Saturday, 11 th December, Auditorium, Indore AIFTP Pradip N. Kapasi Chartered Accountant 1 Taxation of Gift and Income S. 56(2)(vii) & (viia)

Journey of perseverance Finance Bill 1997 – S. 56 Clause(v) - A.Y – 1 st September, 2004 Finance(No.2) Act, 2004 – Finance Act, 2007 w.e.f ( more exemptions) Taxation Laws(A) Act, 2006( sunset w.e.f ) Clause (vi) - A.Y Taxation Laws (A) Act, 2006 w.e.f Finance(No.2) Act, 2009 w.e.f ( sunset) Clause (vii) – A.Y w.e.f Finance(No.2) Act, 2009 Finance Act, 2010 Cl. (viia) – A.Y –w.e.f Finance Act, 2010 Simultaneous amendments in s. 2(24) (xv) Constitutionality to be tested 2 Pradip N. Kapasi Chartered Accountant

Activation of charge On receipt of specified things Individual & HUF –cl.(vii) AOP & BOI & Trust Firm & Company – cl.(viia) S.2(18) company & LLP Without consideration or Inadequate consideration Taxable in recipient’s hands Receipts by minor child & clubbing Each charge independent of other Taxability in the year of receipt Threshold exemptions – independent Residential status Place of receipt 3 Pradip N. Kapasi Chartered Accountant

Chargeable receipts Any sum of money Any property Immovable property Specified movable property Any shares of a ‘private’ company Scope Not restricted to gifts Beyond Residential status & India Head of Income & computation 4 Pradip N. Kapasi Chartered Accountant

Consideration Money & Immovable property without consideration Movable without or inadequate consideration Shares without or inadequate consideration Not defined under Income tax Act Significance of ‘Money or money’s worth’ S. 2(d) of Indian Contract Act Promise; an act or abstinence –any tense Effect of contract without consideration s.25 May move from third party Economic consideration Cir. No. 419 dt Examples; Admission, Retirement, Ex-gratia, Personal qualities, Mayavati’s case, Natural love 5 Pradip N. Kapasi Chartered Accountant

FMV & SVA CBDT empowered to prescribe for Movables Prescribed vide Notification No. 23/2010 dt IT (Second Amendment) Rules, 2010 W.e.f Retrospective Application or Not Rule 11U & 11UA Price in the open market Invoice value in case of purchase As per Valuer’s Report where value exceeds Rs.50,000Not specified for Bullion Immovable Property –SVA and s.50C Date of receipt to be relevant 6

Exceptions –cl.(vii) Receipt from ‘relative’ – Individual - Love and affection Occasion of marriage Will or Inheritance Contemplation of death & ‘ Donatio mortis Causa’ Local Authority - s.10(20) S. 10(23C) entity S. 12AA registered trust or institution ; unregistered No quantum restriction Some possible Exceptions Exemption u/s 10 Capital receipts Grants & Subsidies Insurance claims Compensation & Damages 7 Pradip N. Kapasi Chartered Accountant

Capital asset ● Application for ‘capital asset’ only ● Qua assessee - Business of recipient ● ‘Capital Asset’ and s. 2(14) ● Personal effect ● Agricultural land ● Right or interest in capital asset ● Stock-in-trade of immovable property ● Application of s.28 ● Application of DLF Universal’s case 8 Pradip N. Kapasi Chartered Accountant

Any sum of money Meaning Cash Cash equivalents IOU Third party debts Waiver of claim Without consideration only Aggregate value > Rs Whole of aggregate value of ‘such’ sum W.e.f Pradip N. Kapasi Chartered Accountant

Any immovable property Ambiguously defined – Land & Building TOPA and GCA, Chapter XXC Without consideration only Stamp duty value Central Government included Right/duty to refer to DVO Power to refer to DVO u/s 142A SVA value exceeding Rs. 50,000 SVA value to be taxed Threshold limit per property Year of receipt Position for stock-in-trade and Donee W.e.f Pradip N. Kapasi Chartered Accountant

Property other than Immovable-I Movables Shares & securities, Jewellery Arch. Collection, Sculptures Drawings, Paintings, Work of art Bullion ( w.e.f ) Without or inadequate consideration Diff. bet. FMV & consideration Ref. to DVO – whether possible 11 Pradip N. Kapasi Chartered Accountant

Property other than Immovable-II No consideration cases Where aggregate FMV> Rs. 50,000 The whole of aggregate FMV taxable Inadequate consideration cases Where aggregate difference > Rs. 50,000 Difference to be taxable Both threshold operate separately Year of receipt w.e.f / Pradip N. Kapasi Chartered Accountant

Receipt of shares -I Receipt of shares of a non s. 2(18) company By ‘firm’ and ‘company’ recipients s. 2(18) company excluded LLP included With/out consideration > Rs. 50,000, whole FMV as per Rule 11UA Substantive not clarificatory Shares Preference shares included – CD not included Rights not included - Shares of subsidiaries 13 Pradip N. Kapasi Chartered Accountant

Receipt of shares-II ● Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii) ● Amalgamation, demerger, co-op. bank succession ● No exclusions ● Similar to s. 56(2)(vii) – Relative, etc. ● For stock-in-trade ● For shares of foreign companies ● For other exempted transfers ● For deemed transfers ● Adjustment in purchase cost ● W.e.f Pradip N. Kapasi Chartered Accountant

Substitution of COA, s. 49(4) COA in hands of recepient ‘Subjected to tax’ u/s 56(2)(vii) & (viia) Value that is ‘taken into account’ COA in cases where FMV < Rs. 50,000 S. 49(4) and s. 49(1) Period of holding and s. 2(42A) 15 Pradip N. Kapasi Chartered Accountant

Relatives Persons covered Not covered Rules of the game Payee’s relative Converse not always true Amendment expanded scope Incomplete Two way applicability Female Ascendants & Descendents 16 Pradip N. Kapasi Chartered Accountant

Remaining issues Capital receipt Refundable receipt Chandrakant H. Shah, 121 TTJ 145 (Mum) Receipt on refund Distribution on receipts Business receipts Gross or net Not liable tax Gifts in kind Non goods items Deemed gifts On credit by payer Deductions admissible 17 Pradip N. Kapasi Chartered Accountant

Are these receipts taxable ? Pradip N. Kapasi Chartered Accountant 18 Refundable Without right of disposition/transfer By a Private Trust/Trustees On partition of HUF/ Self impression Bonus/Right entitlement/Right/CD ESOP/ESOS FDR/KVP/NSC/IOU/Debt Rights in Land & Building

Thank You 19 Pradip N. Kapasi Chartered Accountant