S. 56(2)(vii)(b): Controversies Arising After Amendment By FA 2013
Dr. (CA) Raj K. Agarwal & Dr. Rakesh Gupta, Advocate
S. 56(2)(vii)(b), as substituted by the Finance Act 2013, provides that if immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee’s hands. The authors have carefully studied this provision and raised several thought-proving questions as to its implications in the hands of the transferor and the transferee
Finance Act, 2013 has substituted clause (b) of section 56(2)(vii) w.e.f. 1.4.2014 providing, inter alia, that where an individual or Hindu Undivided Family receives, in any previous year, from any person or persons any immovable property-
(i) Without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration
shall be chargeable to income tax under the head “Income from Other Sources”.
In case assessee being Individual or HUF has acquired the immovable property as trading asset, the enhanced value of such asset cannot be accounted for in the books of accounts by the assessee, as no such provision corresponding to section 49(4) has been brought under the head ‘Profit & gains of business or profession’
Prior to the above substitution, the provision of clause (b) was introduced u/s 56(2)(vii) w.e.f 1st Oct, 2009 laying down that in a case when any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds Rs. 50000/-, the stamp duty value of such property was taxable in the hands of the transferee individual or HUF under this section as “Income from other sources”. Finance Act, 2013 has thus extended the scope of this section, inter alia, covering the cases when any immovable property is received by an individual or HUF for inadequate consideration.
1. Transferor of the property covered u/s 50C/43CA, Individual/HUF Transferee covered by new clause (b) of section 56(2)(vii)
As per the provision of section 50C, which was introduced under the Income Tax Act by Finance Act 2002 w.e.f. 1.04.2003, if land or building is transferred for a value less than the stamp duty value or circle rate of the property and the property is in the nature of capital asset, the difference is taxed in the hands of the transferor as deemed Capital Gain. Finance Act, 2013 has, by way of introduction of new section 43CA on the lines of section 50C, has sought to cover such immovable property in the nature of trading asset also. Both sections 50C and 43CA are applicable to seller/transferor of such immovable property. The amendment u/s 56(2)(vii)(b) has however sought to cover the buyer/ transferee of such immovable property on the lines of section 50C/ 43CA.
The underlying assumption in both the situations seems to be that the actual consideration passed on the transfer of immovable property can not be less than circle rate/ Stamp duty Value and in case the apparent consideration shown in the transaction is less than the stamp duty value, the deeming fiction as envisaged u/s 50C/43CA or u/s 56(2)(vii)(b) qua transferor & transferee shall come into force.
Finance Act, 2009 had introduced similar fiction qua the transferee individual or HUF u/s 56(2) but the same was withdrawn by Finance Act, 2010 with retrospective effect. No worthwhile explanation as to the rationale behind withdrawal of such provision earlier and now reintroducing the same by Finance Act, 2013 has come forward from the side of Government. Memorandum explaining the provisions of Finance Act, 2013 is silent on this aspect.
2. Section 56(2)(vii)(b) applicable in the case of Individual & HUF only
It is important to note that provision of section 56(2)(vii) applicable in case of transferee of immovable property covers only Individual or HUF, whereas provisions of section 50C/43CA applicable to the transferor of the property cover all the assessees. It implies that if the transferee of property is a person other than individual or HUF i.e. a Company, Firm, LLP etc., provision of section 56(2)(vii) shall not be applicable. Thus, if an immovable property is purchased by a person other than an individual or HUF for a consideration which is less than Stamp Duty Value / Circle Rate, there will not be any implication or attraction of the provision of this section. There is however nothing explicit as to why only individual and HUF have been brought into the ambit of this section and as to why other persons have been left out. The only broad rationale one can gesticulate & comprehend is that the origin of the provision of section 56(2)(vii) relates to the introduction of the concept of gift/ deemed gift into the income Tax Act after the abolition of Gift Tax Act and since the gift tax used to affect largely to individual and HUF, the applicability of this provision has also been restricted to individual and HUF only.
3. Cost of acquisition to the buyer?
A question arises as to what would be the cost of acquisition to the buyer/ transferee in a case when he has paid tax under this section on the excess of stamp duty valuation over the actual consideration paid by him.
