Section 56(2)(viia) - very confusing

Can anybody explain me Section 56(2)(viia) of Income Tax Act.

 

Thanx in Advance

Replies (2)

 

The unhighlighted text is the bare provision, my explaination is highlighted in blue, I hope this makes sense and helps, please wait for other replies if still in doubt
 
56(2) (viia) 
 
where a firm or a company, not being a company in which the public are substantially interested , receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,—
 (i)  without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, 
  the whole of the aggregate fair market value of such property;
 
 
Meaning of the above : Firm/Pvt CO. RECIEVES from ANY PERSON Shares of a pvt Ltd co. WITHOUT consideration, then Fair market value of the shares is taxable u/s 56(2)(viia)
 
 
(ii)  for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, 
the aggregate fair market value of such property as exceeds such consideration :
Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.
 
Meaning of the above : Firm/Pvt CO. RECIEVES from ANY PERSON Shares of a pvt Ltd co. FOR INADEQUATE consideration, such that, Fair Market Value (less) Contract price > Rs 50000, then difference between Fair market value of the shares and the contracted price is taxable u/s 56(2)(viia)
This section does not apply to transactions not regarded as transfer u/s 74 (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii)
Also, for this section, FAIR MARKET Value will mean FMV as defined in SECTION 56 (7)
If you can tell me, really need this, How to calculate the fair market value of the share? My query is framed over here, kindly help me find a solution. /experts/valuation-of-private-company-shares-1147314.asp

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