Applicability of Section 56(2)(vii)(b) on Rural Agricultural Land

[sujittalukder]

Section 56(2)(vii)(b) provides that where any immovable property is received by an Individual or HUF at a price less than the stamp duty value, then the difference between actual value and stamp duty value would be taken as 'income' under the head "Income from other sources" in the hands of the buyer.

Second proviso to this clause excludes the operation of this clause in respect of 'any property' received from a relative etc. Explanation (d) to this clause defines 'property' to mean 'capital asset' of the assessee which inter alia includes immovable property being land or building or both.

In the background of above legal provision, the facts of a case is given below.

Mr A, an individual, wants to buy a Rural Agricultural Land from Mr B for Rs 1,00,000/- whose circle rate is Rs 5,00,000/-. The land was purchased by Mr B for Rs. 25,000/- and the resulting capital gain will be exempt in the hands of Mr B since the provisions of capital gains does not apply to a capital asset being rural agricultural land u/s 2(14)(iii).

Now, the query is-
Whether the difference between the actual purchase price for Rs 1,00,000/- and circle rate for Rs. 5,00,000/- to the tune of Rs. 4,00,000/- will be added as income in the hands of Mr A if-
(a)   Mr A will hold the asset as capital asset (Fixed Asset)
(b)   Mr A will hold the asset as stock-in-trade.

Regards
Sujit Talukder