History of the provisions

Gift-tax Act 1958, was in force in India and gifts made by a person were chargeable to tax. Vide Finance (No. 2) Act, 1998, it was provided that no tax will be leviable in respect of the gifts made on or after 1-10-1998. The reason for deleting the levy of gift tax on the gifts made by a person was that provisions had neither yielded any substantial revenue nor had fulfilled the objective of combating the tax evasion. It was also stated that provisions of Income-tax Act were sufficient to take care of an attempt for tax evasion. Practically, however, it had happened that after provisions of Gift-tax Act ceased to be in force the influential persons were able to get gifts from large number of persons and, accordingly, huge money received by an assessee was being shown as gift and same was not considered in the nature of income chargeable to tax under the Gift-tax Act. In view of misuse of exemption available under the Income-tax Act from chargeability of the tax, it had become necessary to insert deeming provisions in section 56(2) of the Act. Clause (v) was inserted vide Finance (No. 2) Act, 2004 w.e.f. 1-4-2005 in section 56(2) of the Act to provide that any sum of money received by an assessee being individual or HUF exceeding ₹ 25,000/- will be deemed to be income and will be chargeable to tax as income under the head “Income from Other Sources”. In order to provide exemption to receipt of money in genuine circumstances, it was provided in aforesaid clause (v) that any amount received from a relative or on the occasion of marriage or in certain other circumstances specified therein same will not be taxable. Subsequently, w.e.f. 1-4-2007 the limit of ₹ 25,000/- was increased to ₹ 50,000/-. Again w.e.f. 1-10-2009 provisions were amended and in addition to taxability of money received, receipt of immovable property or any other property either without consideration or for a consideration less than the stamp duty value or fair market value was also brought within the tax net. W.e.f. 1-6-2010 further amendment was made and a clause (viia) was inserted to bring a firm and a company also in tax net and value of shares received by a firm or a company of any other company, not being a company in which the public is substantially interested, was made chargeable to tax as deemed income if same is received without consideration or for a consideration less than the fair market value if the amount was exceeding ₹ 50,000/-. Further, clause (viib) was inserted to check introduction of unaccounted money in companies by way of share premium exceeding the fair market value of the shares issued by the companies, in which public are not substantially interested, w.e.f. 1-4-2013. Still it was felt that provisions applicable to individuals, HUF or even to companies for receipt of any money, immovable property or movable property were not effective and in order to further strengthen the provisions and cover all assessees in the tax net clause (x) was inserted in section 56(2) of the Act in supersession of earlier provisions except clause (viib) of the Act applicable in case of issue of shares by the companies w.e.f. 1-4-2017. Accordingly, presently, the provisions of clauses (viib) and (x) of section 56(2) are in force and governs taxability of deemed income under above section. An attempt is being made to analyse the provisions of clause (x) of section 56(2) of the Income-tax Act.

Provisions of clause (x) of Section 56(2) of the Act

Presently, provisions of clause (x) govern the taxability of deemed income on account of any sum of money or any other property received by any person. The clause was inserted vide Finance Act, 2017, w.e.f. 1-4-2017 in supersession of clause (vii) which was governing taxability of deemed income in the cases of individual and HUF and clause (viia), which was governing taxability deemed income with reference to shares received by a company or a firm. The intention of inserting provisions of clause (x) were to make a comprehensive provision covering all the assessees who have received property without consideration or at a consideration less than the fair market value. Broadly, the scope of the provision is as under:

(i) Apply to all the categories of assessees.

(ii) Money or property should be received during the previous year.

(iii) Same should be received from any person or persons.

(iv) Provisions are applicable when the person has received:-

(a) sum of money exceeding ₹ 50,000/- in aggregate;

(b) any immovable property without consideration or for a consideration less than the stamp duty value, exceeding ₹ 50,000/-;

(c) any property, other than immovable property without consideration or for a consideration less than the fair market value exceeding ₹ 50,000/-.