The legislature has provided sub-section (4) to section 49 prescribing cost of acquisition with reference to certain modes of acquisition. It states that where the capital gain arises from the transfer of a property, the value of which has been subject to income tax under clause (vii) or clause (viia) of sub section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia).
It means that in case the buyer of the property has acquired the property as capital asset, the legislature has prescribed the provision for cost step-up available to the buyer/ transferee for the purpose of calculating capital gain at a later date when such property is sold / transferred by such person. Provision such as sub-section (4) to section 49 would mean that cost step-up shall be available to the person only for the purpose of calculating capital gain when such property is transferred at a later date as capital asset. Since provision of section 49(4) cannot be extended to section 32, assessee cannot account for such asset at higher value in the books of accounts and cannot claim depreciation on the enhanced value of the asset.
Further, in case assessee being Individual or HUF has acquired the immovable property as trading asset, the enhanced value of such asset cannot be accounted for in the books of accounts by the assessee, as no such provision corresponding to section 49(4) has been brought under the head ‘Profit & gains of business or profession.’ It would mean that if an Individual or HUF being in the business of real estate, buys the land or building at less than stamp duty value and therefore being subject to rigor of newly inserted clause (b) of section 56(2)(vii), pays tax on the difference of stamp duty value and the actual consideration yet such individual or HUF would not be able to take advantage of the cost step up despite the fact such individual or HUF has paid the tax with reference to stamp duty value.
4. Whether omission or legislative intent?
Such amount is deemed to be income of the Individual or HUF assessee as provided under this section viz. section 56(2)(vii)(b). If an analogy & comparison of this situation with the deeming provision of section 69 for unexplained investments and section 69C for unexplained expenditure is made, it seems that the legislature has intended with a conscious mind, to not to prescribe the cost step up in case of trading asset on the lines of section 49(4)
As discussed above, the benefit of cost step-up has been granted by the legislature for a situation where the asset is a capital asset for the purpose of calculating capital gains on its subsequent sales but the benefit of the cost step-up has not been granted to an Individual or HUF when the asset is acquired by them as trading asset. In case the asset acquired is in the nature of trading asset, the deduction shall be allowed for an amount being the actual consideration paid by the assessee even when tax has been paid by him on enhanced value in accordance with the provision of section 56(2)(vii).
A question may arise as to whether this is a lapse on the part of the legislature and a provision of cost step up for trading asset corresponding to provision of section 49(4) has missed to be introduced in the statute or such omission is deliberate omission.
As discussed earlier, the underlying assumption behind section 56(2)(vii) seems to be that the actual consideration for a property cannot be less than its circle rate/ stamp duty value and in case the apparent consideration paid is less than the stamp duty value, the difference amount appears to have been paid in cash out side the books of accounts by the transferee. Such amount is deemed to be income of the Individual or HUF assessee as provided under this section viz. section 56(2)(vii)(b). If an analogy & comparison of this situation with the deeming provision of section 69 for unexplained investments and section 69C for unexplained expenditure is made, it seems that the legislature has intended with a conscious mind, to not to prescribe the cost step up in case of trading asset on the lines of section 49(4).
This is so because under the proviso to section 69C, the unexplained expenditure which is deemed to be the income of the assessee u/s 69C is not allowed as a deduction under any head of income. While in the case of unexplained investments u/s 69, there is no such restrictive provision, meaning thereby that if unexplained investment is deemed to be the income of the assessee u/s 69, such investment is allowed as deduction as cost of acquisition of the asset. It implies that the legislative intent is not to allow deemed income in the nature of revenue expenditure as deduction but to allow deemed income in the nature of capital expenditure as deduction. It seems that the same principle and analogy has been embedded in the case of provision of deemed income u/s 56(2)(vii).
However, this controversy is of limited applicability as the provision of section 56(2)(vii) is applicable only to individual and HUF and the cases when individual/HUF acquire immovable property as trading asset are not very common. Generally, immovable property as trading asset are acquired by the business entities such as firm/companies and provisions of section 56(2)(vii) are not applicable on such persons.
As a measure of tax planning, one may thus opt to do business of real estate in the form of business entities other than proprietorship.
