section 56 (2)( viib) under income tax act

Sec 56(2)(viib) is applicable to closely held companies (companies in which the public are not substantially interested). If these companies receives from a resident individual any consideration from issue of shares in excess of Fair Market Value, then such excess amount will be Income of the company taxable under the head IFOS.

For instance FMV of the company is Rs. 10/- and the company has issued shares at Rs. 12/-, then Rs. 2/- will be IFOS.

The FMV of the company is determined in accordance with Rule 11UA or any other method adopted by the company (such method must be to the satisfaction of A.O.) whichever is higher.

For any further clarification, feel free to mail me @ mnshdugar @ gmail.com

rule 11 UA please explain

In general terms FMV of unquoted shares is computed in accordance with Rule 11UA in the following way:


A = Book Value of Total Assets as appearing on last audited balance sheet - Jewellery - Artistic Work - Shares & Securities - Immovable Property - Income Tax (Asset) - Deferred Tax Asset


B = Book Value of Total Liabilities as appearing on last audited balance sheet - Shareholders fund - Income Tax (Liabilities) - Provision of Unascertained Liability -  Provision made for Contingent Liability


C = Value of Jewellery and Artistic Work as it would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer  


D = Value of Shares & Securities as determined in accordance with Rule 11UA


E  = Stamp Duty Value of Immovable Property


FMV per share = (A-B+C+D+E)/number of shares

tnq u so much for clearing my dout

how about in case of startup company, where there is no last audited balance sheet. how to calculate FMV in this case. Please explain