Ankan Mohanty (INTERNAL AUDITOR) (97 Points)
28 May 2014Is there any judgement of supreme court against the section 56(vii)(b) of the income tax act relating to tax liability on stamp duty value for transfer of immovable property for a consideration less than the stamp duty value by an amount exceeding Rs. 50000/-
Nikhil Kaushik
(Fellow CA)
(85509 Points)
Replied 28 May 2014
Ankan,
I don't think so. barely any matter related to 56(2)(vii)(b) would have reached Supreme Court yet as the section isn't that old.
Sudarshan Raghavan
(Chartered Accountant)
(108 Points)
Replied 28 May 2014
Not sure about 56(2)(vii)(b) but found this one......
S. 56(2)(vii) does not apply to bonus & rights shares offered on a proportionate basis even if the offer price is less than the FMV of the shares
S. 56(2)(vii)(c) (ii) provides that where an individual or a HUF receives any property for a consideration which is less than the FMV of the property, the difference shall be assessed as income of the recipient. S. 56(2)(vii) does not apply to the issue of bonus shares because there is a mere capitalization of profit by the issuing-company and there is neither any increase nor decrease in the wealth of the shareholder as his percentage holding remains constant. The same argument applies pari material to the issue of additional shares to the extent it is proportional to the existing share-holding because to the extent the value of the property in the additional shares is derived from that of the existing shareholding, on the basis of which the same are allotted, no additional property can be said to have been received by the shareholder. The fall in the value of the existing holding has to be taken into account. As long as there is no disproportionate allotment, i.e., shares are allotted pro-rata to the shareholders, based on their existing holdings, there is no scope for any property being received by them on the said allotment of shares; there being only an apportionment of the value of their existing holding over a larger number of shares. There is, accordingly, no question of s. 56(2)(vii)(c) getting attracted in such a case. A higher than proportionate or a non-uniform allotment though would attract the rigor of the provision to the extent of the disproportionate allotment and by suitably factoring in the decline in the value of the existing holding
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