Issue of shares for consideration other than cash

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CS Ashish Jain (Querist)
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01 September 2009 SOJATIYA VINTAGE AND CLASSIC CARS PVT. LTD. (SVCC) has been incorporated with the objective to carry on the business relating to Vintage and Classic Cars. Shareholders, Directors and their relatives whishes to contribute their collection of vintage cars and SVCC proposes to allot the shares against their contribution for consideration other than cash.

SVCC proposes to get the cars revalued from the authorized valuer and thereby create huge revaluation reserve as the book value of the cars is negligible. Considering the above facts we request you to please advise us on the following issues

1. What is the ideal time to get the cars revalued before or after the transfer so as to avoid any legal or other implication and to minimize tax liability both for the car owners and company?
2. Can the company issue bonus shares by capitalizing the revaluation reserve?
3. In case the cars are revalued prior to offering the same to SVCC and transfer the same at revalued price will the difference between the revalued price and the book value attract the liability of income tax to the car owners?

Guest

Guest (Expert)

05 October 2009 (1)After transfer, as it would attract lessor stamp duty
(2) No, Revaluation reserve can not be used.
(3) Yes, Car owners will have to pay huge Income Tax

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