Alphabetical Ready Reckoner to Gifts, Loans and Cash Credits I-9
CHAPTER 1: SCHEME OF TAXATION OF UNDISCLOSED INCOME COVERED BY SECTIONS 68 TO 69D 3
CHAPTER 2: VOLUNTARY DISCLOSURE OF UNDISCLOSED INCOME 20
CHAPTER 3: DETECTION OF UNDISCLOSED INCOME BY DEPARTMENT 33
CHAPTER 4: CASH CREDITS UNDER SECTION 68 36
CHAPTER 5: LOANS, BORROWINGS, DEPOSITS AND SUCH OTHER AMOUNTS - WHETHER AND WHEN TREATED AS UNEXPLAINED CASH CREDITS 129
CHAPTER 6: SHARE APPLICATION MONEY/SHARE CAPITAL/ SHARE PREMIUM IN CASE OF CLOSELY - HELD COMPANIES - WHEN UNEXPLAINED CASH CREDIT 167
CHAPTER 7: SHARE APPLICATION MONEY/SHARE CAPITAL/ SHARE PREMIUM IN CASE OF WIDELY - HELD COMPANIES - WHEN UNEXPLAINED CASH CREDIT 219
CHAPTER 8: WHETHER CAPITAL GAINS FROM SHARES TAXABLE U/S 68? 223
CHAPTER 9: DEPOSITS FROM TENANTS - WHETHER AND WHEN UNEXPLAINED CASH CREDITS 233
CHAPTER 10: CREDITS IN FIRM’S BOOKS - WHEN UNEXPLAINED CASH CREDITS 235
CHAPTER 11: SUNDRY CREDITORS/TRADE CREDITORS - WHEN UNEXPLAINED CASH CREDITS 243
CHAPTER 11A : ANONYMOUS DONATIONS RECEIVED BY A TRUST 251
CHAPTER 12: UNEXPLAINED INVESTMENTS UNDER SECTION 69 262
CHAPTER 13: UNEXPLAINED INVESTMENT IN LOTTERY TICKETS 351
CHAPTER 14: ADDITIONS U/S 69 ON THE BASIS OF STOCK STATEMENTS SUBMITTED TO BANKS 353
CHAPTER 15: UNEXPLAINED MONEY, BULLION, ETC. - SECTION 69A 360
CHAPTER 16: AMOUNT OF INVESTMENTS ETC. NOT FULLY DISCLOSED IN BOOKS - SECTION 69B 392
CHAPTER 17: UNEXPLAINED EXPENDITURE ETC. - SECTION 69C 403
CHAPTER 18: AMOUNT BORROWED OR REPAID ON HUNDISECTION 69D 410
CHAPTER 19: DONEE - BASED TAXATION OF GIFTS 419
CHAPTER 20: TAXABILITY OF GIFTS OF SUMS OF MONEY RECEIVED 487
CHAPTER 21: RECEIPT OF SUMS OF MONEY 495
CHAPTER 22: SUM OF MONEY RECEIVED WITHOUT CONSIDERATION 501
CHAPTER 23: HOW TO COMPUTE THE LIMIT OF 50,000 523
CHAPTER 24: TAX - EXEMPT GIFTS 529
CHAPTER 25: ANY PERSON OR PERSONS 579
CHAPTER 26: IMMOVABLE PROPERTY - SCOPE OF THIS TERM 583
CHAPTER 27: CONDITIONS FOR TAXABILITY OF GIFTS RECEIVED OF IMMOVABLE PROPERTIES 589
CHAPTER 28: DATE OF RECEIPT OF IMMOVABLE PROPERTY 591
CHAPTER 29: RECEIVED WITHOUT CONSIDERATION OR FOR A CONSIDERATION LESS THAN SDV 594
CHAPTER 30: VALUATION OF THE IMMOVABLE PROPERTY RECEIVED 605
CHAPTER 31: HOW TO COMPUTE THE LIMIT OF 50,000 FOR GIFTS OF IMMOVABLE PROPERTY RECEIVED 609
CHAPTER 32: COMPUTATION OF CAPITAL GAINS ON TRANSFER OF IMMOVABLE PROPERTY TAXED AS GIFT 613
CHAPTER 33: ‘PROPERTY’ (OTHER THAN IMMOVABLE PROPERTY) (i.e. MOVABLE PROPERTY) 619
CHAPTER 34 :CONDITIONS FOR TAXABILITY OF MOVABLE PROPERTY RECEIVED WITHOUT CONSIDERATION OR FOR CONSIDERATION BELOW FMV 630
CHAPTER 35: DATE OF RECEIPT OF SHARES AND SECURITIES, JEWELLERY, ETC. 632
CHAPTER 36: MOVABLE PROPERTY RECEIVED WITHOUT CONSIDERATION/FOR CONSIDERATION LESS THAN FMV 634
CHAPTER 37: DETERMINATION OF FAIR MARKET VALUE 641
CHAPTER 38: TAXATION OF SHARES AND SECURITIES RECEIVED 642
CHAPTER 39: VALUATION OF JEWELLERY 670
CHAPTER 40: VALUATION OF ARTISTIC WORK 673
CHAPTER 41: VALUATION OF BULLION 676
CHAPTER 42: HOW TO COMPUTE THE LIMIT OF 50,000 FOR MOVABLE PROPERTY GIFTS 677
APPENDICES
APPENDIX 1: RELEVANT PROVISIONS OF INCOME-TAX ACT, 1961 683
APPENDIX 2: RELEVANT PROVISIONS OF INCOME-TAX RULES, 1962 705
APPENDIX 3: GUIDELINES FOR SEIZURE OF JEWELLERY AND ORNAMENTS IN COURSE OF SEARCH 715
