References and links Statutory provisions The Constitution of India (COI) Article 246 read with Union List entries 82 and 85, Article 366 clauses ndash 1, 6, 8, 28 and 29. Name and preamble to the Income-tax Act 1961. Provisions which shows that the ITA is to impose tax on income- like definitions , headings of chapters , sections and language used in provisions which speaks about various revenue receipts like salary and perquisites, rent, interest, dividends, profits, gains, etc. Section 4 and 5 which speaks about charge of tax and scope of total income. Clauses (xiii), (xiv) and (xv) of sub-section (24) of section 2 and corresponding sub clauses (v),(vi), (vii) and (viia) of sub-section (2) of section 56. (for convenience S. 2(24) (xiii),(xiv) and (xv) and section 56(2) (v)(vi)(vii) and (viia) of the Income-tax Act, 1961 (ITA)- these clauses deem certain capital receipts as income. Power to levy tax on income The Central Government of India or UOI is authorized to levy tax on income the relevant entries are as follows List I - Union List 82. Taxes on income other than agricultural income 85. Corporation tax. Definitions in COI The meaning of some related words are found in the article 366 of the COI. Related definitions are reproduced below Article 366 in The Constitution Of India 1949 366. Definition In this Constitution, unless the context otherwise requires, the following expressions have, the meanings hereby respectively assigned to them, that is to say (6) corporation tax means any tax on income, so far as that tax is payable by companies and is a tax in the case of which the following conditions are fulfilled (a) nbsp nbsp that it is not chargeable in respect of agricultural income (b) that no deduction in respect of the tax paid by companies is, by any enactments which may apply to the tax, authorised to be made from dividends payable by the companies to individuals (c) that no provision exists for taking the tax so paid into account in computing for the purposes of Indian income-tax the total income of individuals receiving such dividends, or in computing the Indian income-tax payable by, or refundable to, such individuals (28) taxation includes the imposition of any tax or impost, whether general or local or special, and tax shall be construed accordingly (29) tax on income includes a tax in the nature of an excess profits tax The Central Government or the UOI is empowered to levy tax on income other than agricultural income. Even in case of Corporation tax, the Central Government is not authorized to levy tax on agricultural profits of a corporation. The term corporation tax has been specifically defined in the COI. The terms income and nbsp excess profit are not defined in the COI. However, on reading of sub-clause (29) we find that tax on income includes a tax in the nature of an excess profits tax. This shows that under the COI, in context of impost in nature of tax on income, is related with income which has relation with profit and also excess profits. That means tax in nature of income can be imposed either on profits and also on excess profits. But there is nothing to show that income can include capital receipts. The term tax has not been specifically defined in COI but it derives meaning from the specific meaning given for the word taxation . Therefore, tax in nature of tax on income can be either a tax or an impost on the following type of incomes tax or impost on income , which can be levied by the Central Government, tax or impost on excess profits , which can be levied by the central Government, tax or impost on income of companies as corporations tax as defined in Article 366 (6) which can be levied by the Central Government. Tax or impost on agricultural income which can be levied by the concerned State Government. Therefore, UOI is empowered to levy tax on income and corporation tax. A tax on an item which is not an income but is a capital receipt or a liability or debt cannot be considered as income for the purpose of levy of tax on income. Section 4 and 5 of ITA are reproduced below with highlights Charge of income-tax. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person nbsp nbsp nbsp nbsp Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. nbsp nbsp (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. Scope of total income. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which nbsp nbsp nbsp nbsp (a) is received or is deemed to be received in India in such year by or on behalf of such person or nbsp nbsp nbsp nbsp (b) accrues or arises or is deemed to accrue or arise to him in India during such year or nbsp nbsp nbsp nbsp (c) accrues or arises to him outside India during such year nbsp nbsp Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. nbsp nbsp (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which nbsp nbsp nbsp nbsp (a) is received or is deemed to be received in India in such year by or on behalf of such person or nbsp nbsp nbsp nbsp (b) accrues or arises or is deemed to accrue or arise to him in India during such year. nbsp nbsp Explanation 1. Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. nbsp nbsp Explanation 2.For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. Observations On reading of provisions of S. 4 and 5 we find that these provisions concerns income. The concept of accrual is also important, if an income has been included in income based on its accrual, then it will not be included again on basis of receipt. The aspect of accrual is generally important for accrual of revenues and expenses to ascertain net income after deducting from accrued income (whether received or not) accrued expenses (whether paid or not). The concept of accrual is basically relevant in field of revenue and expenses. Therefore, the provisions of section 4 and 5 deals with revenue and net revenue. From the provisions of section 4 and 5 we do not find a reason to include capital receipt in the scope of income on which tax can be imposed. The total income included all income but there is no mention that total income can also include capital receipts. Relevant and operative portion of Section 2(24) which reads as follows In this Act, unless the context otherwise requires, (24) income includes 56 (xiii) any sum referred to in clause (v) of sub-section (2) of section 56 nbsp nbsp nbsp nbsp 57 (xiv) any sum referred to in clause (vi) of sub-section (2) of section 56 nbsp nbsp nbsp nbsp 81 (xv) any sum of money or value of property referred to in clause (vii) 83 or clause (viia) of sub-section 2 of section 56 Foot notes 56. