Gift u/s 56(2)(x) not treated as Income u/s 2(24)? Budget 2017-18 Suggestions

By | March 1, 2017
(Last Updated On: March 1, 2017)

Suggestions on Clause 29 of Finance Bill 2017 – Section 56- Insertion of new clause (x) in section 56(2) – Reference to be included in the definition of income under section 2(24)

The Finance Bill 2017 proposes 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 Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head “Income from other sources”. [ Read Taxability of Gifts in hands of every person w.e.f 01.04.2017 ]

While clause (vii) and (viia) Section 56(2) of the Act find a mention in clause (xv) of Section 2(24) of the Act, being the definition of the term ‘income’, the newly inserted clause (x) of Section 56(2) does not find a mention in Section 2(24) of the Act.

While sunset provisions have been set in for clauses (vii) and (viia) of Section 56(2) of the Act, there has been no inclusion of clause (x) of section 56 (2) in the definition of the term ‘income’ under section 2(24).

Suggestion:

It is suggested that an appropriate amendment should be made in the definition of the term ‘income’ under section 2(24) of the Act to include any sum of money or value of property referred to in clause (x) of section 56(2).

Further, the following are the concerns in respect of the proposed section:

(i) The scope of section is proposed to be widened, but at the same time, the limit of exemption of Rs. 50,000 fixed as back as in 2006, has not been increased considering the inflation and reduction in the value of money.

(ii) Revival of Sick Companies are necessary and is in overall interest of the economy. Taxing the amount received by the sick companies may not be fair. Considering this, subvention granted by parent company to subsidiary company to recoup the financial losses or to improve the financial health of the company was considered as capital

(iii) Cases of capital contribution and distribution of assets need to be carved out.

Suggestions:

It is suggested that:

i. In order to avoid the unintended hardship to small taxpayer, the limit of exemption may be increased from 50,000 to Rs. 5 lakhs.

ii. Suitable exception to carve out the case of subvention granted by parent company to subsidiary company from the purview of section 56(2)(x) may be provided.

iii. Cases of capital contribution and distribution of assets need to be carved out, for example-

  • Property settled in a trust by a settlor
  • Distribution of asset by trust to beneficiaries

Source- ICAI Post-Budget Memoranda-2017

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