APPENDIX 4: RELEVANT PROVISIONS OF SECURITIES CONTRACTS (REGULATION) ACT, 1956 716
The Gift-tax Act, 1958 required the donor to pay gift-tax on taxable gifts made by him to others. The Gift-tax Act, 1958 was abolished in 1997.
The Finance (No. 2) Act, 2004, introduced the concept of donee-based taxation of gifts. The Finance Minister, in his Budget Speech of 2004 explained that the objects of donee-based gift-tax as under : ‘… a loophole requires to be plugged to prevent money laundering. Accordingly, purported gifts from unrelated persons, above the threshold limit of 25,000, will now be taxed as income. Gifts received from blood relations, lineal ascendants and lineal descendants, and gifts received on certain occasion like marriage will continue to be totally exempt.’
The TLA, 2006 amended clause ( v) to provide that the same shall apply to gifts received from 01.09.2004 to 31.03.2006 and inserted new clause (vi) of sub-section (2) of section 56 with effect from 01.04.2006. The
Para 19.5 DONEE-BASED TAXATION OF
effect of this amendments by TLA, 2006 was that the threshold limit of 25,000 (applicable to each transaction) was amended to 50,000 (which applies to aggregate of all transactions during the financial year).
As stated by the Finance Minister in his speech in Lok Sabha on 17-52006, ‘The intention is to prevent split transactions, which we find is happening when the threshold is 25,000’.
The Finance (No. 2) Act, 2009 amended clause (vi) of sub-section (2) of section 56 to provide that the said clause ( vi) shall apply to gifts of money received from 1-4-2006 to 30-9-2009. The Finance (No. 2) Act, 2009 inserted a new clause (vii) in sub-section (2) of section 56 with effect from 1-10-2009 to expand the scope of donee-based gift tax to cover gifts received of immovable property and gifts received of specified movable property also besides gifts received of money.
The Finance Act, 2010 amended clause (vii) so as to bring ‘bullion’ within the definition of ‘property’ w.e.f. 1-6-2010.
In Assistant Commissioner of Income-tax, Central Circle 29, Mumbai v. Shahrukh Khan [2017] 84 taxmann.com 209 (Mumbai - Trib.), the assessee, a renowned film star, received villa from Dubai based company in 2008. It was held that the mere fact that assessee attended annual day celebrations and addressed to employees of donor company, it did not amount to rendering professional services or carrying out brand endorsement activities and, thus, value of villa could not be brought to tax under sec. 28(iv).
The amount could not be brought to tax as section 56(2)( vi), which was applicable from 1-4-2006 to 30-9-2009, did not apply to gifts received in kind. The amendments by Finance (No.2) Act, 2009 addresses a vital lacuna. If the gift in kind cannot be taxed under section 28( iv), it would be captured in the tax net under section 56(2)(vii) (as applicable to gifts received from 1-10-2009 to 31-3-2017) or under section 56(2)(x) (applicable to gifts received on or after 1-4-2017)
Though gifts in money and kind had been brought under the tax net, the problem remained that it applied only to gifts received by individuals
and HUFs. Gifts received by firms, companies, AOPs, BOIs and AJPs were outside the dragnet of section 56(2)( vii).
