Sec 56(2)(viib)
This query is : Resolved
26 June 2012
The FMV of the shares for the purpose of newly inserted Sec 56(2)(viib) is to be calculated on the date of issue of shares or on 31st March i.e. Balance Sheet Date? Suppose a company is going to issue shares in between a financial year, say on 20th September, should it make a balance sheet on that date or what is to be done for the purpose of calculating FMV of the shares? Please guide.
26 June 2012
No, the FMV as on the date of transfer is to be considered.
26 June 2012
Thanks a lot Sir, but please tell me whether the company has to make the balance sheet as on the date of transfer and get it certified by CA?
23 July 2025
You're dealing with the issue of calculating the Fair Market Value (FMV) of shares for the purposes of Section 56(2)(viib), especially when shares are being issued in the middle of a financial year (e.g., on 20th September). Let's go step-by-step to clarify your questions.
1. FMV Calculation for Section 56(2)(viib):
Under Section 56(2)(viib), when a company issues unquoted equity shares to a non-resident or any other person, the FMV of shares on the date of issue must be taken into account. This is especially important to ensure that the consideration received does not exceed the FMV, as exceeding FMV may trigger taxable income under this section.
FMV Date: The FMV must be calculated on the date of issue of shares (not on 31st March or the balance sheet date). This is the valuation date for the FMV.
Why Date of Issue? The date of issue is critical because it reflects the actual transaction price at which the shares are being issued. This date determines the market conditions and financial position of the company at the time of issuance.
2. Do you need a balance sheet on the date of transfer (issue date)?
Balance Sheet Requirement: Since the FMV is to be calculated as of the date of issuance (e.g., 20th September), the company does not need to prepare a full balance sheet as of 31st March for this purpose.
However, for calculating FMV on the issue date, the company would still need to consider its financial position on the date of issuance (i.e., as of 20th September in your example).
Balance Sheet on Issue Date: It is advisable for the company to prepare a balance sheet or financial statements as of 20th September, reflecting the assets and liabilities on that specific date. This balance sheet should be used to calculate the FMV of the shares.
CA Certification: The balance sheet prepared on 20th September should ideally be certified by a Chartered Accountant (CA) to ensure compliance with accounting standards and to validate the FMV calculation.
While the Balance Sheet Date is typically at the year-end (31st March), for the purposes of FMV calculation for Section 56(2)(viib), the financial data as of the actual date of issuance (20th September) is most important.
If the company doesn't prepare a balance sheet on 20th September, it may face issues justifying the FMV, so it is highly recommended that a balance sheet as of the issuance date be prepared and certified by a CA.
3. Summary of Actions to Take:
Balance Sheet Date: Prepare the balance sheet as of the date of issue of shares (20th September).
FMV Calculation: Use this balance sheet to calculate the FMV of shares on the date of issue.
Certification: It is advisable to get this balance sheet certified by a CA to ensure the FMV calculation is valid and to avoid any issues with tax authorities.
Conclusion:
FMV should be calculated on the date of issue of shares (not the year-end balance sheet date).
Balance Sheet should be prepared as of the issue date (e.g., 20th September) and certified by a CA for validation.
This will ensure the correct application of Section 56(2)(viib) and proper reporting of the share issue. Let me know if you need any further clarification!
1. FMV Calculation for Section 56(2)(viib):
Under Section 56(2)(viib), when a company issues unquoted equity shares to a non-resident or any other person, the FMV of shares on the date of issue must be taken into account. This is especially important to ensure that the consideration received does not exceed the FMV, as exceeding FMV may trigger taxable income under this section.
FMV Date: The FMV must be calculated on the date of issue of shares (not on 31st March or the balance sheet date). This is the valuation date for the FMV.
Why Date of Issue? The date of issue is critical because it reflects the actual transaction price at which the shares are being issued. This date determines the market conditions and financial position of the company at the time of issuance.
2. Do you need a balance sheet on the date of transfer (issue date)?
Balance Sheet Requirement: Since the FMV is to be calculated as of the date of issuance (e.g., 20th September), the company does not need to prepare a full balance sheet as of 31st March for this purpose.
However, for calculating FMV on the issue date, the company would still need to consider its financial position on the date of issuance (i.e., as of 20th September in your example).
Balance Sheet on Issue Date: It is advisable for the company to prepare a balance sheet or financial statements as of 20th September, reflecting the assets and liabilities on that specific date. This balance sheet should be used to calculate the FMV of the shares.
CA Certification: The balance sheet prepared on 20th September should ideally be certified by a Chartered Accountant (CA) to ensure compliance with accounting standards and to validate the FMV calculation.
While the Balance Sheet Date is typically at the year-end (31st March), for the purposes of FMV calculation for Section 56(2)(viib), the financial data as of the actual date of issuance (20th September) is most important.
If the company doesn't prepare a balance sheet on 20th September, it may face issues justifying the FMV, so it is highly recommended that a balance sheet as of the issuance date be prepared and certified by a CA.
3. Summary of Actions to Take:
Balance Sheet Date: Prepare the balance sheet as of the date of issue of shares (20th September).
FMV Calculation: Use this balance sheet to calculate the FMV of shares on the date of issue.
Certification: It is advisable to get this balance sheet certified by a CA to ensure the FMV calculation is valid and to avoid any issues with tax authorities.
Conclusion:
FMV should be calculated on the date of issue of shares (not the year-end balance sheet date).
Balance Sheet should be prepared as of the issue date (e.g., 20th September) and certified by a CA for validation.
This will ensure the correct application of Section 56(2)(viib) and proper reporting of the share issue. Let me know if you need any further clarification!
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