Transferor Not Liable U/S 56(2) Of Income Tax Act For Undervalued Property Sale To Spouse: ITAT

The Income Tax Appellate Tribunal (ITAT) has provided an important clarification on the tax liability arising from the sale of an undervalued property to a spouse. The tribunal ruled that the seller (transferor) of the property is not liable to be taxed under Section 56(2) of the Income Tax Act, even if the sale price is lower than the stamp duty value. Section 56(2) brings the differential amount to tax, but it is levied on the buyer (transferee), not the seller. While the seller would be liable for capital gains tax based on the actual sale consideration, the provisions of Section 56(2) specifically target the recipient of the undervalued property. This ruling prevents the tax department from incorrectly invoking this section to tax the person who is selling the property, providing clarity on which party is liable under this specific anti-avoidance provision.