Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Gift Of Unquoted Shares By One Company To Another Company Is Liable To Tax?

QUERY: What are tax implication u/s. 56(2)(viia) in respect if gift of shares by one company to another company? Would it make difference if both companies has common shareholders? If all the shareholders are relatives with each other as defined u/s. 56 would be answer be different?
ANSWER: Section 2(31) of the Act defines a “person”, which include (i) an individual, (ii) a HUF (iii) a company, (iv) a firm, (v) an AOP or BOI, whether incorporated or not (vi) a local authority and (vii) every artificial judicial person not falling within any of preceding sub-clause. Thus, a company is a separate and distinct entity from its shareholders. So two companies having common shareholders even if they are relatives would be separate companies.

Therefore gift of unquoted shares by one company to another company would attract section 56(2)(viia) of the Act.

Posted in Income-tax

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