Capital assets or stock in trade: Analysis of Section 9B of Income-tax Act, 1961 and Clause 8 of Income Tax Bill, 2025

Clause 8 Income on receipt of capital asset or stock in trade by specified person from specified entity.

Income Tax Bill, 2025

1. Introduction

Section 9B of the Income-tax Act, 1961, and Clause 8 of the Income Tax Bill, 2025, deal with the taxation of capital assets or stock in trade received by specified persons from specified entities during dissolution or reconstitution. Both provisions aim to bring clarity to the tax treatment of such transfers and establish a deemed transfer mechanism.

2. Objective and Purpose

The primary objectives of these provisions are:

• To create a clear framework for taxing transfers during dissolution/reconstitution
• To prevent tax avoidance through asset distributions
• To ensure fair valuation of transferred assets
• To maintain consistency in tax treatment of such transfers

3. Comparative Analysis of Key Provisions

3.1 Basic Structure and Scope

Both provisions maintain similar basic structure with key elements:

• Deemed transfer concept
• Fair market value consideration
• Specific definitions of terms
• Guidelines for implementation

3.2 Key Changes in Clause 8 compared to Section 9B

1. Terminology Changes:

• "Previous year" in Section 9B replaced with "tax year" in Clause 8
• More consistent use of "or both" when referring to capital assets and stock-in-trade

2. Guidelines Implementation:

• Clause 8 introduces a two-year limitation period for issuing guidelines (until April 1, 2026)
• More detailed parliamentary oversight process in Clause 8
• Section 9B makes guidelines binding on tax authorities and assessees, while Clause 8 is silent on binding nature

3. Cross-References:

• Section 9B refers to Section 45(4) for difficulty removal
• Clause 8 refers to Section 67(10)

4. Practical Implications

4.1 For Specified Entities

• Must recognize deemed transfer in the year of asset distribution
• Need to compute gains based on fair market value
• Subject to tax under business income or capital gains

4.2 For Specified Persons

• Receipt of assets triggers deemed transfer implications
• Fair market value becomes relevant for future transactions
• Need to maintain proper documentation of received assets

5. Procedural Aspects

5.1 Implementation Guidelines

Clause 8 provides more structured approach:

• Two-year limitation for issuing guidelines
• 30-day parliamentary review period
• Provision for modifications by Parliament
• Safeguards for previous actions under guidelines

6. Conclusion

While maintaining the core principles of Section 9B, Clause 8 introduces refinements in:

• Administrative procedures
• Parliamentary oversight
• Timeline specifications
• Terminology consistency

These changes aim to enhance clarity and implementation effectiveness while maintaining the basic tax framework for asset transfers during dissolution or reconstitution.

 

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Full Text:

Clause 8 Income on receipt of capital asset or stock in trade by specified person from specified entity.

 

Dated: 25-2-2025