Can securities premium received be deemed to be an income
This query is : Resolved
04 June 2016
Dear Sir,
If a PQR pvt Ltd or PQR Ltd is receiving Rs. 100 rupees from Mr. A towards share subscription of equity shares and out of which the said company (private or public) accepts Rs. 10 as face value and Rs. 90 as securities premium. Can PQR pvt Ltd/ PQR Ltd can consider Rs. 90 as income and pay tax on the same? Whether it is a violation of law ande let me know which provision of under Companies Act 1956 and Companies Act 2013, shall I refer ?
If a PQR pvt Ltd or PQR Ltd is receiving Rs. 100 rupees from Mr. A towards share subscription of equity shares and out of which the said company (private or public) accepts Rs. 10 as face value and Rs. 90 as securities premium. Can PQR pvt Ltd/ PQR Ltd can consider Rs. 90 as income and pay tax on the same? Whether it is a violation of law ande let me know which provision of under Companies Act 1956 and Companies Act 2013, shall I refer ?
04 June 2016
yes ... refer section 56
04 June 2016
refer section 56 (2) viib of income tax act
04 June 2016
Sir,
My question is regarding funds transfered to securities premium and whether such funds in securities premium account can be treated as company's income irrespective it is an investment made by equity share holder for subscribing shares by paying Rs. 10 towards face value and Rs. 90 towards securities premium account? Please let me know in which provision under Companies Act 1956 and Companies Act 2013 such securities premium can be considered as income?Section 56(2)viib under Income tax act interpretates about any excess money than fave value of shares are considered as income, but is silent about securities premium which is a part of reserve?
My question is regarding funds transfered to securities premium and whether such funds in securities premium account can be treated as company's income irrespective it is an investment made by equity share holder for subscribing shares by paying Rs. 10 towards face value and Rs. 90 towards securities premium account? Please let me know in which provision under Companies Act 1956 and Companies Act 2013 such securities premium can be considered as income?Section 56(2)viib under Income tax act interpretates about any excess money than fave value of shares are considered as income, but is silent about securities premium which is a part of reserve?
04 June 2016
Sir, My question is regarding funds transfered to securities premium and whether such funds in securities premium account can be treated as company's income irrespective it is an investment made by equity share holder for subscribing shares by paying Rs. 10 towards face value and Rs. 90 towards securities premium account? Please let me know in which provision under Companies Act 1956 and Companies Act 2013 such securities premium can be considered as income?Section 56(2)viib under Income tax act interpretates about any excess money than fave value of shares are considered as income, but is silent about securities premium which is a part of reserve?
18 July 2024
Under both the Companies Act 1956 and Companies Act 2013 in India, the securities premium account is treated differently than income. Here’s how it works:
### Companies Act 1956:
1. **Securities Premium Account:**
- Under Section 78 of the Companies Act 1956, the securities premium account is created to record the premium received on issuance of shares over and above their face value.
- This account cannot be utilized for any purpose other than those specified under the law, such as issue of bonus shares, writing off preliminary expenses, etc.
- It does not constitute income of the company and cannot be distributed as dividends.
### Companies Act 2013:
1. **Securities Premium Account:**
- Section 52 of the Companies Act 2013 governs the securities premium account.
- Similar to the Companies Act 1956, it deals with the amount received over and above the face value of shares.
- The funds in this account are considered part of the company's reserves and cannot be treated as income.
- These funds can be utilized only in accordance with the provisions of the Companies Act 2013, such as for issue of fully paid bonus shares, writing off equity/preference share issue expenses, etc.
### Income Tax Act (Section 56(2)(viib)):
1. **Treatment of Securities Premium under Income Tax:**
- Section 56(2)(viib) of the Income Tax Act pertains to the tax treatment of receipt of money or property without consideration or for inadequate consideration.
- It applies to situations where shares are issued at a price exceeding their fair market value, treating the excess as income in the hands of the recipient.
- However, securities premium received by a company is not covered under this provision because it is treated as capital in nature, not income.
### Conclusion:
- **Securities Premium Account** under the Companies Act is specifically designated to account for the premium received on shares issued above their face value. It forms part of the company's reserves and is not treated as income under any provisions of the Companies Act or Income Tax Act.
- Funds in the securities premium account cannot be considered as the company's income under the legal frameworks mentioned. They are capital receipts and are accounted for as such in the financial statements of the company.
Therefore, securities premium received on shares cannot be treated as income of the company under the provisions of the Companies Act 1956 or 2013, nor under the Income Tax Act Section 56(2)(viib). They are treated distinctly as part of the company's capital reserves.
### Companies Act 1956:
1. **Securities Premium Account:**
- Under Section 78 of the Companies Act 1956, the securities premium account is created to record the premium received on issuance of shares over and above their face value.
- This account cannot be utilized for any purpose other than those specified under the law, such as issue of bonus shares, writing off preliminary expenses, etc.
- It does not constitute income of the company and cannot be distributed as dividends.
### Companies Act 2013:
1. **Securities Premium Account:**
- Section 52 of the Companies Act 2013 governs the securities premium account.
- Similar to the Companies Act 1956, it deals with the amount received over and above the face value of shares.
- The funds in this account are considered part of the company's reserves and cannot be treated as income.
- These funds can be utilized only in accordance with the provisions of the Companies Act 2013, such as for issue of fully paid bonus shares, writing off equity/preference share issue expenses, etc.
### Income Tax Act (Section 56(2)(viib)):
1. **Treatment of Securities Premium under Income Tax:**
- Section 56(2)(viib) of the Income Tax Act pertains to the tax treatment of receipt of money or property without consideration or for inadequate consideration.
- It applies to situations where shares are issued at a price exceeding their fair market value, treating the excess as income in the hands of the recipient.
- However, securities premium received by a company is not covered under this provision because it is treated as capital in nature, not income.
### Conclusion:
- **Securities Premium Account** under the Companies Act is specifically designated to account for the premium received on shares issued above their face value. It forms part of the company's reserves and is not treated as income under any provisions of the Companies Act or Income Tax Act.
- Funds in the securities premium account cannot be considered as the company's income under the legal frameworks mentioned. They are capital receipts and are accounted for as such in the financial statements of the company.
Therefore, securities premium received on shares cannot be treated as income of the company under the provisions of the Companies Act 1956 or 2013, nor under the Income Tax Act Section 56(2)(viib). They are treated distinctly as part of the company's capital reserves.
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