(v) In case of immovable property valuation is to be adopted as per the stamp duty value of the property as notified by the Central Government or the State Government for the payment of stamp duty, subject however, to the exemption up to ₹ 50,000/- or 5% of such value, whichever is higher. Further, value is to be adopted as on the date of the agreement in case a part of consideration has been paid before the date of agreement by way of account payee cheque or by using electronic clearance system. The assessee is also entitled to dispute the valuation in terms of provisions of section 50C(2) of the Act.

(vi) Fair market value in case of any other property has to be determined as per Rules 11U and 11UA of Income-tax Rules.

(vii) The property for this purpose means assets as defined in Clause (vii) of section 56(2) i.e., immovable property being land or building or both; shares and securities; jewellery; archaeological collections; drawings; paintings; sculptures; any work of art or bullion.

(viii) Any sum of money or any property received from a relative or in the circumstances as are specified in the Clause are not covered by the scope of deemed income. Meaning of the term relative has been defined in Clause (e) of Explanation to Clause (vii) of section 56(2).




Meaning of the term ‘Any Person’ or persons

Any person here means, person as defined under section 2(31) of the Act and includes an individual, HUF, company, firm, AOP or BOI whether or not incorporated, local authority and every artificial juridical person. Accordingly, the scope of the section is quite wide and will cover every case of an assessee where he receives any property from any other person or persons.

Whether a non resident receiving any money or property out of India is chargeable to tax?

In case of a resident, since income accrued or arisen anywhere in the world is chargeable to tax in India, any money or property received by him, may be outside India is chargeable as deemed income under Section 56(2)(x) of the Act. In case of a non-resident only the income accruing or arising or received in India is chargeable to tax and therefore, even as per deeming provision as per section 56(2)(x) only the money or property received in India will be chargeable to tax. Any money or property received by him outside the India will not be chargeable to tax under these provisions, even if such money or property has been received by him from a resident in India.

Meaning of the term ‘Any sum of money’

It only refers to the receipt in money form and not in kind. Accordingly, as per Clauses (v) and (vi) inserted in section 56(2) of the Act receipt of any other property was not covered and therefore, scope of the section has been enlarged subsequently by inserting Clause (vii) and now Clause (x) to cover immovable as well as movable property. Reference in this regard can be made to the decision of Hon’ble Supreme Court in the case of H. H. Sri Rama Verma v. CIT (1991) 187 ITR 308 (SC) wherein in the context of section 80G it was held that deduction is allowable only in respect of any sum paid and not in respect of donation in kind like of shares. Similarly ITAT Delhi Bench in the case of ITO v. Vital Communication Ltd., ITA No. 2448/Del/2007 decided on 15-6-2016 held in the context of section 68 that ‘any sum’ means the entries representing receipt of money and not of shares.

Amount chargeable under the section

Section provides for chargeability of sum of money or immovable property or other property when aggregate amount or benefit in each of the case is exceeding ₹ 50,000/-. It means that exemption upto ₹ 50,000/- is available separately in respect of each of three category of assets. Further, in case the amount exceeds ₹ 50,000/- whole of the amount is chargeable, not only the amount exceeding ₹ 50,000/-.

Whether Buy Back of shares is amounting to receipt of property?

Buy back of own shares by the company is not the property or shares received by it and therefore, provisions are not applicable. This view is supported by the decision of ITAT Mumbai Bench in the case of M/s. Vora Financial Services P. Ltd. v. ACIT, ITA No. 532/Mum/2018 (ITAT Mumbai).


Meaning of the term “without consideration”

Consideration has to be understood to mean a valuable consideration in legal sense. It will not include natural love. In different circumstances a doubt can arise whether the money or property has been received for a consideration or without consideration. Issue in each case has to be determined taking into account the rights and obligations of the parties giving and taking money or property.

Receipt of Bonus Shares

Since the Bonus Shares are issued in consideration of shares already held by the shareholder, it cannot be said that same have been received without consideration. ITAT Mumbai Bench in the case of Dr. Rajan Pai (2016) 48 ITR (Trib.) 170 has also held accordingly.

