Opinion Of Eminent Legal Luminaries On Controversial Issues

Income from other sources- S. 56(2)(vii) not applicable to firm – Before amendment by the Finance Act, 2017

QUERY: An immovable property is purchased by a firm at circle rate. Whether S. 56(2)(vii) is applicable? Further, registration would be in the name of individual partners. Will this alter the applicability of Section 56(2)(vii)?
ANSWER: S. 56(2)(vii) is applicable to only individual or HUF who receives any money, an immovable property or any property, other than immovable property without consideration or for consideration which is less than the aggregate stamp duty value, if fair market value of the property or value exceeds Rs. 50,000/-.
Thus if immovable property is purchased by the firm at circle rate, which is less than the stamp duty value then difference in value is not liable to be taxed in the hands of the firm.
This gets support from S. 56(2)(viia), which says that any property being shares of the company (not being a company in which public are substantially interested) received by a firm at less than fair market value would be taxed if it exceeds Rs. 50,000/-. Thus, it covers shares of non-listed company only and not any other property.
Even registration in the name of individual partners would not attract section 56(2)(vii), if money has gone out of chest of the firm.
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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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