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June 2022

POINT OF TAXABILITY – SECTION 56(2)(viib)

By Pradip Kapasi | Gautam Nayak | Bhadresh Doshi
Chartered Accountants
Reading Time 12 mins
ISSUE FOR CONSIDERATION

Section 56(2)(viib) provides for taxability of the consideration received by a closely held company for issue of shares to the extent it exceeds the fair market value of the shares. It is applicable when such a company is issuing shares at a premium.

In cases where the share application money is received in one year, but the shares have been allotted in another year, the issue has arisen as to whether this provision is applicable in the year of receipt of the share application money or in the year of allotment of the shares. While the Delhi, Bengaluru and Mumbai benches of the Tribunal have taken a view that it is applicable in the year in which the shares have been finally allotted, the Kolkata bench of the Tribunal has taken a view that it is applicable in the year in which the consideration for issue of shares is received.

CIMEX LAND AND HOUSING (P.) LTD.’S CASE

The issue had first come up for consideration of the Delhi bench of the Tribunal in the case of Cimex Land and Housing (P.) Ltd. vs. ITO [2019] 104 taxmann.com 240.

In this case, the assessee company had received the share application money from V. L. Estate Pvt. Ltd. as follows –

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