Valuation of share premium on issuance to existing shareholders: rounded premium and registered valuer report held not taxable.

Applicability of section 56(2)(viib) concerning valuation of shares issued to existing shareholders is addressed: where shares were allotted to existing shareholders based on a registered valuer's report and the share premium was rounded to a nearest denomination, such rounding did not create taxable income and the provision was held inapplicable, resulting in the appeal being allowed. The analysis emphasises reliance on independent valuation, issuance to related shareholders, and consideration of intangible business benefits in assessing taxability of share premium.

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Issues: Whether the provisions of Section 56(2)(viib) of the Income-tax Act, 1961 apply to an alleged share premium of Rs. 3,22,000 arising from rounding up the per-share valuation where shares were issued to existing shareholders based on a registered valuer's report.

Analysis: The Tribunal examined the valuation report prepared by a registered valuer which placed the per-share value at Rs. 24.77 and the actual allotment price of Rs. 25 per share. The shares were issued to existing shareholders and the premium arose from rounding to the nearest denomination. The Tribunal considered the statutory scope of Section 56(2)(viib) and the factual matrix showing independent valuation, issuance to existing shareholders, and commercial justification including intangible benefits relied upon by the assessee. The Tribunal found that mere rounding off to the nearest denomination, in the context of a supporting valuation and allotment to existing shareholders, does not create a taxable receipt under Section 56(2)(viib).

Conclusion: The appeal is allowed; Section 56(2)(viib) is not attracted on the rounded share premium of Rs. 3,22,000 and the addition is deleted.

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