Impact of section 50CA on section 56(2)(x)

[Debtosh Dey]

Section 56(2)(x) of Income Tax Act dealing with gifts exempts certain donees (transferees) from tax on income from other sources e.g. gifts from relatives, marriage gifts, etc. Also, section 47 excludes gifts from capital gains tax in the hands of the doner (transferor).

However, it appears from Memorandum to Finance Bill (no.2) 2019 that section 50CA introduced w.e.f. 01-Apr-18 is a special provision requiring valuation of such unlisted shares, makes no exception to transactions exempted under section 56(2)(x). It is clear that memorandum seeks to amend the provisions empowering CBDT to prescribe classes of persons entitled to exemptions under these sections.

My question is : Is there any circular since issued by CBDT for the exemptions? In other words, are exempted transactions u/s 56(2)(x) protected after introduction of section 50CA?

Debtosh Dey

M.Sc (Engg), FIE, Chartered Engg (I), FCMA, FCS, LL.B.

AI Summary

Valuation rule for unlisted shares may conflict with gift tax exemptions; query whether administrative guidance preserves exemptions. The valuation rule for unlisted shares introduced by section 50CA operates as a special provision requiring valuation for unlisted share transfers and, as framed in the Finance Bill memorandum, does not expressly exempt transactions covered by the gift exemption under section 56(2)(x); the primary issue is whether tax-administration circulars or guidance have been issued to protect transactions otherwise exempt under the gift and capital-gains exemption framework.