I am initiating this query for general discussion only.
I have been pondering over how and under what provisions of Income Tax Act, 1961, a barter transaction will be taxable?
I am conscious that:-
1. CGST Act specially covers in definition of supply-supply by way of barter.
2. That income Tax Acc s.2(24) covers value of benefits or perquisites received from a company by a director etc. within definition of income.
3. s.28(va) of Income Tax Act covers within definition of income under the head " Profits and gains of business and profession"- any sum, in cash or kind, under a agreement for not carrying out any activity in relation to any business or profession for not sharing any knowhow, patent etc. likely to assist in the manufacture or processing of goods or provision for services.
4. s.45(1A) makes profits or gains arising from receipt of money or other asset chargeable under the head "Capital Gains"
5. There are other similar provisions under ITA, 1961 covering different specific situations involving barter transactions.
6. I am aware that s.194 and different parts thereof require tax payment even for consideration given in kind.
However, excepting specified situations and not going by s.194 or any parts thereof, what will be the tax implication for a barter transaction?
15 August 2022
Thank you Sir.....I thought so that there is no specific rule or charging provision for taxing a barter transaction.
Irrespective of how the parties treat an asset in the balance sheet, important question then becomes whether receipt of another asset in lieu of one asset will be income? What will happen if an assessee says that he got say an immovable property in exchange of transfer of another immovable property in exchange of a Virtual Digital Asset and claims that there is no tax liability that arises out of the same.
15 August 2022
The specific rule under income tax act for barter system is not required at all. Sec. 2 of the act has given few definitions along with explanations, wherever required.. I wish to copy down two of them...
Sec. 2 (47) "transfer", in relation to a capital asset, includes,—
(i) the sale, exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or
(iva) the maturity or redemption of a zero coupon bond; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation 1.—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA.
Explanation 2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India......
& Sec. 2 (22B) "fair market value", in relation to a capital asset, means—
(i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and
(ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ......
I hope these are sufficient to understand any deal with a word "Cash or Kind" For complete analysis few more definitions may be referred..... Coming to the example... 1. FMV of both the properties exchanged are ascertained as per stamp duty value, and the higher of them is taken as the value of the deal. 2. In case of VDA the FMV would be the value of the asset as on the date of transfer on any recognized exchange. Good Luck ...
16 August 2022
Thanks a ton again for your elaborate comment.
The point I seek to make is that there is no charging provision and department has to bring the transaction under ambit of any existing charging provision; definition clauses providing for definition of FMV or transfer will not help for taxing a transaction.....May be they could consider an asset received through barter arrangement as having been received without consideration and bring it within s.56(2)...just thinking aloud
16 August 2022
Even as on the day the assessment of such transactions are based on the existing provision, and I reiterate that there is no need of any specific provision for any barter transactions. Need to understand the three key word for it.... TRANSFER ++ FMV ++ Cash or KIND..... Good Luck ...
16 August 2022
Here I'll say I respectfully differ...My understanding is that only a charging provision defining a taxable event will result in taxation...no definition clauses can be possibly considered as existing provision giving rise to taxable event....
Definition of Transfer, FMV etc. are given as these words are utilized in various substantive provisions e.g. s.2(47) defines Transfer and s.45 provides for taxing gains from 'Transfer'. So definition clause in isolation can not lead to a taxable event.
Anyway, discussion with you has been enriching and has enhanced my knowledge.
16 August 2022
Builder lobby will be most happy to garland you, if you can establish your concept through any court of law. As Joint venture with landowners, a major transactions in current period are over barter system. Wish you best of luck...
BTW, Sec. 2 of IT act is the explanation of terms, which are to be applied, wherever these terms are used in any section of the IT act. They are not just dictionary meaning.
18 August 2022
For now, it was only for general purpose discussion. If and when need arises, I'll surely put forth arguments in court of law and may be succeed also. As far as builder lobby and Joint Development Agreements are concerned, they are specifically within ambit of s.45(5A) leaving no scope for such arguments. Thanks...
18 August 2022
I once again wish you good luck for your success. It will be an historic judgement, which will flourish you with name & fame. With the formal discussion I learnt two things: 1. Either the builders entering JV with land owners and supplying certain percentage of constructed area in exchange of land is not a barter exchange... 2. And if it is barter exchange, then there is solution for its assessment under the prevailing IT act, and there is no need of any specific provision that need to be added in the act. Best of luck.....
CAclubindia