Receipt of Right Shares

Since Right Shares are allotted on the basis of original holding, it cannot be said that same have been allotted at a price less than the fair market value without consideration. Therefore, provisions of Section 56(2)(x) of the Act are not applicable. Moreover, in view of specific provisions of Section 55(2)(aa)(iii) cost of acquisition of these shares will be taken to be the actual price paid by the shareholder and same is not to be adjusted by the amount of deemed income in terms of section 49(4) of the Act, applicability of provisions of section 56(2)(x) is not intended. ITAT Mumbai Bench in the case of Sudhir Menon HUF v. ACIT (2014) 148 ITD 260 (Mum.) has also held accordingly.

Whether money received on divorce is without consideration?

Since in case of divorce the money is received by the wife or children as a consideration for relinquishing all her past and future claims, amount is not without consideration and therefore, not chargeable to tax. ITAT Delhi Bench in the case of ACIT v. Meenakshi Khanna (2013) 143 ITD 744 (Del) has held accordingly.

Whether amount or property received by a Partner on retirement or change in constitution of the firm is amount received without consideration?

Amount or property received at time of retirement or on reconstitution of the firm on surrendering his or her right, title and interest, will not be without consideration and therefore, same will not taxable in terms of section 56(2)(x). This view is supported by decision of Hon’ble Supreme Court in the case of Sree Narayana Chandrika Trust v. CIT (2003) 261 ITR 279(SC) and ITAT Pune Bench in the case of Smt. Vasumati Prafullachand Sanghavi v. Dy. CIT (2018) 168 ITD 585 has also held accordingly.

Whether Compensation received on rail or road accident is without consideration?

Amount received on rail or road accident is not money received without consideration, since same has been paid in compliance to legal obligation by the Railway Authorities or by Insurance Company. Therefore, same is not chargeable to tax as deemed income under section 56(2)(x) of the Act.

What if money is received in lieu of a threat or blackmail?

The money received is not for any valuable or legal consideration and, therefore, in terms of section 56(2)(x) the amount will be deemed to be income.

Amount received for medical treatment in response to a public appeal

It is very common these days that a public appeal is made by the poor or needy person for contribution by the public for medical treatment of his child or may be of his own. In response to such public appeal contributions are made by unknown persons. The issue for consideration is whether such money collected for medical treatment and also spent for this purpose is chargeable to tax in view of section 56(2)(x) of the Act. As per the language of Section 56(2)(x) of the Act the amount so collected will be chargeable to tax irrespective of the purpose for which same was collected and spent.

In case the amount is directly collected in the name of the hospital providing the treatment or is routed through a charitable trust, same will not be taxable in the hands of the individual.


Meaning of Immovable Property

As per the meaning of the term “property” given in Clause (d) of Explanation to section 56(2)(vii), immovable property means any land or building or both. In the aforesaid Explanation while defining the term “property” the word ‘capital asset’ has also been used. On this basis it is being argued by the assesses that in case any property is not in the nature of capital asset as defined in section 2(14), same is not covered under the definition of property and therefore, provisions of section 56(2)(x) are not applicable. Example of such cases are agriculture land, stock-in-trade, assets of personal effects etc. The aforesaid contention, however, does not appear to be correct. The words ‘capital asset’ have been used in the definition of property in a general way and not with a view to restrict the scope with reference to definition in section 2(14) of the Act. The issue had come up before ITAT Jaipur Bench in the case of ITO v. Trilok Chand Sain, ITA No. 449/JP/2018 judgment dated 7-1-2019 in the context of agricultural land. It has been held by the Hon’ble Bench that definition of term capital asset in section 2(14) of the Act is not relevant for the purpose of section 56(2)(vii) of the Act.

Whether Immovable Property covers lease right?

