Love and affection is not “Consideration” for the purpose of section 56(2)(x)

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Love and affection is not “Consideration” for the purpose of section 56(2)(x)

 

Section 56(2)(x) is an interesting provision which provides for the taxation of amount if it exceeds certain specified limit. It is not taxable if it is received without consideration. Let us first read section 56(2)(x) as under:

Section 56(2)(x):
where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property,—

(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp           duty value of such property;

(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if                   the amount of such excess is more than the higher of the following amounts, namely:—

(i) the amount of fifty thousand rupees; and

(ii) the amount equal to 70[ten] per cent of the conside-ration:

Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause :

Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed71, on or before the date of agreement for transfer of such immovable property:

Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections:

72[Provided also that in case of property being referred to in the second proviso to sub-section (1) of section 43CA, the provisions of sub-item (ii) of item (B) shall have effect as if for the words “ten per cent”, the words “twenty per cent” had been substituted;]

(c) any property, other than immovable property,—

(A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees,             the whole of the aggregate fair market value of such property;

(B) for a consideration which is less than the aggregate fair market value of the property by an                     amount exceeding fifty thousand rupees, the aggregate fair market value of such property as                   exceeds such consideration :

Provided that this clause shall not apply to any sum of money or any property received—

(I) from any relative; or

(II) on the occasion of the marriage of the individual; or

(III) under a will or by way of inheritance; or

(IV) in contemplation of death of the payer or donor, as the case may be; or

(V) from any local authority as defined in the Explanation to clause (20) of section 10; or

(VI) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(VII) from or by any trust or institution registered under 73[section 12A or section 12AA or section 12AB]; or

(VIII) by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or

(IX) by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii74[or clause (viiac) or clause (viiad) or clause (viiae) or clause (viiaf)] of section 47; or

(X) from an individual by a trust created or established solely for the benefit of relative of the individual; *

(XI) from such class of persons and subject to such conditions, as may be prescribed75;*

76[(XII) by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, for any illness related to COVID-19 subject to such conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf;*

(XIII) by a member of the family of a deceased person—

(A) from the employer of the deceased person; or

(B) from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees,

where the cause of death of such person is illness related to COVID-19 and the payment is—

 (i) received within twelve months from the date of death of such person; and

(ii) subject to such other conditions, as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation.—For the purposes of clauses (XII) and (XIII) of this proviso, “family”, in relation to an individual, shall have the same meaning as assigned to it in Explanation 1 to clause (5) of section 10.]

Following proviso shall be inserted after the existing proviso to clause (x) of sub-section (2) of section 56 by the Finance Act, 2022, w.e.f. 1-4-2023:

Provided further that clauses (VI) and (VII) of the first proviso shall not apply where any sum of money or any property has been received by any person referred to in sub-section (3) of section 13.

Explanation.—For the purposes of this clause, the expressions “assessable”, “fair market value”, “jewellery”, “property”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii);

Following Explanation shall be substituted for the existing Explanation to clause (x) of sub-section (2) of section 56 by the Finance Act, 2022, w.e.f. 1-4-2023:

Explanation.—For the purposes of this clause,

  (a) the expressions “assessable”, “fair market value”, “jewellery”, “relative” and “stamp duty value” shall have the same meanings as respectively assigned to them in the Explanation to clause (vii); and

  (b) the expression “property” shall have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and shall include virtual digital asset.

 

 

The important term here is “Consideration”. This term has not been defined in the Income Tax Act-1961. Let us take it from Indian Contract Act which may be more relevant in reference to Section 56(2)(x).

 

Section 2(d) of Indian Contract Act defines “consideration” as under:
“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;”.

In short, there has to be promise or contract to do or not to do which is relevant to know whether there is a consideration or not.  In short, non monetary activity could also be the consideration. This is the key reason as to why the amount received during divorce petition is not taxable as the “promise” or “assurance” or “commitment” is considered as consideration in such case.

 

The love and affection cannot be consideration in view of section 56(2)(x) and so the amount received out of free love and affection has to undergo other parameters to see if the amount is exempt. Like amount received from relative is exempt, amount received under a will is exempt, etc.

 

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