1. CA Sunil Vankawala CA Shubhash Chhajed 211 KANDIVALI WEST CPE STUDY CIRCLE OF WIRC MEETING ON 8 TH JAN 2012 TAXABILITY OF GIFTS U/S. 56(2) OF IT ACT, 1961 BY CA SUNIL VANKAWALA CA SHUBHASH CHHAJED

2. CA Sunil Vankawala CA Shubhash Chhajed 212 WHAT IS GIFT NO DEFINITION UNDER IT ACT DEFINITION U/S. 122 OF TP ACT “Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration by one person called the Donor to another called the Donee and accepted by or on behalf of the Donee.”

3. CA Sunil Vankawala CA Shubhash Chhajed 213 HISTORY AND PREAMBLE Gift Tax Act,1958 in existence upto 30 th September 1998. Section 56(2)(v) from 01.09.2004 by Finance (No.2) Act, 2004. Section 56(2)(vi) from 01.04.2006 by Taxation Laws (Amend.) Act,2006. Section 56(2)(vii) from 01.10.2009 by Finance (No.2) Act, 2009. Section 56(2)(viia) from 01.06.2010 by Finance Act, 2010.

4. CA Sunil Vankawala CA Shubhash Chhajed 214 OBJECT CBDT Circular No. 5/2005 dated 15.07.2005 “In order to curb bogus capital building and money laundering a sub section has been inserted in section 56 to provide that any sum received without consideration on or after 1 st Sept. 2004…………” If the amount so received exceeds this limit the whole of the amount shall become taxable. Section 2 (24) Def. of Income amended to include the Income referred in 56(2)(v).

5. CA Sunil Vankawala CA Shubhash Chhajed 215 APPLICABILITY PeriodTaxability Up to 30/09/1998 Liable for tax as gift under the Gift Tax Act in the hands of the donor if amount of gift exceeded Rs.30,000 in a year 01/10/1998 to 31/08/2004 No tax on such sum 01/09/2004 to 31/03/2006 Taxable u/s. 56(2)(v) as income but only sum of money if the same exceeds Rs.25000 from each person 01/04/2006 to 30/09/2009 Taxable u/s 56(2)(vi) as income but only sum of money if same exceeded in aggregate Rs.50000 in a year in the hands of the recipient from all donors 01/10/2009 onward Taxable Receipt of sum of Money, Immovable property as well ascertain specified movable property if the amount exceeds Rs.50000 in aggregate in case of each of such category of assets 01/6/2010 onwards Sec. 56(2)(viia) inserted to tax Partnership Firms and unlisted companies (i.e. companies in which public are not substantially interested) when shares of specified companies are received without consideration or at inadequate consideration

6. CA Sunil Vankawala CA Shubhash Chhajed 216 SECTION 56(2)(vii) Applicable w.e.f. 01.10.2009 Individual or HUF Sum of money or specified property Threshold limit of Rs.50,000/- Exception clause…relatives…occasions Definition of relatives…………………….

7. CA Sunil Vankawala CA Shubhash Chhajed 217 Relatives……………………… Explanation in section 56(2)(vi) “for the purpose of this clause, “relative” means:- (i)Spouse of the Individual (ii)Brother or sister of Individual (iii)Brother or sister of spouse of Individual (iv)Brother or sister of either of parents of Individual (v)Any lineal ascendant or descendant of Individual (vi)Any lineal ascendant or descendant of spouse of Individual (vii)Spouse of persons referred to in clauses (ii) to (vi)

8. CA Sunil Vankawala CA Shubhash Chhajed 218 Relatives……………………… List of relatives as per section 56(2)(vii). Any sum of money or property received from these relatives shall not be chargeable to tax u/s 56(2)(vii). Husband Wife Brothers Brother’s Wife Sisters Sister’s Husband Sala, Sali, Sala’s Wife, Sali’s Husband Dever Devrani Jeth Jethani Kaka Kaki, Fufa Fufi, Mama, Mami Masi. Mosa Father Mother Grand Father Grand Mother Great Grand Father Great Grand Mother Son Son’s Wife DaughterDaughter’s Husband Grand SonGrand Son’s Wife Grand DaughterGrand Daughter’s Husband Great Grand SonGreat Grand Daughter Father in LawMother in Law Grand Father in LawGrand Mother in Law Husband’s sister Husband of Husband’s sister