Since the term ‘immovable property’ has been defined to mean land or building or both, lease rights or any other right in immovable property are not covered in the definition. It is well-settled legal position that land and building are quite separate and independent property than the lease rights or other rights in the land or building. Accordingly, when only right is received by an assessee, same will not be covered under section 56(2)(x). In such a case determination of stamp duty valuation will also not be applicable. In this regard reference can be made to a decision of ITAT Mumbai Bench in the case of Atul G. Puranik v. ITO (2011) 132 ITD 499 (Mum) wherein in the context of section 50C, in which section also similar language has been used, it was held that transfer of leasehold rights in land is not covered under section 50C of the Act and stamp duty valuation is not applicable. The aforesaid position of law has also been upheld by Bombay High Court in the case of CIT v. Greenfield Hotel and Estates Pvt. Ltd. (2016) 389 ITR 68 (Bom). Similarly in many cases where assessee has transferred booking for a flat with the builder, issue has arisen whether same is a separate right / property than the flat when actually received.

Receipt of immovable property without consideration before 1-10-2009

Provisions of clause (vii) were inserted in section 56(2) expanding the scope to cover immovable and movable properties also. Prior thereto only the sum of money received was taxable. Hence property received without consideration on 06.06.2009 vide registered sale deed was not chargeable to tax [Shailendra Kamalkishore Jaiswal v. ACIT (2018) 171 ITD 6 (Nag.)].

Transfer of Immovable Property for a consideration prior to 1-4-2014

Prior to the amendment of clause (vii) of section 56(2) w.e.f. 1-4-2014 only the immovable property received without consideration was covered. Accordingly in case property was received for a consideration, may be less than the stamp duty valuation, difference could not be included in the taxable income [Keshavji Bhuralal Gala v. ACIT (2018) 169 ITD 23 (Mum)].


Meaning of “Property other than immovable property”

Scope of the term ‘Property’ has been specifically defined to mean immovable property, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art and bullion. Therefore, any other asset is not covered under the definition of term property for the purpose of section 56(2)(x) of the Act and accordingly receipt of such other property will not be chargeable as deemed income. Such other assets can be vehicles, electronic items, furniture, air ticket, etc.

Loans taken, whether can be considered as taxable?

In case loan was taken without interest, same cannot be considered to be income. [CIT vs Saran Pal Singh (HUF) 237 CTR (P & H) 50].

In case amount has been received with the instructions for making the investment and amount has been separately kept and invested in the name of the person who had given the money, the amount cannot be taxed as income in the case of the recipient (Ms. Sannidhi C. Patel v. ITO, ITA No. 6232/Mum/2011 decided on 17-12-2014).

In case a loan has been taken and the lender has not taken any action for recovery of the same even after lapse of 3 years, it can be a ground for considering the amount of loan as deemed income [Nilesh Janardan Thakur v. ITO (2018) 168 ITD 143 (Mum)].

In a case where assessee had taken loan but there was no legally enforceable repayment agreement, AO considered the amount of loan as income. Held that it can not be considered to be income [ITO v. Paramveer Abhay Sancheti (2018) 95 taxmann.com 258 (Nag.)].

In a case where liability has been written back in accounts and the assessee is not able to substantiate genuineness of liability by way of confirmations, same is to be considered as income (Panna S. Khatau v. ITO, ITA No. 3596/Mum/2012 decided on 3-7-2015).


Fair Market Value of movable property

Fair market value of movable property shall be that price which could be fetched by selling the asset in the market on valuation date. Practically there may be lot of difficulties in determination of fair market value of the assets such as archeological collections, drawings, paintings, sculptures and art work. Different valuers may assess different value and difference may be quite substantial in certain cases.

Valuation of unquoted equity shares

Valuation of unquoted equity shares has to be made as per Rule 11UA of Income Tax Rules as amended w.e.f. 1-4-2018. As per the Rule FMV is required to be determined with reference to fair market value of assets held by the company. Accordingly, it is a cumbersome procedure and will give rise to litigation. It may further be stated that in case of the company issuing shares, valuation in terms of Clause (viib) of section 56(2) has to be determined as per Rule 11UA(2), on the different basis i.e. either on the basis of book value of assets or on the basis of Discounted Free Cash Flow method. Hence, different basis have been provided in case of the company issuing the shares and for the shareholders receiving the shares.

