Short Notes on Section 56(2)(x) of Income tax act

1. Tax on sum/property received without consideration

Section 56(2)(x) provides that following receipts shall be taxed in hands of any person where received from any person or persons on or after 01.04.2017 during any previous year.

(a) Any sum of money exceeding Rs. 50000 in aggregate without consideration.

(b) Any immovable property received without consideration, if the stamp duty value of such property exceed Rs. 50000.

(c) Any immovable property received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50000/-.

The Finance Act, 2018 has amended section 56(2)(x) from the AY 2019-20 so as to provide that any immovable property received for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher than the following amount namely:-

(i) the amount of fifty thousand rupees; and

(ii) the amount equal to five per cent [ Raised to Ten per cent from the assessment year 2021-22] of the consideration.

(d) Any property other than immovable property received without consideration,if the aggregate fair market value of such property exceeds Rs. 50000/-

(e) Any property other than immovable property received for a consideration which such consideration is less than the aggregate fair market value of such property by an amount exceeding Rs. 50000.

Further section 49(4) that the cost of acquisition of the asset referred to in section 56(2)(x) shall be value taxed under section 56(2)(x) .

2. Applicability of section 56(2)(x)

Provisions of section 56(2)(x) apply of any person who receive any sum of the money or property having value exceeding the specified amount on or after 01.04.2017 from any person or persons during the previous year. However, receipts from certain persons is kept outside the scope of section 56(2)(x). Therefore section 56(2)(x) is applicable if:

(a) the recipient is any person

(b) the person receives a specified sum of money or property from any person or persons;

(c) the sum of money or property is received on or after 01.04.2017.

(d) the sum of money or property is not received from specified persons.

3. Specified property chargeable under section 56(2)(x)

The following properties are chargeable under section 56(2)(x).

Nature of receipts	When taxable	What is taxable	Taxed individually or on aggregate
1. Any sum of money whether in cash or by cheque/draft/pay order or any other mode	If received without consideration	If the aggregate value of such sum of money exceeds Rs 50000, then the entire amount	On aggregate basis Money received on different dates or from different person to be clubbed to arrive at the amount of Rs. 50000.
2. Any immovable property received without consideration	If received without consideration	If the stamp value of such property exceeds fifty thousand rupees, the stamp duty value of such property	Taxed individually. Each transaction will be separately
3. Any immoveable property received for a consideration less than stamp duty value of property	If received for a consideration which is less than the stamp duty value of property by an amount exceeding Rs 50000.	Stamp value of such property as exceeds such consideration [ upto assessment year 2018-19]. The Finance act. 2018 provides that where any person receives, in any previous year,from any person or persons any immovable property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:- (i)  the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration [ Raised  to ten per cent  of the consideration  from the AY 21-22 by the Finance Act, 2020. ] shall be taxed as income from other sources. [ from AY 2019-20	Taxed individually Each transaction will be separately taxed .
4. Any property other than immovable property received without consideration	If received without consideration	If the aggregate fair market value of such property exceeds fifty thousand rupees the whole of the aggregate fair market value of such property	Taxed on aggregate basis. Value of property received on different dates or from different person to be clubbed to arrive at amount of Rs. 50000.
5. Any Property other than immoveable property, received for a consideration less than fair market value	If received for a consideration which is less than the aggregate fair market value of the property by an amount  exceeding fifty thousand  rupees	Aggregate fair market value of such property as exceeds such consideration	—do———–

4. Exclusions-Receipts that will not be taxed.

Section 56(2)(x) shall not apply to any sum of money or any property received—

(i) from any relative; or

(ii) on occasion of the marriage of the individual; or

(iii) under a will or by way of inheritance; or

(iv) in contemplation of death of the payer or donor, as the case may be; or

(v) from any local authority as defined  in the explanation to clause (20) of section 10; or

(vi) 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 caluse (23C) of section 10; or

(vii) from or by any trust or institution registered under section 12A or section 12AA; or

(viii) 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; or

(ix) by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) [ from AY 2019-20] or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47, or

(x) From an individual by a trust created or established solely for the benefit of relative of the individual.

(xi) any compensation or other payment, due to or received by any person,by whatever named called ,in connection with the termination of his management or the modification of the terms and conditions relating thereto. [From AY 2019-20.]

(xii) From such class of persons and subject to prescribed condition.[ from AY 2020-21].

5. ‘Relative’ defined

The expression relative is defined by reference to section 56(2)(vii) to mean-

(A) In case of individual :

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) Spouse of the persons referred to in (ii) to (vi) above.

(B) In case of HUFs—Any sum or property received without consideration or inadequate consideration by an HUF from its member would also be excluded from taxation.

Section 64(2) provides that where a member of a Hindu undivided family has converted his self-acquired property into joint family property, income arising from the converted property is taxable as the income of the transferor. Such a conversion can be done by way of impressing the property with the character of joint family property by throwing it into the common stock.

If the converted property is subsequently partitioned amongst the members of the family, the income derived from such converted property, as is received by the spouse of the transferor, will be taxable in the transferor’s hands.

Therefore making of gift of HUF by its member will not makes sense so far as member gifting the property is concerned.

6. Property covered by section 56(2)(x)

Property is defined by reference to section 56(2)(x) of the Act. The receipts of following properties either without consideration or for a consideration less than the specified value shall be chargeable to tax under section 56(2)(x).

Property means the following capital assets of the assessee namely:

(i) immovable property being land or building or both;

(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collection;

(v) drawings;

(vi) paintings;

(vii) sculptures; or

(viii) any work of art.

(ix) bullion

The above meaning is exhaustive therefore any other property of any kind immovable ( other than land and /or building), any partly fixed  and partly immovable property and any other moveable property shall not be covered by this deeming provision. For example, if a factory is gifted the value of land and building only shall be included as immovable property. Any other immovable property like plant and machinery, fixtures, even roads, bridges, culvers etc. will not be covered as they are not building in the given context. In case of moveable property, only any item specifically included within the meaning of properties as above will be covered and no other item will be covered.