Article
Income-tax implications of issues of shares at a discount
By S. Sriram and Dinesh Kukreja
The article in this issue of Direct Tax Amicus examines as to whether in case of fresh issuance or allotment of shares, be it Equity Shares or Preference Shares, Section 56(2)(x) of the Income Tax Act, 1961 would apply in the hands of the person to whom such shares are issued/allotted, if the shares are issued for consideration less than the Fair Market Value. Answering the question in negative, the authors note that firstly when the shares are allotted to the shareholders, such allotment would not amount to receipt of property ‘from another person’. Secondly, this section is an anti-abuse provision while there is no abuse of the provisions of law, and thirdly, no tax can be levied on the shareholders for exercising their option under the contract. The authors also note that the issue, though having significant commercial implication, has not been subject to much judicial interpretation.
Notifications & Circulars
- Statement of Financial Transactions (SFT) for Depository Transactions – Changes notified to the format, procedure and guidelines for submission
- Statement of Financial Transactions (SFT) for Mutual Fund Transactions by Registrar and Share Transfer Agent – Changes notified to the format, procedure and guidelines for submission
- Disclosure of information under Section 138(1)(a)(ii) – Officer/ authority/ body notified
Ratio decidendi
- Time-limit for completion of assessment u/s 153B not stands extended in case of invalid reference for exchange of information made under DTAA – ITAT Mumbai
- Section 2(24)(xviii), which brings subsidy received on capital account within the ambit of ‘income’, constitutionally valid – Bombay High Court
- Dispute Resolution Panel can issue directions under Section 144C(5) only in case of a pending assessment – Bombay High Court
- Notice under amended Section 148 for A.Y. 2013-14, pursuant to a search conducted in F.Y. 2022-23, is within the limitation period – Jharkhand High Court
- Explanations 6 and 7 to Section 9(1)(i), being clarificatory in relation to Explanation 5, are applicable retrospectively – Delhi High Court
- Foreign exchange fluctuation gains received in EEFC account are outside the ambit of ‘profits derived from the export. . .’ for deduction u/s 80HHC – Supreme Court
