Taxation of transactions in immovable property without consideration or for an inadequate consideration, if registration not done within 30th September, 2009
1. Introduction :
The newly inserted provisions of section 56(2)(vii) have been made applicable from 1st October, 2009 in case the property is received by any individual or a HUF.
These provide –
a) Where immovable property or any other property is received without any consideration and the stamp duty value (in case of immovable property)/ fair market value (in case of any other property) of such property exceeds Rs.50,000, the entire stamp duty value or fair market value (as the case maybe) of such property would be taxable as income from other sources.
b) Where immovable property or any other property is received for a consideration and such consideration is less than the stamp duty value (in case of immovable property)/ fair market value (in case of any other property) of the property by an amount exceeding Rs.50,000, the stamp duty value/ fair market value reduced by the consideration received, would be taxable as income from other sources.
2. Cases in which provisions will not be applicable -
The above provisions will not be applicable where property is received from a relative or on occasion of marriage of the individual or under a will or inheritance or contemplation of death of the donor or from local authority, approved fund or trust.
The above provisions will also not be applicable where property is received by a company, partnership firm or any person other than an individual or HUF. That means the provisions are applicable only if the property is received by an individual or HUF.
The above amendment will take effect from 1 October 2009, so these will not hit to the cases in which the immovable property has been received on or before 30th September, 2009.
3. Situations where property was purchased prior to 1st October, 2009 but not registered :
In such cases, there is a possibility that some officials of the department may try to take a plea which is favourable to revenue and may say that in case of immovable property transfer takes place when it is registered.
However there are some provisions, which may be of help to the taxpayers. These are given below :
a) Section 2(47)(v) of the Income Tax Act states -
"Transfer in relation to capital assets, include -
" any transaction involving the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act"
b) Section 53A of the Transfer of Property Act -
Where any person contracts to transfer for consideration any imovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasobale certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract;
and the transferee has performed or is willing to perform his part of the contract,
then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.
4. Conclusion :
It is important to note that the new provisions are applicable to properties received by Individuals or HUFs on or after 1st October 2009. This suggests that whatever property is received (purchased or possession received) before 1st October 2009 will not come under the purview of new provisions. This view is supported by the definition of transfer contained in section 2(47) read with section 53A of the Transfer of the Property Act if the necessary stipulations are fulfilled.
“Receive” in lay-man’s language means signing the agreement, paying the consideration and taking the possession.
The existing provision and also the new provision does not state that the date of receipt of immovable property means date of its registration.
Under the above circumstances, I am of the opinion, that if one fulfills the stipulations of section 2(47) of the Income Tax Act, 1961 read withSection 53A of the Transfer of Property Act , then there is good ground to defend in case of property purchased before 1.10.2009.
So we can conclude that property which is received/ purchased before 1st October 2009 though not registered will not be hit by the provisions of section 56(2)(vii), provided the stipulations as mentioned above are fulfilled.
However in view of the prevailing confusion, I suggest that the Central Board of Direct Taxes may also kindly issue a clarification on this issue to help the taxpayers.
Narayan Jain, LL.M., Advocate
Govt has also issued a press release regarding above issue which is reproduced hereunder
Provision regarding taxability of any Gift-in-kind, value of which exceeds Rupees Fifty Thousand
Press Release No. 402/92/2006-MC (21 of 2009), dated 30-9-2009
The Income Tax Act 1961 (the Act) has been amended with effect from 1st October 2009 to provide that any gift-in-kind, being an immovable property or any other property, the value of which exceeds Rs.50,000 (rupees fifty thousand), will become taxable in the hands of the donee, being an individual or a Hindu Undivided Family (HUF), as income from other sources under clause (vii) of sub-section 2 of section 56 of the Act. Therefore, any such person who receives a gift of any such property on or after 1st October 2009 must pay the income tax due on the value of the gift and disclose the taxable value of such property in the return of income for assessment year 2010-11 and subsequent years.
The following types of gifts will, however, not be subject to tax, i.e. gifts (a) from a person who is a relative; (b) on the occasion of marriage of the individual; (c) under a will or by way of inheritance; (d) in contemplation of death of the donor; (e) from any local authority as defined in the Explanation to section 10(20) of the Act; (f) from any fund or trust established under section 10(23C) of the Act; (g) from any trust or institution registered under section 12AA of the Act.
Relative is defined in the Act as (i) spouse; (ii) brother or sister; (iii) brother or sister of the spouse; (iv) brother or sister of either of the parents; (v) any lineal ascendant or descendant; (vi) spouse of any of the relative at clauses (ii) to (v); of the individual. Gifts received from these relatives will not be subject to tax.
Earlier cash gifts exceeding Rs.25,000 were subject to tax with effect from 1st April 2004. Later the Act was amended with effect from 1st April 2006 to tax all cash gifts having aggregate value exceeding Rs.50,000. Cash gifts also enjoy exemptions as is available for gifts-in-kind.