Receipt of Property treated as Stock-in-trade below FMV not subject to gift tax u/s 56(2)(vii) – Jaipur ITAT


Shri Satendra Koushik v ITO (ITA No. 392/JP/2019 dated 23.04.2019)

Background:
  • Tax payer purchased Land vide a registered purchase deed for consideration of Rs. 15 lakhs. The land was reflected as Stock-in-trade by the tax payer
  • The stamp duty value of the said land was Rs. 49,23,542. During the course of assessment proceedings, the AO treated difference of Rs. 34,23,542/- i.e. between stamp duty value and purchase price as deemed income of the assessee u/s. 56(2)(vii)(b)(ii). CIT(A) upheld AO’s order.
Tax Payer’s contentions:
  • Tax payer is engaged in real estate business and regularly deals in sale and purchase of lands and buildings and hence provisions of section 56(2)(vii)(b)(ii) are itself not applicable.
  • As per the Explanation (d) of section 56(2)(vii), the term ‘property’ is defined to mean only capital asset which inter-alia includes immovable property being land or building or both.
HELD:
  • The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extent the tax net to such transactions in kind.
  • The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income.
  • Therefore, the definition of property has been amended to provide that section 56(2)(vii) will have application to the ‘property’ which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient.

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