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1. The Finance Minister, while moving with other anti- abuse measures has proposed to widen the scope of deemed income provisions by inserting a new clause (x) in sub Section (2) of Section 56 to be applicable from AY 2018-191. This Section provides for taxability in the hands of any person who receives any property without consideration or for a consideration less than the Fair market value ('FMV') of such property determined in the prescribed manner. Further, similar to existing provisions, this provision would only trigger if the difference between the consideration paid and the FMV exceeds INR 50,000.
2. Existing provisions upto March 31, 2017
3. Proposed amendment applicable from April 01, 2017
4. Impact of Proposed Amendment
A. Widened Scope
The proposed new Section 56(2)(x) will expand both, the category of assets and recipients to which the deemed income provisions would apply. The existing provisions2 are currently applicable only in case of individual or HUF and in limited case, to firm or closely held companies. With the introduction of this clause, the scope of this specific anti- abuse provisions has been widened to include all persons under the Act such as LLP, Association of persons, Body of individuals, listed companies etc
B. Specific exemption on corporate re-organization
Under the existing provisions, exemptions were provided to certain categories of transfer provided under Section 47. Under the proposed amendment, the scope of exemption have been expanded to include certain other categories of transfer discussed below:
C. Interplay with proposed new Section 50CA
5. Controversies /Issues
Following are certain issues / controversies arising out of the proposed introduction of clause (x) in the Section 56(2).
However, in case such an amendment is not proposed in the Finance Act, it would be interesting to see whether Section 56(2)(x) applies or whether the provision would fail in absence of inclusion of such transactions within the definition of income.
6. Overall, the impact of the proposed amendment is going to be widespread and it would be important to analyse every transaction of purchase or receipt from a recipient's perspective to ascertain the potential impact. As discussed above, there are certain issues and controversies which are likely to arise on account of the amendment and it will help if certain clarifications are brought in the provisions to reduce litigation and provide certainty on the scope of these provisions.
1. Consequently, clauses (vii) and (viia) of Section 56(2) of the Act would not be applicable post 01 April, 2017.
2. Section 56(2)(vii )and (viia)
3. CIT V Texspin Engg & Mfg. Works 263 ITR 345 (Bom) (2003)