INCOME TAX ACT, 1961

Section 56(2)(viib)

Income from other sources - Addition under section 56(2)(viib) - Consideration for issuance of shares is received by a venture capital undertaking from a venture capital company or a venture capital -

Assessee issued 201402 shares (Compulsorily convertible preference shares) at a share premium of Rs.1240.29 per share having face value of each Rs.1 to Forum Synergies India Trust (FSIT). AO by following the method of calculation of valuation of shares as prescribed under rule 11UA worked out fair market value of each share at Rs.169.88 per share and thus considered the difference of share premium Rs.1070.41 per share [Rs.1241.29 - Rs.169.88] multiplied by the number of shares issued as income from other sources taxable under section 56(2)(viib) made addition. Held: In terms of proviso to section 56(2)(viib), the provisions of section 56(2)(viib) would not be applicable where consideration for issuance of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. In the instant case, the investor, Forum Synergies India Trust (FSIT) was Venture Capital Fund (VCF) and assessee was Venture Capital Undertaking. Assessee demonstrated that business of assessee did not fall under the negative business list as specified by the Central Government. AO had not demonstrated that assessee's case does not fall under proviso to section 56(2)(viib). Therefore, addition made by AO was not sustainable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

INCOME TAX ACT, 1961

Section 37(1)

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