Issue of share at premium

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This query is : Resolved

Kaushik Tailor (Querist)

12 September 2014 Example - Can a company issue shares at higher premium, say if a company had issued a share for Rs.2000 per share at a premium of Rs.1990/-. Then what shall be the explanation to the Income Tax department for issue of share at a higher premium.

CA SUNIL K GARG

CA SUNIL K GARG (Expert)

13 September 2014 pls refer to sec 56 (viib)
if a pvt ltd co. issues shares to a resident person , for a consideration, which is more than the fair market value, than the difference between FMV and issue price will be income of the company.
to determine the FMV of the shrare, the sec provides two method

1 FMV as determined in accordance with rule 11 UA
2the assesee compnany valuation the share to the satisfaction of AO based on the value of assets , goodwill , patents etc ....
whichever is higher
in ur case, u have issued share at a premium of rs 1990 per share,
and we assume that it is pvt co, shares has been issued to resident
than first step is to calculate FMV of shrare as per rule 11 UA ( which is simply book value )
and second step is to calculate the FMV based on market price of assets , goodwill patent etc......, but to the satisfaction of AO,
the practical way is to get the valuation done from some merchant banker.
if the FMV of shares comes lesse than rs 2000/- by any of above method, than diff will be taxable u/s 56

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