Issue of Shares at Face Value of A Private Limited Company

[Ritesh Agarwala]

Dear Professional Colleagues,

My query is whether can we issues fresh shares of an existing Private Limited Company at Face Value even though the Book Value of the said company is higher than its face value. The Fresh Capital would be issued to some of the existing Share Holders and rest to New Share Holders. If i can, then under which section is it possible and if not what are the implications if such issue is made and please quote the sections.

Thank You,
CA. Ritesh Agarwala

[Gagan Kedia]

Dear Mr. Ritesh,

 

Please refer section 56(2)(viia) of the Income Tax Act, 1961.

The specific area that you need to check is “who are the shareholders that would receive the shares”

 

Regards,

Gagan

 

-----------------------------------------------

Gagan Kedia

Associate Chartered Accountant

Learned Company Secretary

 

M: +91 98306 82188

Email: cagk...@gmail.com

 

C-11, Central Plaza, Level 3

41, B.B. Ganguly Street, Near Central Metro Station,

Kolkata - 700 012, WB, India.

 

Please consider the enviornment before printing.

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[Kalidas Ramaswami]

Section 56(2)(viia)will apply if the recipients of the new shares are firm or Companies in which the public are not substantially interested.
regards
kalidas
 

---

From: cagk...@gmail.com
To: foru...@googlegroups.com; carit...@gmail.com
Subject: RE: [CA RUNGTA PD] Issue of Shares at Face Value of A Private Limited Company
Date: Sat, 3 Aug 2013 11:45:25 +0530

[Pankaj Agrwal]

There is one strong view which suggests that the shares allotted by the company, does not attract the provisions of section 56(2)(viia) because the shares comes into existence only on allotment and the book value of shares on allotment will not be the same as before.

 

Thanks

 

 

 

CA. Pankaj Agrwal

225 Tej Kumar Plaza, Hazratganj,

Lucknow 226001

Phones: 0522-4009167

pan...@mgcoca.com; agrwal...@icai.org

agrwal...@gmail.com

[CA KK Jha]

there is no bar on issue of shares at face value. if you wish to issue shares on premium only then question of break up value and 56 (2) (viia) arises.

Thanks & Regards

CA KK Jha

Kaushlendra Kumar & Co.
Chartered Accountants
36, Maharshi Devendra Road
Akash Ganga Building, 3rd Floor,
Room No. 311, Kolkata - 700 006
Ph: 033 2259 9364 / 98302 68266



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[OM PRAKASH AGARWAL]

Dear Professional Colleagues,

In my view, the issue of further shares by a private limited company at a price lower than the fair market value of the shares shall be subject to taxation in the hands of the recipient as per the provisions of Sec.56(2)(vii)(c) of the Income Tax Act, 1961 and the fair market value is to be determined as per Rule 11UA(c) of the Income Tax Rules, 1962.

CA O P Agarwal

[sudh...@gmail.com]

Shares alloted by a company is not regarded as a transfer. 

As per Proviso to Section 56(2)(viia), Section 56(2)(viia) shall not apply to any property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (viacb) or clause (vid) or clause(vii) of section 47.

Hence the Section 56(2)(viia) is not applicable and therefore the question of fair market value doesn't arise. 

Thus in our opinion the company can fresh shares at face value even though the book value of the said company is higher than its face value.

[OM PRAKASH AGARWAL]

Dear Professional Colleagues,

I am of the view that if a NEW private company issues shares at face value, the question of taxability will not arise. But, if the new shares are issued and allotted by an old private company, then question of taxability will arise in the hands of the allottee being Individual or HUF as per provisions of sec.56(2)(vii)(c)(ii)  and in the hands of allottee being a firm or a company as per provisions of sec. 56(2)(viia)(ii) of the I. T. Act, 1961

CA O. P. Agarwal

From: "CA KK Jha" <kkc...@rediffmail.com>
Sent: Thu, 08 Aug 2013 13:10:53
To: "foru...@googlegroups.com" <foru...@googlegroups.com>
Subject: Re: [CA RUNGTA PD] Issue of Shares at Face Value of A Private Limited Company

there is no bar on issue of shares at face value. if you wish to issue shares on premium only then question of break up value and 56 (2) (viia) arises.

Thanks & Regards

CA KK Jha

Kaushlendra Kumar & Co.
Chartered Accountants
36, Maharshi Devendra Road
Akash Ganga Building, 3rd Floor,
Room No. 311, Kolkata - 700 006
Ph: 033 2259 9364 / 98302 68266



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Disclaimer: The information contained in this communication is intended solely for the individual or entity to which it is addressed. It may contain confidential and/or legally privileged information. Any review, retransmission, dissemination or other use of, or taking any action in reliance on the contents of this information by persons or entities other than the intended recipient is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by responding to this email and then delete it from your system. We attempt to scan e-mails and attachments for viruses, however, it does not guarantee that either are virus free and that we accept no liability for any damage sustained as a result of VIRUSES.

NOTE: Please do not print this email unless absolutely necessary. Please encourage environmental awareness.

Dear Professional Colleagues,

My query is whether can we issues fresh shares of an existing Private Limited Company at Face Value even though the Book Value of the said company is higher than its face value. The Fresh Capital would be issued to some of the existing Share Holders and rest to New Share Holders. If i can, then under which section is it possible and if not what are the implications if such issue is made and please quote the sections.

 

Thank You,
CA. Ritesh Agarwala

--

[Ecotech]

On the subject, following sub-section will be applicable which specifically excludes the issue of shares at Face value from the Deemed Income provisions.

 

⁴⁸[(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

 

 

JNGupta

[OM PRAKASH AGARWAL]

Dear all,

Section 56(2)(vii) of the IT Act does nowhere speaks of transfer. It states about receiving the property from any person(s).  As per explanation (d) to sec.56 property includes shares and as per 2(31), person includes a company. In such a situation, sec.56(2)(vii) is applicable to fresh issue of shares also. I am not able to comprehend as to wherefrom the question of transfer has cropped up.

CA O P Agarwal

From: sudh...@gmail.com
Sent: Fri, 09 Aug 2013 12:59:04
To: foru...@googlegroups.com
Subject: [CA RUNGTA PD] Issue of Shares at Face Value of A Private Limited Company

Shares alloted by a company is not regarded as a transfer. 

As per Proviso to Section 56(2)(viia), Section 56(2)(viia) shall not apply to any property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (viacb) or clause (vid) or clause(vii) of section 47.

Hence the Section 56(2)(viia) is not applicable and therefore the question of fair market value doesn't arise. 

Thus in our opinion the company can fresh shares at face value even though the book value of the said company is higher than its face value.

On Friday, August 2, 2013 1:31:15 PM UTC+5:30, Ritesh Agarwala wrote:

Dear Professional Colleagues,

My query is whether can we issues fresh shares of an existing Private Limited Company at Face Value even though the Book Value of the said company is higher than its face value. The Fresh Capital would be issued to some of the existing Share Holders and rest to New Share Holders. If i can, then under which section is it possible and if not what are the implications if such issue is made and please quote the sections.

Thank You,
CA. Ritesh Agarwala

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forum4ca is a Google Group of eServe online for the benefit of CA and other professionals. It is especially meant for written discussion & circulate information within group members. The mail may contain such research/advice/opinion/information/fact provided by any member and are subject to the accuracy and of the description of facts.The forum4ca, do not claim that contains in mail/information obtained after reading as a complete and accurate disclosure of relevant facts. Further this Group’s Owner/Moderator/Member are not liable for any damages or costs suffered due to action/transaction based on information on this Group.
 
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