In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 has been amended by the Finance Act, 2010 [by inserting new clause ( viia) in section 56(2)] to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested).
The limited extension of section 56(2)( vii ) to firms and companies was not sufficient as it covered only unlisted shares received at below fair market value. Money gifts and other gifts in kind were still out of the tax net. In Mridu Hari Dalmia Parivar Trust v. Assessing Officer, Circle 31(1), New Delhi [2016] 68 taxmann.com 376 (Delhi - Trib.), it was held that any sum exceeding Rs. 50,000/- can fall within ambit of section 56(2)(vi)/ (vii) only if it is received by an individual or HUF; where assessee was an AOP sum of Rs.1.60 crore received by it without consideration could not be included in its total income within framework of section 56(2)(vi)/ (vii), A need was felt for a tax regime to bring to tax all gifts received of money or specified property in the hands of all assessees, whether individuals or HUFs or Firms or Companies or AOPs or BOIs or AJPs.
The Finance Act, 2017 amended clauses (vii) and (viia) of sub-section (2) of section 56 of the Act to make these clauses inapplicable with effect from 01.04.2017. The Finance Act, 2017 inserted a new clause (x) in subsection (2) of section 56 so as to provide that receipt of the sum of money or the property by any person on or after 01.04.2017 without consideration or for inadequate consideration in excess of threshold limit of 50,000 shall be chargeable to tax in the hands of the recipient under the head ‘Income from other sources’. The Explanatory Memorandum to the Finance Bill, 2017 explained the changes as follows:
Widening scope of Income from other sources
Under the existing provisions of section 56(2)(vii), any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of 50,000) by an individual or Hindu
Para 19.6 DONEE-BASED TAXATION OF
undivided family is chargeable to income-tax in the hands of the resident under the head ‘Income from other sources’ subject to certain exceptions. Further, receipt of certain shares by a firm or a company in which the public are not substantially interested is also chargeable to income-tax in case such receipt is in excess of 50,000 and is received without consideration or for inadequate consideration.
The existing definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These anti-abuse provisions are currently applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration does not attract these anti-abuse provisions in cases of other assessees.
In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, it is proposed to insert a new clause (x) in sub-section (2) of section 56 so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of 50,000 shall be chargeable to tax in the hands of the recipient under the head ‘Income from other sources’. It is also proposed to widen the scope of existing exceptions by including the receipt by certain trusts or institutions and receipt by way of certain transfers not regarded as transfer under section 47.
The amendments made by the Finance Act, 2017 to widen the ambit of donee-based taxation of gifts regime are as under:
(a)Section 56(2)(vii)/(viia) is made inoperative with effect from 1-42017 and accordingly, any sum or property received without or for inadequate consideration (as aforesaid) before 1-4-2017 shall be taxable as income under clause (vii)/(viia)
(b)Clause (x) is inserted in section 56(2) to provide that the following receipts during a previous year would be taxable as income in the hands of any person, under the head ‘Income from Other Sources’ subject to the other provisions relating thereto, made in the clause:
Any sum of money without consideration, in aggregate exceeding 50,000 during the financial year; or
Any immovable property without consideration, the stamp duty value of which exceeds 50,000; or
Any immovable property for a consideration which is less than stamp duty value by an amount exceeding 50,000; or
Any movable property (as defined and specified) without consideration where aggregate fair market value whereof exceeds 50,000; or
423 COVID 19 DEATH COMPENSATION RELIEF Para 19.7
Any movable property (as defined and specified) for consideration which is less than fair market value by an amount exceeding 50,000.
(c)The clause also provides for exceptions, mode of computation and other related provision for taxation of the above receipts.
(d)In section 49(4), reference of clause (x) is inserted to provide that cost of acquisition of property, value whereof is subject to tax under section 56(2)(x), shall include such value, for computing capital gains.
(e)Sub-clause (xviia) is inserted in clause (24) of section 2 so as to include income referred in clause (x) of sub-section (2) of section 56, in the definition of income.
The Finance Act, 2022 has amended the proviso [1st proviso w.e.f. Assessment year 2023-24] to clause (x) of sub-section (2) of section 56 by inserting two new clauses (xii) and (xiii) in the proviso so as to provide that-
(i)any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person; [Clause (xii)]
(ii)any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as maybe notified by the Central Government in this behalf, shall not be the income of such person. [Clause (xiii)]
For the purposes of both of the said clauses, “family” in relation to an individual shall have the same meaning as assigned to in the Explanation 1 to clause (5) of section 10.
