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S. 56(2)(viib): CBDT Clarification Reg Valuation Of Shares Of Startup Companies

The CBDT has issued a directive dated 9 August, 2019 by which it has provided clarification with respect to valuation of shares of Startup Companies involving application of Section 56(2)(viib) of the I. T. Act, 1961. The clarification is intended to mitigate the hardships faced by start-up companies

F.No.173/ 354/ 2019-ITA-l
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes


All Principal Chief Commissioners of Income-tax

All Principal Director Generals of Income-tax

Sir/ Madam,

New Delhi, 9 August, 2019

Subject : Clarification with respect to valuation of shares of Startup Companies involving application of Section 56(2)(viib) of the I. T. Act ,1961 -reg.

Instances have come to the notice of the Board that substantial additions have been made by the AOs in “Start up Companies” involving issue of valuation of shares u/s S56(2)(viib).

2. Vide notification no. G.S.R. 127 (E) dated 19.02.2019 issued by the Department for Promotion of Industry and Internal Trade (henceforth referred to as “DPIIT”) and notification no.13/2019 F.No.370142/S/2018-TPL(Pt.) dated 05th March, 2019 issued by the Central Board of Direct Taxes (henceforth referred to as “CBDT”), the Central Government has notified certain class of persons for which the provisions of Section S6(2)(viib) will not apply.

Para 6 of the notification issued by the DPIIT dated 19.02.2019 states that the notification is applicable only with regard to recognized “Start up Companies” where no addition u/s 56(2)(viib) has been made in an assessment order before the date of issue of the notification. This has caused hardship to such companies.

3. The matter has been examined by the Board. To mitigate such hardships, the Central Government has decided to relax the Para-6 of the above-referred notification issued by the DPIIT and make it clear that the notification will be applicable to those Startup Companies also where addition u/s S6(2)(viib) has been made in an assessment order under the IT Act before 19th February, 2019 provided the assessee has subsequently submitted the declaration in Form-2 that it fulfils the conditions mentioned in Para-4 of the above-referred notification.

(Prajn Paramita)
AddI. CIT( OSD)(ITA-1)

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