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this provision is made (562x) to make sure that the evasion of black money. but if you have bought a property in auction from a nationalised bank below the circle rate then is this ruly apply as the whole transaction is fair and nothing cash part involved.
A Private Ltd Company, the FMV of the shares will be about Rs. 400/- per share of Rs. 10/- each. The said company is now converted into LLP after duly complying with the conditions provided for exemption of capital gains. The shareholder’s share are converted as share capital at face value and all other assets and liabilities are transferred at book value.
Now my question is about the liability under section 56(2)(x) for shareholder for difference in the share value and capital contribution in LLP and also for LLP getting properties at book value as against the market value. The exemption under section 56(2)(x) is available for amalgamation and not for LLP
Dear, I had purchased a capital asset property in individual name in may 2011,agreement value is less than 20% percent against stamp duty. Now in march 2019 income tax has send me a notice that difference between agreement and stamp duty is other income for you. So please advise me for this matter.
An UPDATE (with a different stroke of reasoning- to re-share)(:
https://www.facebook.com/swaminathanv3/posts/1983376345071975
if property is purchased in bank auction and the consideration is less than stamp duty value , will the sec 56 (2)(vii) apply
Hello Sir,
Did you get answer to your query.
I am also facing same issue and searchng for any commentary or case law.
My friend is purchasing air tickets for me.whether the cost of air tickets constitute gift in my hands
Since the air tickets are not included in the definition of term “property”, refer to in Section 56(2)(x) of the Act, provisions of above Section will not be applicable. Hence same will not constitute gift.
Tenant became owner of land in 2006 and the land was in his possession since last 30 years prior to 2006. Later on in year 2010 the property was sold. What will be cost of acquisition and date of acquisition. Please explain.
when rural agriculture land purchase below circle rate what will be tax liability. for example my father purchase a rural agriculture land in 60 lakhs, which cost having according to circle rate is 80 lakhs. the amount difference 80-60=20 will be taxable.
in case of purely rural agriculture land where actual cost=50 lakhs, and cost according to circle rate is 60 lakhs. what will be tax liability
Whether this is a “Capital Asset”? If it is an Agricultural Land than it is not a Capital Asset. Therefore no capital gains.
Hi,
Wrt section 56(2)(viib)- in case of 0% fully convertible debentures issued in AY 2008-08 are converted into shares in AY 2015-16, will it mean that consideration is received in AY 2015-16 and accordingly provisions of section be applied in AY 2015-16, given the circumstances?
I am a WB Sate Govt. Employee. I want to Purchase a 2nd flat of which the Govt. valuation is Rs. 75,00,000/-. I made an agreement with the owner of said flat on 02.03.2016 against total value of Rs.55,00,000/- and on that day I paid him Rs.2,00,000/- by cheque and Rs.5,000/- by cash. I want to register this flat on Nov. 2017. Have I to Pay income tax for balance amount 20,00,000/- (75,00,000-55,00,000)as per sec.56(2)(vii)(b)?
Yes. As per the new section you have to offer Rs. 20 Lakhs as income from other sources in the Return of Income for the AY 2018-19, relevant to FY 2017-18. You also need to pay Advance Tax on this amount for the Quarter ending 15th December, 2017 and 15th March,2018.
Yes, but in my case the consideration is fixed by a letter of allotment signed by the builder and acknowledged by us and the agreement is made thereafter…In our case the booking date is the date of letter of allotment and not the agreement date..the stamp duty valuation to be considered as on the agreement date or the date of letter of allotment..?
What will be cost of acquisition for my property at the time of resale in future date if I had paid full amount of tax as per stamp duty value?
Dear Sir
On 27/03/2014 I made a agreement with seller to buy a flat at Rs 92 lacs and paid advance of Rs 9 lacs by way of cheque and NEFT.
On 30/06/2014 I paid the remaining amount and sale deed has been executed on same day.
The stamp duty value said that it cost 165 lacs.
Will I get attracted by Tax U/s 56(2)(vii)(b).
Note: The market Value of the said property was 92 lacs only stamp duty for the area was too high for that place.
