Applicability of provisions of Se.56(2) to this case

[Raam Srinivasan Swaminathan Kalpathi]

My client, a private limited company, had accepted a strategic investment comprising CCPS and Equity from an unrelated Non-Resident investor. The premium was around Rs.3990/- per Rs.10/- equity share. The transaction date was May 2023.

The amended AOA clearly provides that the client cannot issue further shares at less than the price issued to the NR investor except for issue of ESOP which was capped at 5% of the capital base.

Query: The company issues ESOP to employees at a premium say Rs.990/- to its employees based on a valuation by a RV as provided in Sec. 62(1)(b) of the CA, 2013 r.w.r 12 of Companies (Share capital and Deb.) Rules 2014 in June 2024.

Would the above transaction attract provisions of 56(2)(x) of the Income-tax Act, 1961?

Profuse thanks

[SACHIN GARG]

Issue of shares under ESOP will fall u/s 17(2) of Income Tax Act and will be taxable as perquisites. Perquisite value shall be FMV as certified by Merchant Banker less Exercise Price. Section 56(2)(x) will not be attracted here. 

Regards

[email protected]

AI Summary

Perquisite valuation: ESOP treated as perquisite under Section 17(2), not covered by Section 56(2)(x) provision
ESOPs granted to employees are taxable as perquisites; taxable value equals the fair market value certified by the merchant banker less the exercise price. The deemed income provision for receipt of specified benefits does not apply to such ESOP grants where perquisite taxation governs valuation and taxability.