Section 56(vii) and section 56(viia)

If our AOP is purchased 5000 shares of ABC Private Limited Company (in which the public are subtantially not interested / unlisted) which face value is Rs 10/- each (5000 shares X 10/- = Rs. 50,000/-) and the fair market value of 5000 shares is Rs. 5,00,000/-.

How are we liable to pay income tax under the section 56(vii) or section 56(viia) or in any other section ?

Replies (3)
purchase of shares will be treated as investment and any dividend recvd will be exempt from tax if cdt has been paid on such dividend.

56(2)(viia): Receipt of shares by a firm or closely held Company.

Applicable if:

1. Shares belong to a closely held company.

2. Donor is any person.

Without Consideration: if Fair Market value is more than Rs.50000/-:

For Donor: No Capital Gain because u/s 47(iii) it is not consider transfer.

For Donee: FMV is income from other Sources u/s 56(2)(viia).

 

Inadequate Consideration: if the difference of consideration and FMV is greater than Rs.50000/- than difference amount will be taxable for receiver.

For Donor: Capital Gain will be sale price – COA.

For Donee: Difference of FMV and Consideration is income from other Sources u/s 56(2)(viia).

 

However AOP/BOI,Turst are not covered dat y 56(2)viia not applicable.

56(2)(vii) is applicable only when gifts are received by Individual and HUF.
dat y 562(vii) also not appliable on AOP.

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