My point is : since I made the agreement on 27/03/2014 that is before 01/04/2014 i am not attracted to this act
Thanking
Sir very good knowledge sharing article. Sir I have query what if a plot is purchased less than stamp duty value say 15 lakhs (stamp duty value 25 lakhs) and exemption is claimed u/s 54F later on ito book addition of 10 lakhs as other source weather we claim exemption of 25 lakhs u/s 54F later or not.
No, Since the 54F Apply only for capital gain, income under section 56(2)(vii) will not be eligible for 54F.
Dear Sir,
I booked a flat in the month of Oct 2014 and registration of the same was done in Feb 2015. Between this period the Circle rates of the said property were hugely increased by the state govt and the according to the circle rate the property was valued at Rs. 91 Lakh on which I paid the Stamp duty, but in actual the said property was transferred on for Rs. 31 Lakh. Now please guide me whether I have to pay tax on this huge difference. I am not selling this flat, its self occupied. I have received the notice from Dept of Income Tax. Pl suggest what to do ?
The Circle rates or Registrar rates prevailing on booking date shall only apply for stamp duty purpose and not the registration date Circle rate or Registrar value provided the payment is made BY CHEQUE/NEFT/DRAFT.. If payment of booking amt is made in CASH, then the RATES PREVAILING ON FIRST CHEQUE./DD/NEFT/RTGS will have to be taken for the purpose of STAMP DUTY.
Dear Mr.Ashok, do we have any case law on the fact that the stamp duty value prevailing on the booking date will apply for Section 56(2)(vii)(b) and not the registration date ?
Hello MR. Karan, we dont need a case law on subject matter as the same has been written in the law itself as provisio to section 56(2)(vii)(b). For your reference same is being reproduced as below:-
“[b] any immovable property,—
[i] without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
[ii] for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
Provided that 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 for the purposes of this sub-clause:
Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, 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;”
Mr. Pankaj
Can you please Share your notice received from IT department.
Do they Ask you to pay Tax for the Difference between (91-31= 60) 60 lacs as per income from other sources ?
Thanks a lot to both the learned writers. Due to analysis of the said section by them , we all are able to find some comments supporting or being different with the views expressed by them but the real work has been done by them .
I request to the writers to take up the matter with the authority as circle rate is much higher in many places due to slump in real estate sector and the above-said section is loosing its relevance .
Sir, is there any exception to the said section 50C & 56(vii)(b) (ii)?
OFFHAND
1. A few crucial points, going to the very root of the discussed enactment (s), appear to have been glossed over / overlooked in all such discussions, shared in public domain. However, personally open to correction, should there be a contrary view possible.
For an update, if care to, the input thoughts shared lastly @ https://www.linkedin.com/pulse/property-transfer-value-swaminathan-venkataraman may be read through.
2.Wprt the observation,-
“……the deeming fiction as envisaged u/s 50C/43CA or u/s 56(2)(vii)(b) qua transferor & transferee shall come into force.”,
special focus is called for on the following:
A) Sec 50 C is a deeming provision; and as such, that has to be ‘strictly construed’ ; and applied ‘only within the field of the definite purpose for which the fiction is created’.
For the other rules /principles of relevance herein, as enunciated by case law and requiring to be borne in mind, suggest to read through the expert commentary in the Tenth Edition of Kanga & Palkhvala’s Text book , under inter alia “23. Deeming Provisions and Legal Fiction” (pg.19,20).
B) Sec 56 (2)(vii)(b),IN TERMS,is a not a ‘deeming provision’ , so as to be regarded to have, by itself,created a ‘legal fiction’ in any sense of it.
Besides, the rationale behind/legal validity of the said provision is highly questionable and contestable,primarily on the ground that,-in bringing to tax as ‘income’ (‘revenue’), the fact that the subject matter of the related transaction is ‘immovable property’( hence a capital asset) seems to have been blatantly ignored, unwittingly or otherwise.
Over to learned experts equipped with an intimate knowledge,in the fond expectation of further deliberation and proper enlightenment on the foregoing viewpoints.
sir,
I AM RANJAN KUMAR MISHRA CA OF BALASORE ORISSA, MY POINT IS SECTION 56(2)(vii)(b) includes immovable property, that means literally – immovable means which is not movable and property means the capital assets as per section 56(2)(vii)(d), so it will not be taxable if purchased for trading means for stock in trade.
