Right issue of shares in case of unlisted company

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

11 July 2013 Hello Sir,

In Public Limited Company one right issue is being made to all shareholders with 1:4 ration. As in case of right issue the shares is being allotted to all share holder on discounted price. So what would be the liability in respect of capital gain tax.

The company raised capital only at the time of incorporation and after 5 years time this right issue is taking place.

I would be thankful to you.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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11 July 2013 In my view, by issuing right shares to the shareholders the company is not transferring a capital asset. Shares are non-existent until issued.
.
So there is no capital gain to the company.
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However if the company issues shares at a premium and the issue price exceeds the fair market value of shares, by virtue of Section 56(2)(viib) such amount is taxable as IFOS to the company.
.

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