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. 57. Inserted by the Finance Act, 2007, w.e.f. 1-4-2007. 81. Inserted vide Finance (No. 2) Act, 2009 w.e.f. 1.10.2009 Relevant and operative portion of Section 56 nbsp reads as follows F. Income from other sources Income from other sources. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. nbsp nbsp (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely nbsp nbsp nbsp nbsp 6 (v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 7 but before the 1st day of April, 2006 , the whole of such sum nbsp nbsp nbsp nbsp nbsp nbsp Provided that this clause shall not apply to any sum of money received nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (a) from any relative or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (b) on the occasion of the marriage of the individual or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (c) under a will or by way of inheritance or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (d) in contemplation of death of the payer or nbsp nbsp nbsp nbsp nbsp nbsp nbsp 8 (e) from any local authority as defined in the Explanation to clause (20) of section 10 or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (f) 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 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (g) from any trust or institution registered under section 12AA. nbsp nbsp nbsp nbsp nbsp Explanation. For the purposes of this clause, relative means nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) brother or sister of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iii) brother or sister of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iv) brother or sister of either of the parents of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (v) any lineal ascendant or descendant of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vi) any lineal ascendant or descendant of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vii) spouse of the person referred to in clauses (ii) to (vi) nbsp nbsp nbsp nbsp 9 (vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 10 but before the 1st day of October, 2009 , the whole of the aggregate value of such sum nbsp nbsp nbsp nbsp nbsp nbsp Provided that this clause shall not apply to any sum of money received nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (a) from any relative or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (b) on the occasion of the marriage of the individual or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (c) under a will or by way of inheritance or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (d) in contemplation of death of the payer or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (e) from any local authority as defined in the Explanation to clause (20) of section 10 or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (f) 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 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (g) from any trust or institution registered under section 12AA. nbsp nbsp nbsp nbsp nbsp Explanation. For the purposes of this clause, relative means nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) brother or sister of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iii) brother or sister of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iv) brother or sister of either of the parents of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (v) any lineal ascendant or descendant of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vi) any lineal ascendant or descendant of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vii) spouse of the person referred to in clauses (ii) to (vi). nbsp nbsp nbsp 11 (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (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 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp 21 (b) any immovable property, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration nbsp nbsp nbsp nbsp Provided that where the date of the 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 the agreement may be taken for the purposes of this sub-clause nbsp nbsp nbsp nbsp Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (c) any property, other than immovable property, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) 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 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) 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 sub-clause (b) as they apply for valuation of capital asset under those sections nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp Provided further that this clause shall not apply to any sum of money or any property received nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (a) from any relative or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (b) on the occasion of the marriage of the individual or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (c) under a will or by way of inheritance or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (d) in contemplation of death of the payer or donor, as the case may be or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (e) from any local authority as defined in the Explanation to clause (20) of section 10 or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (f) from any fund or foundation or university or othereducational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (g) from any trust or institution registered under section12AA. nbsp nbsp nbsp nbsp nbsp Explanation. For the purposes of this