Should a immovable property being land or building or both be recognised as stock in trade in the hands of
promoter or developer?
I buy a property, registration is done in the individual name but payment made from the Individual’s HUF account,
Now question is whether these transaction is taxable in the hand of Individual because payment is Made through Individuals HFU account
sir,
I AM RANJAN KUMAR MISHRA CA OF BALASORE ORISSA, MY POINT IS SECTION 56(2)(vii)(b) includes immovable property, that means literally – immovable means which is not movable and property means the capital assets as per section 56(2)(vii)(d), so it will not be taxable if purchased for trading means for stock in trade.
i am an individual , agreed to purchase a industrial land in March 2013 at cost of Rs. 14.30 lacs and out of this 13.50 lacs aready paid and ceared a cheques, however final agreement registered on 0ct 2013 at same consideration. how ever circle rate was Rs. 192 lacs of said land. my query 1. if assessing officer can tax difference of value as income 2. if sanction 56 (2) (vii) is applicable to my transation 3. if i present this land as trading assets and still assessing officer can tax ? plz advice
Sorry my mistake. Tax payable will be on Rs.20 lakhs – Rs.15 lakhs = Rs.5 lakhs. (I wrongly typed Rs.20lakhs-Rs.5lakhs)
However, the point is that if your agreement is dated earlier, the stamp duty value of earlier date will be adopted for this calculation. That is, the date on which there was agreement fixing the consideration, will fix the stamp value and not the date of registering the agreement. Also provided that you have paid otherwise than by cash on or before the earlier date (date of agreement).
Dear Mishra saheb, I opine, since you are a purchaser the stamp duty fee and registration fee will be added to cost of acquisition both ways. However the profit you made was Rs.5 lakhs i.e. Rs.20 lakhs (stamp value) – Rs.5 lakhs agreement value… in terms of higher value of property received. Hence, tax will have to be paid on Rs.5 lakhs.
I AM A INDIVIDUAL PURCHASED A LAND FOR Rs 15 LAC (Rs 2 LAC IS PAID FOR STAMP FEE). ITS STAMP VALUE IS Rs. 20 LAC. HOW CAN I CAN PAY TAX,
1– 20-15=5 LAC OR
2– 20-(15+2)= 3 LAC
PLEASE SUGGEST
Hope there is clarity of real income and deemed income. If income of every kind is covered under section 56(1) then is it only real income which can be taxed by the authorities. Coz 56(2) specifies types of incomes including deemed income for indl and huf, does it not naturally get covered under the general clause which has no explanation given?? i.e. for firms or companies will not the difference in agreement value and stamp duty value also be taxed under other sources ?????
AS PER SEC 56(2)(VIIb)AS PER FINANCE ACT 2013 IT HAS BEEN AMENDED THAT IT WILL COME INTO FORCE WITH EFFECT FROM 1.4.2014.WHAT DOES IT DENOTES WHETHER ASSESSMENT
YEAR 2014-15 OR A.Y.2015-16 ????
Please advice me and clarify it.
ay 14-15
sir i have buy property in 26/08/2013 details are given below
purchase value : 1500000
market value : 2983000
stamp duty paid on rs 2983000
Sir my question is difference rs 1483000 is taxable u/s 56 ( 2) 7 in assesment year 2014-15
Please advice me and clarify it.
very depthly explained all the pros & cons of this sec.
but there is one doubt in my mind whether this section applicable for the transfer made on or after 1st april 2014 or else
Honorable sir, please be confirm that the section 56(2)(vii) applicable w.e.f. 1.4.2014 (accounting year 01.04.2014 to 31.03.2015) or w.e.f. 01.06.2013 (accounting year 01.04.2013 to 31.3.2014.
