Query regarding share transfer at nil value on Section 56(2)(viib) ,Income Tax

[Guest]

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.

[DR.MARIAPPAN GOVINDARAJAN]

Since it involves many issues you may consult a Chartered Accountant in this regard.

AI Summary

Share transfer at nil consideration may trigger tax consequences where related party transfers occur without fair market valuation. Transfer of shares to a promoter's spouse at nil consideration raises whether receipt of shares without consideration is taxable under income tax rules addressing issuance or transfer of shares for less than fair value; the company did not obtain a fair market valuation and is loss making. The sole recorded reply simply advised consulting a chartered accountant, leaving unresolved whether the transfer attracts tax, whether it should be treated as a gift or deemed income, and whether the company faces exposure or compliance obligations.