clause, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (a) assessable shall have the meaning assigned to it in Explanation 2 to sub-section (2) of section 50C nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (b) fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (c) jewellery shall have the meaning assigned to it in theExplanation to sub-clause (ii) of clause (14) of section 2 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (d) property 14 means the following capital asset of the assessee, namely nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) immovable property being land or building or both nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) shares and securities nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iii) jewellery nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (iv) archaeological collections nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (v) drawings nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vi) paintings nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (vii) sculptures 15 nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (viii) any work of art 16 or nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp 17 (ix) bullion nbsp nbsp nbsp nbsp nbsp nbsp nbsp 19 (e) relative means, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) in case of an individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (A) spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (B) brother or sister of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (C) brother or sister of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (D) brother or sister of either of the parents of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (E) any lineal ascendant or descendant of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (F) any lineal ascendant or descendant of the spouse of the individual nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (G) spouse of the person referred to in items (B) to (F) and nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) in case of a Hindu undivided family, any member thereof nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (f) stamp duty value means the value adopted or assessed orassessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property nbsp nbsp nbsp nbsp 18 (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested, nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp nbsp (ii) 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 nbsp nbsp nbsp Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. nbsp nbsp nbsp Explanation. For the purposes of this clause, fair market value of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii) ---------------------------------------- Notes - 6. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. 7. Inserted by the Taxation Laws (Amendment) Act, 2006, w.r.e.f.1-4-2006. 8. Substituted by the Finance Act, 2007, w.r.e.f.1-4-2005. Earlier clauses (e) to (f) were inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f.13-7-2006. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f.1-4-2007. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009 11. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009 Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 13. in clause (vii), For sub-clause (b), the following sub-clause has been substituted and shall be deemed to have been substituted with effect from the 1st day of October, 2009, vide Finance Act, 2010 before this it was read as, (b) any immovable property, (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration . 14. In the Explanation, in clause (d), in the opening portion, for the word means , the words means the following capital asset of the assessee, namely has been substituted and shall be deemed to have been substituted with effect from the 1st day of October, 2009 vide Finance Act, 2010. In sub-clause (vii), the word or has been omitted with effect from the 1st day of June, 2010 vide Finance Act, 2010. 16. In sub-clause (viii), the word or has been inserted at the end with effect from the 1st day of June, 2010 vide Finance Act, 2010. After sub-clause (viii), the following sub-clause has been inserted with effect from the 1st day of June, 2010 vide Finance Act, 2010. 18. After clause (vii), the clause (viia) has been inserted with effect from the 1st day of June, 2010 vide Finance Act, 2010. Substituted vide Finance Act, 2012, w.e.f. 01-10-2009, before it was read as - (e) relative shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of this section Inserted vide Finance Act, 2012, w.e.f. 01-04-2013. 21. Substituted vide Finance Act 2013 w.e.f. 1st day of April, 2014, before it was read as, 13 (b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property Respective dates Readers are requested to take note of respective dates when any of the provision was or is continuing to be operative. General aspect The heading of Chapter, section and opening words of section 56 clearly indicates that under this head what is taxable in income. However, in the list of taxable items certain capital receipts have also been included with corresponding entry in section 2(24) (x). Thus by merely including certain sums in category of income the scope of income has been enlarged. The question is whether such enlargement of scope of income is within the scope of imposing tax on income? nbsp Concept of with or without consideration In above clauses expressions used are like without consideration and consideration which is less than market value or value adopted for stamp duty purposes etc. When any amount or property is received without consideration, it is generally considered as gift which is one type of capital receipt. For example gift cheque, gifts in kind, donations etc. are money or equivalent of money received as gift. Some capital receipts are received for consideration for example share capital is received against issue of shares, loan is received against promise or undertaking to repay loan with or without interest, some grants or subsidy are also received in consideration of some work