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

Gift of immovable property as stock in trade: not taxable under receipt provisions when held as business inventory. When immovable property is received by a dealer as stock in trade, the gift receipt provision applicable to capital asset receipts does not tax the recipient under income from other sources. The donor's gift is not treated as a taxable transfer for capital gains, and valuation provisions tied to deemed consideration do not apply. If the property is later sold as trading stock, the previous owner's cost is taken as the donee's cost of acquisition. See the explanation clause addressing receipt provisions for further guidance.