Dear Sir,
Very nice article on S. 56(2)(vii)(b). My question is if the stamp duty excess and there reason two side road on that property(Circle rate X Area+Circle Rate X Area X 10% ). Can we claim stamp duty exemption which is increase because the property have two side road.Please provide any case law in favour of assessee
Builder agreed to sell me flat in 45.00 Lakh in Jan 2012 I have paid Rs 5.00 lac by Chaque to him…..but due to some problems of Builder he is not able to get agreement ealier.Registared aggrement done on dec 2013 almost two year after my chaque issued with Agrrement stamp value Rs 59.55 lac and Agreement Rs 45.00 lac as negotiated earlier.Income tax issued me letter to pay difference Rs 14.55 as income from other source.How is it ? It is not delayed from my side .What should i reply to notice? Plz tee me
I have purchased a land by deed of exchange.The property I gave on exchange has government value of Rs 35 lakhs and the Property I purchased has government value of Rs 35 lakhs.The cost of acqvisition of the property I gave in exchange is Rs 10 lakhs. What will be taxability under Capital gain and Income from other sources.
Does it mean, the difference between actual sale consideration and stamp duty value is charged to income tax in both hands of seller and buyer?
Very nice article.
My question is If a father transfers Land & Bldg. through a sale deed
1.Cost of property in Father’s books 2,50,000.00
2.consideration paid by son is Rs 5,00,000.00
3.Stamp duty value is Rs 30,00,000.00
For Son : As the stamp duty value in excess of consideration is gift made by Father so it should be exempt or not taxable for son (buyer).
For Father (seller): Gift is not a transfer so no capital gain for father.
If the above two is right then what should be the cost of acquisition in the books of buyer as per 56(2)(Vii)/ (viia)
I HAVE PURCHASED THE MHADA BUILD FLAT FROM THE ORIGINAL ALLOTEE IN SEPT 2007 FOR RS.18 LACS AND MADE AGREEMENT OF SALE AND PAID FULLY BUT REGISTERED THE SAID DOCUMENTS IN THE YEAR APRIL 2012 WHETHER SECION 56 vii APPLICABLE TO ME IN AY 2013-14
Dear Sir,
I am in a discussion of a deal for re-sale flat in Pune Maharashtra. As per Circle rate, the valuation is more than the deal value.
For example we are having a deal for 50 lacs and as per circle rate the value for property coming upto 75 lacs.
1. Will there be any income tax applicable on me as buyer for the difference value 25 lacs ?
2. Does this value (25 lacs) will be considered as my profit income from other source ?
3. What are the options to save income tax in this situation as a buyer ?
4. How the income tax will be calculated on this amount ?
Please provide your guidance so that I can proceed with the deal.
Also as a purchaser I am not getting direct benefit or profit of 25 lacs then why this clause of paying income tax on this.
It is extra burden on the purchaser.
Thanks & Regards
Vinod
My father has a firm (of which he is a proprietor) and operates out of a rented industrial gala (pagdi system) since the past 41 years at a nominal rent as per Maharashtra Rent Act. The landlord has now agreed to convert the tenancy into ownership for a lumpsum amount of 1000 months rent. However, the stamp department (on adjudication) has valued the deed as per the ready reckoner not considering that it is a deed for conversion of 41 year old tenancy into ownership. My father does not mind paying the higher stamp duty as it is only 5% & the process of challenging the stamp department valuation is cumbersome & time consuming. However, the problem is since the price at which the gala is being purchased (based on 1000 months rent) is much lower than the value given by the stamp department, will this difference amount attract income tax as per Sec.56 (2)(vii) & what is the remedy ?
GOOD ARTICLE POVIDE A GOOD UNDERSTANDING US ABOUT THE SECTION 56(2)VII
basically, dont buy anything below the circle rate……….and if u have …. the differnce will be added to the buyers books as income on which u have to pay capital gain tax…………. however, the circle rate is of the date when u get into an agreement to buy and not the circle rate of the time when u do the registry…………….. got it???ex- 2010- i get into a buyers agreement for 30 lakhs and give payment of 5 lakh rupees, circle rate in 2010 is 35 lakhs- i pay the rest and get possession in 2014 and do registery at circle rate of 2014 which comes to 50 lak rupees (registry on 50 lakhs)…….. the buyers agreement was of 30 lakhs and the date of agreement was in 2010 , circle rate being 35… hence- 35 lakhs minus 30 lakhs will be added to the buyers income which will be taxable………..i am not 100 percent sure…. though but i think i am correct
Sir, If a “partnership firm” purchases “agriculture land” for a value “less than stamp value”, in my opinion, firm shall not be liable to pay tax on difference amount because section 56 does not apply on firm and section 43ca and section 50C does not apply on purchases
Dear Sirs,
Where Capital Gain Tax has been paid on the value mentioned under Section 50C(1) by the saler of an immovable asset, whether income from other sources under Section 56(2)(vii)(b) will still be taxable in the hands of the buyer of the same immovable property(which means double taqxation on the same accretion of value) ?
