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Income from other sources – Gift of shares by one company to another company

QUERY: What are tax implication u/s. 56(2)(viia) in respect of gift of shares by one company to another company? Would it make difference if both companies have common shareholders? If all the shareholders are relatives with each other as defined u/s. 56 would the answer be different?
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Section 2(31) of the Income-tax Act, 1961 defines “person”, which includes a company. A company is a separate juristic entity distinct from its shareholders. Thus company is taxable entity distinct from its shareholders. Section 56(2)(viia) applies to unlisted company, so if one unlisted company receives a gift of shares of unlisted company from another unlised company this section would be applicable.

Posted in Income-tax