Re: Compensation

If we receive a car costing 4000000 in exchange of defective car costing 900000 will the received amount will be treated as gift and will be taxable

The provision for gifts are contained under section 56 (2) (x) of the Act, the said section  refers the definition of property from 56 (2) (vii) of the Income tax Act, 1961 (Act).

As per the explanation to 2^nd proviso to section 56 (2) (vii) (c) of the Act, ‘property’ means immovable property being land or building or both; shares and securities; jewellery; archaeological collections; drawings; paintings; sculptures; any work of art; bullion; 

Since, the term “property” is specifically defined in the said provision and does not include “Car” or “Motor vehicle” as property, the principles of Generalia specialibus non derogant i.e. Specific provisions override the general provisions are attracted; therefore no other meaning for the term “property” can be attributed for the purpose of attracting income under the head “income from other sources”. (Refer Amartara v DCIT ( Mum) (Trib) ( ITA No. 6050/M/2016  /ITA No. 614 /Mum/ 2016 dt 29-12 2017 ( AY. 2012 -13) , dealing with section 45(3) and section 50C , the tribunal held that special provision of Section 45(3) override the general provision of section 50C of the Act )  

Further, a movable asset held for personal effect is excluded from the definition of a Capital asset, as per 2 (14) (ii) of the Act. Therefore, the transfer should not attract Capital gains.

Therefore, the difference in the value as per the transaction mentioned in the query would not be treated as a gift under the Scheme of Income- tax Act. 

 

 

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