Section 56. (1) sates that Income under the head “Income from other sources” is chargeble, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
Regards.
Sir- pls guide me as on Feb-2012 i had booked one flat of 2BHK at indore and builder’s given ALLOTMENT LETTER to me, builder is private ltd. co. and I had paid initial booking amount through cheque in Feb & and part amount through LIC housing finance co. in Mar-12 and then paid >96% balance agreeement value in Sep -2012.when I went to builder’s office for registery of flat as now flat at is finishing stage, builder want CAPITAL GAIN @33.33% US 43CA from us. and not ready to do registry if i am not making payment of capital gain.
Hence in this situation pls guide me on below points-
A. Capital gain is arrising to me & builder sepratly.
B. On what amount and of flat agreement value or current registry value.
C. Pls give Section name in which Capital gain is not arrising to me.
Very nice article on tax management of gifts received.
My father gave me Rs 15 lac in cash just before his death in current FY, which I have already invested in buying some assets. I know that cash gift from father is not taxable under section 56(2)(vii). What documents are required to claim tax exemption for this gift while filing my IT return?
My father gave me Rs 5 lac in cash just before his death last month (which comes under current FY). Is the cash from mother taxable? What documents are required to claim exemption for this income in the IT return?
sir,
I want to ask you that what is the taxability when a women will make a cash gift to a huf where her husband is karta
Sir,
In case of an Individual or HUF who receive any immovable property (i) without consideration , the stamp duty value which exceeds Rs 50,000 (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration wil become income under income from other sources. Thus the buyer will also be liable to pay tax on difference between the stamp duty and actual payment made by him
However, there is proviso that where the date of fixing the amount of consideration and date of registration is not same then the stamp duty value as on the date of agreement will be taken. Provided that the consideration referred to therein or part of thereof has been paid by any mode other than cash on or before the date of agreement.
Here the relief is given to buyer only but there is no relief to seller and in this case also the seller has to take stamp duty value for computation even had had entered into agreement earlier and reced payment through cheque.
Pl clarify this point.
Thanks
thanks for very good article about section 56(2)(vii) and other .I suggest to author and website plz upload you article in pdf format to keep in our records which is useful to professional persons in his life
Ah! once again thanks for such good interpretation and analysis of the such issue
A good effort.
lets do a reverse. clause vii(c) reads property, other than immovable property. property definition under explanation include only immovable property of the character of capital asset. so what goes under clause vii(b) is what is forming part of such definition which does not include trading asset. had it been otherwise then there was no need to include immovable property in the property definition. the definition cater to both clause vii (b) and Vii(c). moreover a trading asset transaction has no hitting u/s 56. rgds
Very well clarified by Mr. Nathani.
Sec 56(2)(vii) will not apply if the immovable property is a trading asset in the hands of the recipient assessee.
Dear shri piyush goyal, there is no requirement or need to incorporate the stamp duty value in books of accounts. Effect will be taken while preparing computation of income and return of income.- Dr. Rakesh Gupta & Dr. Raj K. Agarwal
Respected shri Nathani sahab, there is no use of expression ” capital asset ” in section 56(2)(vii) Explanation (d) which defines the word “property”. Hence, in our respectful view, section would cover all property-whether capital or trading-Dr. Rakesh Gupta & Dr. Raj K.Agarwal
Respected shri bhadresh doshi sahab, in clause (d) , there is no mention of the words capital asset. Hence to say that section 56 would apply to the case of transfer of capital asset only, with great respect, in our view may not be correct-Dr. Rakesh Gupta & Dr. Raj k. agarwal
Respected shri mehta sahab, would you pl see section 56(2)(vii)? Provisions of section 50C(2) have already been incorporated in section 56. Thus your concern has been taken care of by legislature.-Dr. Rakesh Gupta & Dr. Raj
Sir, you made good analysis of the section. Really good effort. Thanks.
this is good analysis of the amendment. There was a dictum that let there be 100 victims be relesed than one innocent is vitmised..now the new trend of legislation shows the other way…
Sir (s), Nice Analysis in very simple and understanding words at right time.
