Sec 56(2)(viia)/ 56(2)(viib)

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swasti (Querist)
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23 July 2013 Whether issue of fresh shares - rights shares at a price lower than the FMV would attract Section 56(2)(viia) & Section 56(2)(viib)? Please guide.

Mihir Doshi

Mihir Doshi (Expert)
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23 July 2013 Dear Expert,

If the company is public limited company or listed company i.e. if it is not closely held company then there wont be any tax liability u/s 56 otherwise you need to compute fair valuation as per rule 11 and have to determine FMV and then 56(2)(viib) will be applicable on it.

Thanks
Mihir Doshi

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swasti

swasti (Querist)
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23 July 2013 Thanks a lot. Could you also clear that if it is a private company / closely held company and rights issue is made at a price lower than FMV, would 56(2)(viia) also applicable?

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CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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14 August 2013 In case of right shares, Section 56(2)(viia) will be applicable if the issuer & the recipient are both PRIVATE COMPANIES.

Section 56(2)(viia) is applicable in the hands of the RECIPIENT company (shareholder in this case).

So if the right issue price is less than the FMV by an amount exceeding Rs. 50,000 then Section 56(2)(viaa) shall be attracted and the amount shall be taxable in the hands of the shareholder.