Transfer of a share in partnership firm is also covered under section 56(2)(x)




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Transfer of a share in partnership firm is also covered under section 56(2)(x)

 

Section 56(2)(x) of Income Tax Act 1961 inter-alia provides that if any person receives any property [which as per Explanation to Sec.56(2)(vii) includes shares and securities] without consideration, then the market value of such property will be taxable as income from other sources. The question here is whether share in partnership firm will also be covered under this provision? ITAT Bangalore has held with a big Yes.

In this case share in partnership firm and shares in company were transferred to private trust for the beneficiaries. ITAT vide judgement dated 30.12.2024 held:
a)     The word ‘shares’ is a broader term since the words ‘of a company’ have not been used after ‘shares’. ‘Share’ indicates part or portion of something. Hence it includes share in partnership firm also.
b)    ‘Shares’ and ‘securities’ are two different terms and the word ‘and’ used here should be read as ‘or’.
c)     The amount has not been received by the Trust for the benefit of relatives only since clause of the deed provided that beneficiary includes settlor, relatives and other persons added. Hence it is taxable u/s 56(2)(x).

Though the order passed by the Bangalore ITAT has been recalled still the discussion would be highly relevant in other cases.

The copy of the order is as under:

1737355740465




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