Opinion Of Eminent Legal Luminaries On Controversial Issues

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?
ANSWER: 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.
So, receipts of shares of unlisted company by way of gift from another unlisted company without consideration would be taxable at full aggregate fair market value, if it exceeds fifty thousand rupees, irrespective of common shareholders in both the company. The fair market value has to be determined as per Rule 11UA of the Income tax Rules, 1962.

Posted in Income-tax

Leave a Reply

Your email address will not be published. Required fields are marked *


Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org