CBDT: Sec. 56(2)(viia) not applicable to receipt of ‘freshly issued shares’ by closely held co.

CBDT clarifies that Sec. 56(2)(viia) shall not apply to receipt of shares by a closely held company (specified co.) or a firm on fresh issuance of shares; Takes note of representations that the term ‘receives’ used in 56(2)(viia), being of wider import, might lead to “taxation of income in the cases where the shares are received by a firm or specified co. as a result of the fresh issuance of shares including by way of issue of bonus shares, rights shares and preference shares or transactions of similar nature”;

Referring to the Memorandum to provisions of Finance Bill, 2010, CBDT highlights this section was inserted as an anti-abuse provision to prevent practice of transferring shares of a closely held company for no or inadequate consideration; CBDT states that “the intention was never to apply these provisions to fresh issuance of shares …”
To read more, please refer CBDT Circular No. 10/2010 – Click Here



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