Para 19.8 DONEE-BASED TAXATION OF GIFTS
Explanation 1.—For the purposes of this clause, “family”, in relation to an individual, means—
(i)the spouse and children of the individual; and
(ii)the parents, brothers and sisters of the individual or any of them, wholly or mainly dependant on the individual.
These amendments take effect retrospectively from 1st April, 2020 and will accordingly apply in relation to the assessment year 2020-21 and subsequent assessment years.
In order to provide for taxing the gifting of virtual digital assets, the Finance Act, 2022 has amended Explanation to clause (x) of sub-section (2) of section 56 of the Act to inter-alia, provide that for the purpose of the said clause, the expression “property” shall have the meaning assigned to it in Explanation to clause (vii) and shall include virtual digital asset. This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.
To define the term “virtual digital asset”, a new clause ( 47A) has been inserted in inserted to section 2 of the Act.
As per clause (47A),—
(A) a virtual digital asset (also known as ‘cryptocurrency’) means any information or code or number or token providing a digital representation of value which is exchanged with or without consideration with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.
(B) It does not matter whether it is generated through cryptographic means or otherwise.
(C) The term ‘virtual digtital asset’ is not Indian currency or any foreign currency, by whatever name called.
(D) Non-fungible token and any other token of similar nature are included in the definition. The Non-fungible tokens means such digital assets as notified by the Central Government. Further, Central Govern-
ment can notify such assets which shall not be considered as virtual digital assets.
(E) Central Government may notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette.
(F) If above conditions are satisfied, it is a VDA no matter by whatever name it is called.
Section 5 of Transfer of Property Act, 1882 defines ‘transfer’ as “an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons”. Section 5 further clarifies that “In this section “living person” includes a company or association or body of individuals, whether incorporated or not...”
Section 122 of TOPA defines “Gift” as 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
Mode of gifting-section 123 of TOPA
Gift of Immovable property: transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses.
Gift of movable property: the transfer may be effected either by a registered instrument signed as aforesaid or by delivery.
Note: In case of shares, transfer must be as per the provisions of Companies Act, 2013
Where assessee-firm transferred shares held in two companies in favour of another company without any consideration, it is a ‘gift” and there can be no taxable capital gains u/s 45(1) as section 47( iii) applies.
The word ‘gift’ need to appear in the deed in order for transaction to be treated as a gift. It is sufficient that there is a voluntary transfer without consideration.—Ultima Search v. ACIT [2016] 75 taxmann.com 205 (Mumbai - Trib.)
In Jayneer Infrapower & Multiventures (P.) Ltd. v. Dy. CIT [2019] 103 taxmann.com 118 (Mum. - Trib.), it was held as under:
There is no requirement in TOP Act that a ‘gift’ can be made only between natural persons out of natural love and affection.
As long as a donor company is permitted by its memorandum/ articles of association to make a ‘gift’, it can do so.
For movable property, a gift deed in writing is not necessary, an oral agreement with transfer of possession is sufficient to complete a gift of a movable property.
Chennai Tribunal in the case Redington (India) Ltd. v. JCIT [2014] 49 taxmann.com 146 held as under:
There is nothing against a company making gift of its property to another company.
There is nothing anywhere in law, which prescribes that only natural persons can make gift on the ground of ‘love and affection’.
Therefore, a corporate body can make a gift.
(Above case involved transfer of shares without consideration by a company to its step-down Wholly Owned Subsidiary (WOS) in Cayman Island)
In Prakriya Pharmacem v. ITO [2016] 66 taxmann.com 149 (Guj.), the assessee company gifted shares to its sister company. It was held that section 45 (capital gains) would not be attracted as this is a gift and would attract section 47(iii)
In Deere & Co., In re [2011] 11 taxmann.com 388 (AAR), with intent to restructure its operations, JDA transferred without consideration its entire shareholding in JDIPL to JDA Singapore. This was held to be a gift and in absence of any income (capital gains) accruing, it was held that Transfer Pricing provisions also cannot be invoked. (Now of course, this will be taxed u/s 56(2)(x). Para
In M/s Direct Media Distribution Ventures Private Limited v PCIT (ITA No. 2211/Mum/2019), it was held that there is nothing in law which stops corporates from making a gift of shares to each other, more so when the intention of the parties is supported by an internal restructuring exercise, which was driven by commercial reasons
The following salient features of the donee-based taxation regime in section 56(2)(x) may be noted:
(a)The word ‘gift’ is not used in section 56(2)(x ). This word was also not there in any of its earlier avatars viz. section 56(2)(v)/section 56(2)(vi).
