| Question And Answer | |
|---|---|
| Subject: | Whether Right issue of equity shares allotted below FMV by Pvt Ltd Co , provisions of section 56(2)(x) is applicable .? |
| Category: | Income-Tax |
| Querist: | V.Surana |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Rights shares pvt Co, rule 11UA |
| Date: | May 15, 2021 |
The book value /FMV as per Rule 11UA of a Pvt ltd concern is Rs 200 per share. The Company declares a rights issue of 10 equity shares each against each equity shares held & accordingly equity shares are offered to all existing shareholders proprotionately to their shareholding. The fresh equity shares are offered at face value of Rs 10 each only. Few shareholders do not opt for the additional equity shares & others subsribe. Does sec 56(2)(x) get attracted to the shareholders subsribing to the issue since equity with FMV Rs 200 gets alloted @ Rs 10 only. Although the equity shared offered to ALL shareholders proportionately to their existing holding but since few shareholders didn’t opt for same , the holding % got diluted ? considering the Mum ITAT ACIT vs Subodh Menon , Del ITAT Clearview healthcare Pvt Ltd etc . What is the position if originally all shareholders participate in the rights issue and are alloted fresh equity proportionately but the shares are partly paid up Rs 2.50 per shares, on further call money few shareholders fail to pay and their amounts forfeited whereas others complete their payments as & when called and thus finally the shareholding pattern gets diluted
: Section 56 (2)(x) of the Act is an anti-abuse provision. Since the transaction of issue of right shares is as per the provisions of the Companies Act and Rules framed thereof, it cannot be said that the transaction is without consideration or without any substance.