration paid, shall be considered as income of the previous year.

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  1. During the previous year, such individual or HUF has received movable property from one or more persons

  2. Such movable property is received for a consideration.

  3. Such consideration is less than the aggregate fair market value of the property by an amount exceeding Rs.50,000

  4. Such asset is a capital asset in hands of recipient.

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For the purpose of this section, Property means the following capital asset of the assessee, namely:

Shares & securitiesArchaeological collections
PaintingsJewellery
SculpturesAny work of art
DrawingsBullion
Land or building or both

Fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed under Rule 11U & 11UA of the Income-tax Rules

Stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

Dispute in stamp valuation: The Assessing Officer can refer the case to the Valuation Officer (as appointed under Wealth Tax Act) for the purpose of valuation of asset transferred if following conditions are satisfied:

  1. Assessee claims before any Assessing Officer that the value adopted or assessed or assessable by such authority (i.e. Stamp Valuation authority) exceeds the fair market value of the property as on the date of transfer; and

  2. The value so adopted or assessed by the stamp valuation authority has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court.

Also Read  Special Provisions in respect of certain business of non-resident

Consequences where the value is determined by the Valuation Officer:

CaseResult
If the value determined by the Valuation Officer exceeds the value adopted or assessed for the purpose of stamp dutyValue adopted or assessed for the purpose of stamp duty shall be considered.
If the value determined by the Valuation Officer does not exceed the value adopted or assessed for the purpose of stamp dutyValue determined by the Valuation Officer shall be considered.

Exceptions

This section shall not apply to any sum of money or any property received:

  1. From any relative

    • In case of Individual

      Related Person Iindividual

    • In case of HUF : Any member thereof

  2. on the occasion of the marriage of the individual (whether gift is received from relative or outsiders)

  3. under a will or by way of inheritance.

  4. in contemplation of death of the payer.

  5. from local authority

  6. from any fund or foundation or university or other educational institutions or hospital or other medical institutions or any trust or institution referred u/s 10(23C).

  7. from a registered trust.

Exemption of Compensation on account of Disaster [Sec. 10(10BC)]

Any amount received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster, except the amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under this Act on account of any loss or damage caused by such disaster.

  • Here, property does not include furniture, clothes, etc. (provided it does not fall in the definition of Jewellery)

  • If an assessee receives aforesaid assets without consideration (or against inadequate consideration in some cases) as stock in trade, the provision of this section shall not apply.