Taxability on Issue of Right Issue of Shares by Unlisted Public Company

[Hithik]

Dear Experts,

In the case of a rights issue of shares at a price lower than the FMV as determined under the prescribed Rules, would the allotment of such shares be regarded receipt of property for the purposes of the relevant provisions of Section 92 of Income Tax Act 2025, thereby attracting tax implications?

Considering the above CBDT circulars Circular No. 10/2018 dated 31 December 2018, Circular No. 2/2019 dated 4 January 2019, along with the judicial precedents on the interpretation of the term "receives", can it be concluded that shares allotted pursuant to a rights issue, even if issued below FMV, would not attract the provisions of Section 92?

Thank you in advance!!

AI Summary

Proportionate rights issues below fair market value may avoid taxability where no real economic benefit accrues to shareholders.
A bona fide proportionate rights issue to existing shareholders, even at a price below prescribed fair market value, is presented as generally outside Section 92 where no real economic accretion arises. The shareholder's proportionate interest remains substantially unchanged, and the apparent benefit in newly allotted shares is offset by dilution in the existing holding. This position does not automatically extend to disproportionate allotments, subscriptions following renunciation or non-exercise of rights, or arrangements transferring economic value to selected shareholders.