taxability u/s 56(2)(vii)

[SANJAY RAWAL]

Fair market value of share  per rule 11UA of  Income Tax Act, 1961 is Rs 50.00 against a face value of Rs10.00.It issues fresh Equity share at face value of Rs 10.00. Will the difference between Fair Market Value aand issue price be taxable u/s 56(2)(vii)

AI Summary

Taxability of Equity Shares: Section 56(2)(vii) Dispute on Fair Market Value vs. Issue Price Differences A query was raised regarding the taxability under Section 56(2)(vii) of the Income Tax Act, 1961, concerning the issuance of equity shares at face value when the fair market value is higher. One response indicated that the difference between the fair market value and the issue price is taxable if it exceeds Rs. 50,000. Another response argued that subscribing to or allotting shares does not constitute receiving property under the said section, as shares do not exist prior to allotment. Thus, the deemed income rule does not apply to initial or preferential issues, though disputes may arise.