Tribunal held that provisions of section 56(2)(vii)(c) is not applicable in respect of allocation of rights shares allotted to assessee below FMV proportionate to his shareholding in company. Section 56(2)(vii)(c) cannot be invoked in respect of additional shares received by assessee on account of renunciation of rights issue by assessee’s wife and father in favour of assessee, since wife/father fall within definition of relatives which are excluded from purview of operation of section 56(2)(vii)(c). Renunciation of rights shares by third party shareholders in favour of assessee, allowing assessee to gain controlling interest results in disproportionate allocation of rights shares in favour of assessee and therefore, in respect of these shares, section 56(2)(vii)(c) shall apply, and income would be taxable.In case balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under section 56(2)(vii)(c)(ii), previous balance sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. (AY. 2013-14)
Jigar Jashwantlal Shah v.ACIT (2022)142 taxmann.com 200 / 226 TTJ 161 (Ahd)(Trib) Editorial: Affirmed, PCIT v. Jigar Jashwantlal Shah [2023] 154 taxmann.com 568 /[2024] 460 ITR 628 (Guj)(HC)
S. 56 : Income from other sources-Right shares-Allotted to proportionate to shareholding in company-Provision is not applicable in respect of allocation of rights shares allotted below FMV proportionate to his shareholding in company-Gifts-Additional shares received on account of renunciation of rights issue by wife and father-Relatives-Excluded from purview of operation of section 56(2)(vii)(c)-Renunciation of rights shares by third party shareholders in favour of assessee, allowing to gain controlling interest results in disproportionate allocation of rights shares in favour of assessee-Section 56(2)(vii)(c) shall apply, and income would be taxable-Share premium-Balance sheet-Balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under section 56(2)(vii)(c)(ii), previous balance sheet which is audited and approved in AGM has to be taken into consideration, before allotment of share. [S. 56(2)(vii)(c), R.11UA(1)(c)]