Valuation in case of Preference Shares

Valuation of preference shares is to be made estimating the price it would fetch if sold in open market. Valuation report is required to be obtained from a Merchant Banker or a Chartered Accountant. The difficulty will arise when a shareholder holding shares transfers the same to another shareholder. It will be difficult to justify the price and it may also not be feasible for the shareholder to obtain the valuation report from the Merchant Banker or the Chartered Accountant.


Meaning of “Relative”

The term ‘relative’ in case of individual means spouse, brother or sister, any lineal ascendant or descendant, brother or sister of the spouse, brother or sister of either of the parents, any lineal ascendant or descendant of the spouse and spouse of any of the persons referred above. In case of HUF relative means any member of HUF.

Gift received by any member of HUF from HUF

Gift received by any member of HUF from the HUF is exempt as HUF consists of only relatives specified in section 56(2)(vii). [Veenitkumar Rahgavjibhai Bhalodia v. ITO (2011) 12 ITR 616 (Rajkot); DCIT v. Ateev V. Gala, ITA No. 1906/Mum/2014 dated 19-4-2017]. ITAT Ahmedabad Bench in the case of Gyanchand M. Bardia v. ITO, ITA No. 1072/Ahm/2016 decided on 21-2-218 however, has taken a contrary view in view of the fact that in the context of HUF individual has been mentioned as relative whereas in the case of individual HUF is not included as relative.

Gift received by HUF from any member of HUF

Money / property received by HUF from member of HUF is not chargeable to tax whereas gift received from mother of the karta who is not the member of HUF is chargeable to tax. ITAT Delhi Bench in the case of Subodh Gupta (HUF) v. Pr. CIT (2018) 169 ITD 60 has held accordingly. Definition of relative for the purpose of HUF specifically includes any member of HUF.

Gift received from mother’s sister’s son

Mother’s sister’s son is not a relative as per section 56(2)(v) and therefore, gift received from him is taxable under the Act as held by ITAT Chennai Bench in the case of ACIT v. Masanam Veerakumar (2013) 143 ITD 664.

Gift received from nephew and niece

Gifts received from uncle (mama or chacha) is exempt. Gift received by mama or chacha from nephew or niece is, however, taxable.


On the occasion of marriage

On the occasion of marriage does not mean on the day of marriage but would also include other functions of marriage and also time near about the marriage. [CGT v. Budur Thippiah (1976) 103 ITR 189 (AP)].

Gift received by the individual

As per the section gifts received on the occasion of the marriage by the individual are only exempt, meaning thereby, that gifts received by the same person who is getting married. In case gift is received in the name of the father on the occasion of marriage of the daughter same will be taxable [Rajinder Mohan Lal v. Dy. CIT, ITA No. 224 of 2013 (P&H) decided on 


What is meant by “In Contemplation of Death”?

The requirements of a ‘gift in contemplation of death’ are laid down in section 191 of the Indian Succession Act, 1925 which provide two requirement that the donor must be ill and expected to die shortly and the possession of the property should be delivered to the donee during the lifetime of the donor. This is held by ITAT Chennai Bench in the case of F. Susai Raju v. ITO, (2017) 163 ITD 533.


Property received by or from private discretionary Trust

Provisions of Section 56(2)(x) of the Act specifically provides that any gift received from individual by the Trust created or established solely for the benefit of relative of the individual will be exempt. This section, however, does not provide specifically for a situation when Trust gives the money to the beneficiary. Though, the money given by the Trust to the beneficiary should not be and will not be taxable since the funds available with the Trust belongs to the beneficiaries and they will be receiving the money in their own rights. Issue may, however, give rise to litigation as is there in case of HUF.

It is preferable to live on grass for the sake of doing good to others.

Swami Vivekananda