If some light cud have been thrown on way out part, it wud have been more interesting.
Also if you can share views on interpretation whether Property includes Capital Asset in view of the definition given in clause (d). The view is also elaborated by Bhadresh Doshi (June 20, 2013 at 4:48 pm) in comments on this article.
1. piyush goyal nice question , but sec. 50c is applicable when we calculate capital gain , in b/s actual value will be disclosed its immaterial how much stamp duty value…………….
2. as per sec 2(14) stock not included in capital assets so 50c and 56 will not apply
Sir, u have high lighted the latest complicated section in simple words for which we r grateful. But the points raised by Mr Nathani and mr Goyal if answered will further clear the section.
With regards.
Sir, u have high lighted the latest complicated section in simple words for which we r grateful. But the points raised by Mr Nathani and mr Goyal if answered will further clear the section.
With regard
Sir, thanks for such a nice article, i also have some doubts in my mind:
1.If buyer purchesd any immovable property as capital asset and consideration paid is less than the stamp duty then in which value the asset will be shown in B/s if it is to be shown in stamp value then wat about the liability side what will we show????
2.If we show capital asset in stamp value it means we agreed that we have paid amount in excess of consideration which also lead to the situation where AO can say that we have unaccounted/unexplained cash credit and also imposed panelties.
Please clear my doubt and spare me if i have asked a silly thing
Thanks.
From the reading of section 56 it appears that it has no application to stock in trade receipts. and that is why there could be no cost step up provision. property is defined is express terms in the section itself meaning capital asset of the type mentioned therein and that does not include stock in trade. capital asset itself by its definition u/s 2 (14) exclude stock in trade.
yes. Bhadresh has raised a very significant point.
A great article with very detailed analysis of the provisons of seciton 56. Great Work.
Clause (d) of Explanation to Section 56(2)(vii) defines the ‘property’. As per this definition, ‘property’ means the following capital asset of the assessee………
Therefore, for the recipient it should be the capital asset. Therefore, if the individual or HUF acquires the property for inadequate consideration but as a trading asset then the taxability as per 56(2)(vii)(b) does not apply at all.
56(2)(vii) defines “property” to include only capital assets which is applicable only for 56(2)(viic). Where as 56(2)(viib) is applicable directly to “immovable property” which is not defined. Hence, immovable property would cover all land/building irrespective of capital asset/trading asset/agricultural land etc.. ALL will be covered
I agree with Bhadresh. Author perhaps did not know this and in his concluding remarks said that Trading Asset should not be bought in Individual or HUF’s name to avoid taxes. Stock in trade for Individual or HUF is also not hit by 56(2)(vii)
Thanks for the nice educative article
Sir, Compliments for good article which covers all the doubt in mind. Keep it up good things
You made a very good effort. However the issue as why the provision like section 50C(2) is not provided. How can there be a blanket assumption of payment in cash without considering the facts of each property. The stamp duty rate and circle rate are wrong in valuation. This system applies the same rate for a sea facing and a gutter facing flat. You have not dealt with this point. You have done a fantastic analysis I only am pointing at a additional issue.
Very hard working reward.
Very important points. But sadly expression is not proper and leaves a reader bored after a few paragraphs. The complex sentence formations have made the explanation and logic hazy.
A very exhaustive and thought provoking coverage.
This a very good and a complete analysis of Sec 56(2)(vii)(b) in line with 50C and 43CA
If an individual transfer some share to an other individual without consideration as a gift, cost of shares near about 5 lakhs. then what will be amount chargeable under sec 56 (2) (vii)….
EXEMPTION IN CASE OF RELATIVES AND IN OTHER CASES AS DEFINED IN S.56(II(b) NOT DEALT IN