9. CA Sunil Vankawala CA Shubhash Chhajed 219 OTHER EXCEPTIONS On the occasion of marriage Under a will/inheritance In contemplation of death of the donor From any local authority From any fund or foundation or university or other Edu.Inst.or hospital u/s. 10(23C) from any trust or institution registered under section 12(AA)

10. CA Sunil Vankawala CA Shubhash Chhajed 2110 Specified properties covered u/s 56(2)(vii) The provisions of section 56(2)(vii) are applicable w.e.f. 1.10.2009 on the receipt sum of money and specified properties…….viz (i)Immovable property being land or building or both (ii)Shares and securities (iii)Jewellery (iv)Archaeological collections (v)Drawings (vi)Paintings (vii)Sculptures (viii)Any work of art (or) (ix)Bullion [w.e.f. 1.6.2010]

11. CA Sunil Vankawala CA Shubhash Chhajed 2111 Taxability u/s 56(2)(vii) at a glance Nature of AssetsParticularsValue Taxable Sum of MoneyWithout considerationWhole amount if same exceedsRs.50,000 Immovable propertyWithout considerationWhole amount of the stamp duty value of the property, if exceeds Rs.50,000 Any specified property, other than immovable property Without considerationthe aggregate fair market value of which exceeds Rs.50,000, the whole of the aggregate fair market value of such property Any specified property, other than immovable property Inadequate considerationconsideration which is less than the aggregate fair market value of the property by an amount exceeding aggregate fair market value of such property as exceeds such consideration

12. CA Sunil Vankawala CA Shubhash Chhajed 2112 Mode of calculation The threshold limit of Rs.50,000/- qua each category of assets viz., a)Sum of money b)Immovable Property c)Movable Property “Whether to be aggregated for all class of Assets or considered separately?” Mention of aggregate limit of Rs.50,000/- is made at three places separately in sub clauses (a) (b) and (c) of section 56 (2)(vii). Section 56(2)(vii)(a)— “any sum of money…..the aggregate value of such sum”

13. CA Sunil Vankawala CA Shubhash Chhajed 2113 Mode of calculation ….. Section 56(2)(vii)(b)— “any Immovable Property …..the Stamp Duty Value of such Property” Section 56(2)(vii)(c)— “any Property other than Immovable Property (i) without consideration …..the Fair Market Value of such Property (ii) For a consideration …..the Fair Market Value of such Property as exceeds such consideration”

14. CA Sunil Vankawala CA Shubhash Chhajed 2114 SECTION 56(2)(vii)(a)w.e.f.1.6.10 Firm, LLP, Pvt. Ltd. Co and unlisted Public Limited Company Shares of Pvt. or Public unlisted Co. Purchase of shares of closely held co. at a price less than fair market value Stock in trade or capital assets Addition to the cost u/s. 49(4) Determination of FMV as per Rule11U &11UA-noti.no.23/2010 dt.8.4.10

15. CA Sunil Vankawala CA Shubhash Chhajed 2115 EXEMPTIONS- Transactions not regarded as transfer Section 47(via)-scheme of amalgamation between two foreign companies Section 47(vic)-by demerged foreign co. to resulting foreign co. Section 47(vicb)-reorganisation of two co- operative banks Section 47(vicd)-by resulting co. in a scheme of demerger to shareholders of demerged co. Section 47(vii)-by shareholder in a scheme of amalgamation in the amalgamating co.