(b)Advisedly, unlike section 45(iii), section 56(2)(x) does not use the word ‘gift’. If word ‘gift’ is used, only transactions without consideration will be in the tax net. It would have been easy to evade the provisions by giving immovable property or other valuable property for token consideration of say Re.1. To prevent such circumvention, section 56(2)(x) only refers to receipts without consideration or receipts where consideration is inadequate i.e. less than stamp duty value/fair market value.
(c)Section 56(2)(x) as well as its previous avatars use the words “receives…. any sum of money, without consideration”, “receives …any immovable property, without consideration”, “receives ….any immovable property, the stamp duty value of such property exceeds such consideration”, “receives …any property, other than immovable property, without consideration” for a consideration which is less than the stamp duty value of the property” and “receives….for a consideration which is less than the aggregate fair market value of the property”
(d)The receipts contemplated [any sum of money or ‘property’ [ See Para 19.11-1 below] immovable property or movable property as
Para
per (b) above], exceed threshold limit as per the table in ( e) below are taxable
(e)The amount liable to tax would be:
Item receivedThreshold limit uptoAmount liable to tax which not taxable (1) (2) (3)
Sum of moneyIf such sums of moneyIf threshold of 50,000 without received during the pre-exceeded, entire amount considerationvious year in question doreceived (and not just the not exceed 50000 in theamount in excess of aggregate 50000) is liable to tax
ImmovableStamp duty value doesStamp duty value of proproperty [See Para not exceed 50000perty received (If stamp 19.11-1 below] duty value of property received without received exceeds 50,000) consideration
Immovable pro-Difference between stamp Entire difference betperty [See Para duty value and conside-ween SDV and consi19.11-1 below]ration does not exceedderation if difference received for consi-the higher of (i) 50000exceeds the threshold deration less thanand (ii) 10% of the con-limit in column (2) stamp duty valuesideration
‘Specified MovableAggregate fair marketIf threshold of 50,000 property’ [See Para value of movable propertyexceeded, entire aggre19.11-1 below]received during thegate FMV (and not just received withoutfinancial year does notthe amount in excess of considerationexceed 50000 50000) is liable to tax
‘Specified MovableDifference between aggre-If threshold of 50,000 property’ receivedgate FMV and considera-exceeded, entire differ[See Para 19.11-1 tion does not exceedence is taxable and not below] for consi- 50000 just the difference in deration which is excess of 50000 less than their fair market value
(f)The receipts could be by any person.
(g)The receipt must be on or after 1-4-2017.
(h)The sum of money or property received from any relative, etc. (as specified in the proviso to the clause) would not be liable to tax.
(i) Explanation to the clause provides reference of certain terms or expressions as defined in Explanation to clause (vii).
429 SALIENT FEATURES OF DONEE-BASED TAXATION Para 19.11
Clause (d) of Explanation to section 56(2)(x) defines ‘Property’ to mean the following capital assets of the assessee, namely :
(i)Immovable property of the assessee 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
(ix)bullion
(x)virtual digital asset (w.e.f. assessment year 2023-24)
Items (ii) to (x) above have been referred to as ‘Specified Movable Property’ in Table in (b) above.
In Ram Prasad Meena v. Income Tax Officer, Ward 1(2) Kota [2020] 119 taxmann.com 217 (Jaipur - Trib.) [03-09-2020], it was held that any property which is not a capital asset is not covered within meaning of movable or immovable properties under section 56(2)(vii) [now section 56(2)(x)] [See also Para 26.1-1]
The term ‘capital asset’ is defined in section 2(14) of the Act.
The term “Capital asset” :
Means: property of any kind held by the assessee
Specifically includes :
Any securities held by a FII [sub-clause (b)]
Unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof. [new sub-clause (c) inserted by the Finance Act, 2021 with effect from assessment year 2021-22]
Jewellery (other than held as stock-in-trade) [item (a) of subclause (ii)]
Archaeological collections (other than held as stock-in-trade) [item (b) of sub-clause (ii)]
