Immovable property received as stock in trade by gift in not taxable

[Pradeep Jain]

It is written in Taxmann’s Direct Tax Ready Reckoner Ay 20014-15 and 20015-16 on page no A-208 (Para 77.5)

Immovable property received as stock in trade by gift in not taxable neither in the hands of Transferor nor transferee.

I am hereby reproduced the said para as under:

Immovable property received as stock in trade by gift: X is a dealer in properties. On June 20, 2013, he gets a house property by gift for business purpose from A. Stamp duty value of property is ₹ 83 lac.

Sec 56(2)(vii) is applicable only when property is received by an Individual or HUF as a capital assets. Since house property in the hands of X is stock-in-trade, nothing will be taxable u/s 56(2)(vii) under the head “Income from Other Sources”.

In the hands of transferor A, it is not treated as transfer {transfer of an assets by gift in not treated as “transfer” u/s 47(iii)} and transferor will not be chargeable to tax u/s 45. Sec 50C will not have any role to play.

If X transfers this property as stock in trade, the cost to the previous owner A will be taken as cost of acquisition of stock in trade.

Please refer with special attention clause (d) of explanation of sec 56(2)(vii).

Please comment on the opinion given by author (Sh Vinod K Singhania) and advice on the above issue.

AI Summary

Gifted Property as Stock-in-Trade: Tax Implications Under Sec 56(2)(vii) and Sec 47(iii) Explained An individual inquired about the tax implications of receiving immovable property as stock in trade by gift, referencing Taxmann's Direct Tax Ready Reckoner. The scenario involves a property dealer who received a house as a gift for business purposes. According to Sec 56(2)(vii), such property is not taxable as it is considered stock-in-trade rather than a capital asset. Additionally, the transferor is not subject to tax under Sec 45, as gifts are not treated as transfers under Sec 47(iii). The cost of acquisition for future transfers will be based on the previous owner's cost. The query seeks opinions and advice on this interpretation.