Hello,
The financial investor in a pvt ltd company exited his investment by transferring all the shares to wife of promoter at nil value ie no money was exchanged. The company is loss making and FMV was not calculated. Is this liable for tax u/s 56(2)(viib) ? How can tax be levied if no commercial transaction has occurred? Also does the company have any exposure in this regard. Expert advice in this regard is solicited since the act fails to address nil value scenario.
Share Transfer at Nil Value Raises Tax Concerns Under Section 56(2)(viib); Expert Recommends CA Consultation for Clarity. A financial investor in a private limited company transferred all shares to the promoter's wife at nil value, raising questions about tax implications under Section 56(2)(viib) of the Income Tax Act. The company is loss-making, and the fair market value was not calculated. The query seeks clarity on whether tax can be levied despite no commercial transaction occurring and whether the company faces any tax exposure. An expert suggests consulting a Chartered Accountant due to the complexity and lack of clear guidance on nil value transfers in the Act. (AI Summary)
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