Can Preference Shares be issued at premium and redeemable at par by a Pvt Company?
What would be the tax implecations in the hands of Issuer company and the investor as the NAV of PS (non cummilative) is always same as that of the Face Value? Are there any chances that AO can assess the Securities Premium as income in the hands of the Company?
Yes, preference shares can be issued at premium subject to the conditions specified u/s 55 read with Rule 9 of the Cos.(Issue of shares and debentures)Rules, 2014.
Security Premium received on such issue does not form part of profit. It is a part of Networth. Hence there shall be no tax implication on SP in the hands of company. From the point view of shareholders, it stands as an investment in securities and the dividend so received on such shares shall be subjectt to tax in the hands of shareholders.
A small correction to above. Any dividend distributed to holders of shares and which suffers tax under section 115O in the hands of the companay that distributes such dividends, is exempt under serction 10(34) of the Income-tax Act. As such Dividend received on Preference shares shall be exempt in the hands of shareholder.
Naveen Fintech Pvt Ltd
Kolkata
CA Inter
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Gupta Sachdeva & Co. Chartered Accountants
New Delhi
CA Final
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