Sec 56(2)(viib)

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swasti (Querist)
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25 October 2012 The new clause (viib) under section 56 of Income Tax Act 1961 provides that where a company in which the public are not substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares and such consideration received exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources”.

Does this clause is applicable on share warrants also i.e. if a company in which the public are not substantially interested issues share warrants at premium, is the premium more than the FMV of shares taxable in the hands of the company?

Please suggest in the matter. Its urgent.

Guest

Guest (Expert)

25 October 2012 private companies can not issue share warrants, only public companies can issue.

so your question is technically incoreect.

but i would like to praise you for good analysis

swasti

swasti (Querist)
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26 October 2012 Thanks a lot Sir. I am having another question. Suppose it is XYZ Ltd in which public is not interested and is a closely held company. Can't it issue share warrants which would be converted into shares? Please suggest.

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Guest

Guest (Expert)

27 October 2012 CLOSELY HELD COMPANY ITSELF MEANT PVT.LTD.COMPANY
SO COMPANY IS LIMITED THEN ITS NOT A CLOSELY HELD COMPANY,AND SAID CLAUSE OF SEC.56 NOT APPLICABLE

KINDLY REFER DEFINITION OF CLOSELY HELD COMPANY.

swasti

swasti (Querist)
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27 October 2012 Vivek ji, thanks a lot. Here I am getting some confused. What I meant to say is that XYZ Ltd. is a company which is not a listed company. The shares of the company are with the directors and their relatives. In such a case, can XYZ Ltd. issue share warrants at premium or not and whether Sec 56(2)(viib) is applicable or not?

Guest

Guest (Expert)

30 October 2012 go through certificate of incorporation of your company if it is public company then it can issue share warrnats

2nd thing sec56(2)(viib) is applicable for shares and not any other thing mentioned, so if we follow companies act then there is distinguish between share and share warrants,
so as per my opinion it will not apply for share warrnats

swasti

swasti (Querist)
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31 October 2012 Thanks a lot. What would happen in the year in which the warrants get converted into shares? Would it be taxable in that year or not?