| Question And Answer | |
|---|---|
| Subject: | Taxability of Issue of right shares at par by the Private Limited Company |
| Category: | Income-Tax |
| Querist: | Ruchi Bhansali |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Pvt company, Right shares |
| Date: | January 16, 2022 |
The assessee is a private limited company engaged in the business of manufacturing of machinery required for construction activity. The intrinsic value of its shares is Rs. 150/- (Face value Rs. 10/-). The FMV of the shares is Rs. 200/-. The company is issuing right shares to the existing shareholders at par i.e Rs. 10/- per share. What are the tax implications of this transaction under Income Tax Act as well as Companies Act?
Please Guide
The issuance of right shares by a closely held company does not result in a taxable transaction.
The Hon’ble Income-tax Appellate Tribunal in the case of Sudhir Menon HUF v. ACIT [2014] 45 taxmann.com 176 (Mumbai), DCIT v. Smt. Mamta Bhandari [2019] 108 taxmann.com 207 (Delhi – Trib.) have held that section 56(2)(vii) would not be applicable to shares issued on right basis and as bonus shares.