Applicability of Sec 56 (vii)

[MANOJKUMAR KABRA]

 An existing private ltd company  issuing further shares to only few existing shareholder at face value.?? 

Weather this attracts Sec 56(vii) ? 

[Rama Krishana]

The provisions do not talk about the face value. It talk about the fair market value. In general as I understand, fair market value may not be more than fair market value in case of ongoing company.

The income is taxable which is in excess of fair market value. It is a question of facts. But, you have fair chance to prove your side.

AI Summary

Taxation of shares issued below fair market value may be taxed as income unless valuation is proven. Applicability of Sec 56(vii): the provision taxes the excess of the fair market value of property received over the consideration paid; face value of shares is not determinative. Determination of taxability is fact specific and depends on valuation evidence, with transactions among a limited set of existing shareholders liable to closer scrutiny.