16. CA Sunil Vankawala CA Shubhash Chhajed 2116 VALUATION RULES-11U & 11UA Valuation of Jewellery/ archeological collections, drawings, paintings etc.- (a)Price it would fetch if sold in open market (b)Invoice value if purchased from registered dealer (c)Report from registered valuer Valuation of shares & securities- (a)Purchase of quoted shares through recognised stock exchange transaction value recorded at stock exchange (b)Other than above lowest price quoted on the stock exchange on valuation date or the lowest price quoted on immediately preceding date if there is no quotation on valuation date (c)FMV of unquoted shares as per prescribed formula

17. CA Sunil Vankawala CA Shubhash Chhajed 2117 SPECIFIC ISSUES Gift from members to HUF - Exemption U/s 56(2)(vii) cannot be claimed. Gift from HUF to Members - Exemption cannot be claimed, as HUF is not a relative of Individual member - Decision of Vineetkumar Raghvjibhai Bhalodia vs ITO (2011) 46 SOT 97/58 DTR 412/140 TTJ 58 (Rajkot)(Trib) HUF costitutes all persons lineally descended from a common ancestor and includes their Mothers, wives, or Widows and Unmarried Daughters. All this persons fall in the definition of relatives, and HUF is a group of Relatives.

18. CA Sunil Vankawala CA Shubhash Chhajed 2118 SPECIFIC ISSUES ….. Applicability of section 56(2)(vii) vis a vis section 68 of IT act. No blanket exemption of Gift : a) within prescribed limit of Rs.50,000/- b) Gift from Relatives and in exceptional circumstances * Identity Capacity and Genuineness of Donor needs to be proved. - Gifts upto Rs.25,000/- received by Politician treated as personal Gifts and not Vocational or Professional Gift, hence exempt u/s 56(2)(v) – Dy CIT Vs Mayavati 2010 48 DTR 233 (Delhi) (Trib) - Gifts in excess of Rs. 25,000/- received by Politician was taxable u/s 56(2)(v) - Dy CIT Vs Mayavati 2010 42 SOT 59 (Delhi) (Trib)

19. CA Sunil Vankawala CA Shubhash Chhajed 2119 Immovable Properties Stamp Duty valuation as per Section 50C Receipt of Property - From the Date of execution of Documents or from the date of registration. - Sec 17 (1)(a) of The Indian Registration Act,1908 – Registration required. - Sec 47 of The Indian Registration Act,1908 – The documents operates from the date of execution and not from the date of registration. - T V Kalyanasundaram Pillai Vs Karuppa Mooppanar AIR 1927 PC 42 The Privy Council sought to reconcile the provisons of Sec 123 of the T P Act with Sec 47 of The Indian Registration Act,1908 by saying that while registration is a necessary solemnity for the enforcement of gift of Immovable Property, it dose not suspend the gift until registration actually takes place.

20. CA Sunil Vankawala CA Shubhash Chhajed 2120 Immovable Properties ….. When the instrument of gift has been handed over by the donor to the donee and accepted by him, the former has done every thing in his power to complete the donation and to make it effective. Registration does not depend upon his consent but is the act of an officer appointed by law for the purpose. The Privy Council took the view that the transaction of gift was complete on the date on which the document was executed and not on the date on which it was subsequently registered. In Venkat Subba Srinivas Hegde v. Subba Rama Hegde AIR 1928 PC 86, the point at issue was stated by the High Court which gave rise to the appeal before the Privy Council as under:

21. CA Sunil Vankawala CA Shubhash Chhajed 21 Immovable Properties ….. “Registration does not depend upon his (the donor’s) consent, but is the act of an officer appointed by law for the purpose, who, if the deed is executed by or on behalf of the donor and is attested by at least two witnesses, must register it if it is presented by a person having the necessary interest within the prescribed period. Neither death, nor the express revocation by the donor, is a ground for refusing registration, if the other conditions are complied with.” (p. 87)

22. CA Sunil Vankawala CA Shubhash Chhajed 2122 THANK YOU CA SUNIL VANKAWALA CELL 09867338477 Email :- sunilvankawala@yahoo.com CA SHUBHASH CHHAJED CELL 09820107179 Email :- smchhajed@yahoo.com