TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the differential between fair market value and actual consideration on allotment of unlisted shares attracts tax under Section 56(2)(viia) of the Income-tax Act, 1961; (ii) Whether Section 50D of the Income-tax Act, 1961 can be invoked to deem fair market value as full value of consideration where shares were sold to related parties and the declared consideration is held to be not ascertainable.
Issue (i): Whether Section 56(2)(viia) applies to fresh allotment of shares when allotment consideration is lower than FMV.
Analysis: Section 56(2)(viia) charges receipt of shares where consideration is less than FMV. The provision does not limit application to transfers from existing shareholders. Legislative materials and administrative clarification (Circular No. 3/2019, CBDT) treat the provision as an anti abuse measure covering fresh issuance at undervalued prices. Coordinate tribunal authority has interpreted the term 'receive' broadly to include acquisition by allotment where shares come into existence only on allotment. The assessing authority and the appellate authority applied FMV differences determined under applicable valuation rules to the allotments in question and relied on absence of exclusion in the statutory language.
Conclusion: Section 56(2)(viia) applies to fresh allotment of shares when consideration is less than FMV; the addition under Section 56(2)(viia) is upheld (against the assessee).
Issue (ii): Whether Section 50D can be applied to deem FMV as full value of consideration where shares were sold at values below FMV to related parties and the declared consideration is treated as not ascertainable.
Analysis: Section 50D deems FMV to be full value of consideration where the actual consideration received or accruing from transfer of a capital asset is not ascertainable. The assessing and appellate authorities found lack of contemporaneous supporting evidence (agreements, independent valuations) for the declared sale prices and noted related party sales raising doubts on genuineness. Section 50D is an anti abuse provision distinct from but complementary to later provisions addressing undervaluation; application to AY 2015 16 was treated as permissible where consideration is not ascertainable.
Conclusion: Section 50D applies where the consideration is not ascertainable; the addition under Section 50D is upheld (against the assessee).
Final Conclusion: Both challenged additions-under Section 56(2)(viia) (allotment undervaluation) and under Section 50D (deemed consideration on sale)-are upheld on the facts and evidence before the authorities; the appeal is dismissed.
Ratio Decidendi: Where shares are received by allotment at consideration below FMV, Section 56(2)(viia) applies to tax the difference as income from other sources; where declared consideration for transfer of shares is not supported by contemporaneous evidence and is therefore not ascertainable, Section 50D permits deeming FMV as the full value of consideration for computing capital gains.
TaxTMI 
