Income Tax--Income From Other Sources

For Applicability of Section 56(2)(viib)--Share Issue and Receipt of Consideration Shall Fall in Same Year

CA. Manoj Gupta

 Section 56(2)(viib) provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that 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 charged to tax. Recently in the case of Dy. CIT v. Rankin Infrastructure (P) Ltd. 2022 TaxPub(DT) 3911 (Mum-Trib), the assessee first issued OFCDs and received money thereof. In the subsequent year the assessee issued non-cumulative preference shares at issue price of Rs. 1000 per share which included premium of Rs. 900 per share. The assessing officer held that in such a case provisions of Section 56(2)(viib) shall apply. ITAT concluded that the 'receives' means not only issue of shares but also receipts of share consideration during the same assessment year. One cannot interpret the law merely on the basis of issue of shares or from receipt of consideration, it has to be issue of shares and receipt of consideration during the same assessment year. It is needless to say that issue of shares includes allotment of shares. Commissioner (Appeals) has discussed this issue elaborately in his order and there was no reason to interfere with the findings of the Commissioner (Appeals).

1. Section 56(2)(viib) applicable to whom