to be done or property acquired or to be acquired for specific purposes. In such cases the person who provide capital may stipulate certain conditions, still the money received is in nature of capital receipt though there may be some direct or indirect consideration. Any such capital receipts cannot be included in scope of income. nbsp The concept of income is based on consideration. For example nbsp nbsp nbsp Salary or remuneration is received in consideration of working and devoting time on employment. nbsp nbsp Remuneration by way of fees or charges is consideration for work done. nbsp nbsp nbsp Rent is consideration for allowing possession and / or use of property. nbsp nbsp nbsp Interest is consideration for providing capital for use by borrower. nbsp nbsp Sale value is consideration for transfer of any property. nbsp nbsp Dividend is consideration for making investment in capital of company or co operative society. General aspect in this regard is that gifts (whether fully or partly) was not considered as income before these amendments. Many gifts (fully or partly) are still not taxable under this section as either such receipt is not included in scope of income or is exempted by way of exceptions provided by limits of amount or receipts on particular occasion or receipt from relatives. Therefore, underlying principal even after insertion of these provisions is that gifts or other capital receipts are not income and are not included in definition of income. However, some gifts or capital receipts are included in definition or scope of income. Gifts are capital receipts Gifts in cash or in kind are capital receipt. If an income is introduced in guise of income then there are other provisions under which if the recipient (donee) is unable to satisfy the Assessing Officer the nature, source and capacity of donor to give such gift then such receipts can be added as income. Even sums received as loan or capital can be considered as income if the nature , source and capacity is not proved to the satisfaction of tax authorities. However, the provisions of section 56 specifically included certain capital receipts as income of recipient. Gifts in cash is measured by value of cash received, in case of other specified properties the difference between market value and consideration paid is considered as income ignoring the fact that there can be gift. DIFFERENCE BETWEEN MARKET VALUE AND ACTUAL PRICE IS ALSO A GIFT In many cases sale value actually realized may be lower than fair market value due to several and varied reasons. Discretion to government authorities to fix market value for the purpose of taxation generally results into higher valuation to increase revenue collection. A seller can also sell at lower price and the balance sum can be a gift from vendor to buyer. Partial Gift is permissible If a person transfers a property as gift without any consideration there is full gift. Similarly in case a property is sold at a price lower than market value and the seller consider the difference as gift given to the buyer then in that case also the difference being due to gift cannot be considered for capital gain under section 45. Therefore, suppose an asset of market value of say Rs. 15.00 Lakhs is sold for a sale consideration of Rs. 12.00 Lakhs and the seller declares that the balance amount of Rs. Three lakh is gift to the buyer, then the difference cannot be subject to tax u/s 45 as per provision of section 47(iii). Partial gift was also recognized in the Gift Tax Act when it was in force. Gifts are always considered capital receipts. Declaration of gift Proper declaration of gifts ( fully or partially) must be obtained from donor. Higher valuation by stamp authorities can also be a source of litigation in future between seller and buyer. The seller or his legal heirs may try to claim differential amount or to cancel the deal for inadequate consideration or unduly influenced deal etc. To save such contingencies, it is desirable that the seller gives a declaration of gift and declaration of no further claims based on higher valuation by tax authorities. Reasons for difference in market price Reasons for difference in negotiated/ bargained price and the market value taken by the registering authority might be due to several reasons like A) Time lag between negotiation and registration. B) Development during intervening period. C) General practice of registering authorities to take higher valuation- as a general rule they add 10- 20 percent of disclosed price, even if the consideration stated in the document is more than market value. The exception is only when they have already fixed a price of similar property and another property is being registered within a short period, and the new document being presented shows price as per value as already fixed few days ago in some other case earlier registered. D) Bargain capabilities- in case buyer is in better position than seller he may bargain lower price. In case of sellers market the value fixed may in fact be higher than real market value. E) Other reasons which can be attributable to different circumstances and situations. Capital receipts cannot be income in context of tax on income Mere inclusion of any sum in definition of income in section 2 or in scope of income from any source of income falling under any head of income will not render any item of capital receipt as income. A receipt which in fact is a capital receipt in any manner or is a liability and the liability is definitely payable cannot be considered as income in context of the provisions of the Constitution of India. Therefore, the provision of section 56 which deems certain gifts and other capital receipts as income are ultra virse the Constitution of India, the same cannot be brought under the concept of tax on income , the same are not within scope of total income on which tax can be imposed. These and similar many provisions need to be challenged on ground of being ultra virse the COI. - Author - CA DEV KUMAR KOTHARI

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