Section 56(2)(viib)

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CA Shraddha Vora (Querist)
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21 October 2013 As per Section 56(2)(viib) “where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares……”

Does “consideration” in above case include consideration other than in cash? That is in case of takeover of sole proprietorship by a company, where shares are issued at premium in consideration for its assets and liabilities taken over.
- Riddhi Shah

Nikhil Kaushik

Nikhil Kaushik (Expert)
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21 October 2013 As the section stands today, yes, such cases will be covered under Section 56(2)(viib).

Consideration do includes consideration other than cash. In the instant case, the net value of business taken over shall be the consideration.

One alternative to avoid taxation in similar cases is to issue convertible debentures instead of shares and let the conversion happen at a later date.

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