The Union Budget is out on tables. The most expected amendment relating to relaxation in taxes has been fulfilled to some extent by the respected finance minister- Mr. Arun Jaitley in form of decrease in tax rates for individuals. The tax relief is also proposed in form of decrease in corporate taxation to 25% for those companies, whose turnover is restricted to 25%. There are more amendments related to 87A relief, penalties on CAs, etc.
Apart from these commonly propagated amendments, The Central Government has proposed several other amendments to the Income Tax Act which are in form of anti abuse amendments. One such important amendment is proposed in Sec 56(2) of the Act.
The provisions contained in clause (vii) and (viia) are proposed to be withdrawn and a new clause (x) is proposed to be inserted w.e.f. 01.04.2017.
Clause (vii) deals with taxing of income is cases where an individual or HUF receives;
a. Any sum of money without consideration in excess of Rs. 50,000/- in aggregate, or
b. Any immoveable property(ies) without consideration having stamp duty value exceeding Rs. 50,000/- in aggregate or where the actual stamp value exceeds the consideration by atleast Rs. 50,000/- in aggregate, or
c. Any property(ies) other than immoveable property without consideration having FMV exceeding Rs. 50,000/- in aggregare or where the FMV exceeds the consideration by atleast Rs. 50,000/- in aggregate.
Similiarly, Clause (viia) deals with taxing of income in case where a firm or a company (not being a company in which the public are substantially interested) receives any property, being shares of a company (not being a company in which the public are substantially interested);
a. Without consideration, whose FMV exceeds fifty thousand rupees in aggregate, or
b. Where the FMV exceeds the consideration by atleast Rs. 50,000/- in aggregate.
It can be clearly seen that the clause (vii) did not include any person other than individuals and HUFs. The same has been seen to be used as a tax evasion measure in many cases in practical scenarios.
The above two clauses are now proposed to be replaced by new clause (x) which aims to avoid abuse of limitations of law. The same have been added as ‘anti abuse provisions’. Through amendment, provisions of clause (vii) and (viii) are merged in clause (x) and are made applicable to transfers from “ANY PERSON OR PERSONS”. It now means that the receipt of cash or any property (other than shares also) becomes taxable also in hands of companies, firms and other persons where the above condition of Rs. 50,000/- is satisfied.
Further, there is proposed amendment to the current proviso to clause (vii), which will be merged to clause (x). Currently, the clause doesn’t apply to any sum of money or any property received—
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be; or
(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g) from any trust or institution registered under section 12AA;
Now, since the provisions are made applicable to all persons, relief is being provided as follows:
a. As a replacement to (g) above, the words are slightly replaced to provide relief to trust and educational institutions registered under 12AA :
“from or by any trust or institution registered under section 12AA;”
b. Also, a new exemption is provided by adding the following to the above list of exclusions:
“by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10”.
Thus, it can be seen that government has kept the above trusts and organization out of purview of such taxation over income from other sources to maintain the non taxability of donated money and properties.
Lastly, the government has proposed amendment in the words in second proviso to clause (vii) which earlier read as:
“Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;”
As a matter of clarification and to avoid misuse of text of law, the proviso has been made very specific as under:
“Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account on or before the date of the agreement for the transfer of such immovable property;”
To conclude, it can be said that all the amendments proposed to this section are on a positive note and are very well justified in order to curb with misuse currently done through taking benefit of weak language of the clauses proposed to be dropped.
Analysed By : Ms. Ruchira Negi (Advocate) – Works in field of Corporate Taxation.