SEC. 56(2)(7) @ TAXABILITY ON GIFT RECIEVING??

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CA Lokesh Pokharna (Querist)
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21 February 2010 X leaves his jewellary, which he had bought on 15/02/05 for RS. 5 lacs,to his son Y in his will,X dies on 23/12/09 FMV of jewellary on 23/12/09 RS. 710000...
plssssss tell me about taxation in hands of Y?????
1) cost of aquisition for y????
2) from which date holding period for Y to be start????

kiran deshpande

kiran deshpande (Expert)
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22 February 2010 The provisions of clause (vii)to sub-section (2) of Sec.56 are not applicable for any receipt under a will or by way of inheritance. (Refer 2nd proviso (c))

As X has left his jewellery, a capital asset under the will which Y has received, in respect of the cost of acquisition, provisions of Sec.49(1)(ii) are applicable. The cost of acquisition in the hands of Y will be Rs. 5 lacs, the cost of acquisition of X by way of purchase.

As per the provisions of Sec.2(42A) of the Act, a capital asset held for less than 36 months is to be considered as Short Term Capital Asset.However, as per Explanation 1 (b) to the proviso after the definition, the period of holding of asset by the previous owner has to be considered if the asset is held in thecircumstances mentioned in the provisions of Sec. 49. Since in the instant case, these are applicable, the period of holding of asset by X has to be included. Therefore, the asset becomes LT Capital asset in the hands of Y. The date of acqusition in the hands of Y would be 15/02/2005.