The share premium came from an overseas investor. Does s.56(2)(viib) reach it at all?
For the years before the Finance Act 2023 took effect, no. As it then stood the clause caught consideration received 'from any person being a resident', and the Mumbai bench held that on a plain reading it therefore applies only where the subscriber is a resident; the subscriber here was a Mauritius company, so the clause did not apply. Two things follow. The point is a short jurisdictional one that does not require any valuation argument. And it does not close the file: the same subscription was separately attacked under s.68, and that attack failed only because the assessee could establish identity, creditworthiness and genuineness, here with information obtained from the Mauritius Revenue Authority under Article 26 of the treaty.
Decided by the ITAT (Shri Prashant Maharishi, Accountant Member and Shri Pavan Kumar Gadale, Judicial Member (Mumbai Bench)) on 2022-04-12, reported as ITA No. 7052/Mum/2019. It bears on section 56(2)(viib), section 68 of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, Cash Credits & Unexplained Money and Assessment & Scrutiny matters.
Assessments and appeals for years up to 2023-24 involving foreign subscribers are still moving through the system, and in those years this is a complete answer to a s.56(2)(viib) addition. It is equally important to know when the answer stopped working, because the Finance Act 2023 removed the residence limitation for one assessment year before the clause was disapplied - not repealed - to consideration received on or after 1 April 2025.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2013-14 the assessee company received share capital, at a premium of Rs 1,040 per share, from M/s. Opulence Investments Limited, a Mauritius company. The Assessing Officer added Rs 39,00,37,200 under s.68 on the footing that the identity and creditworthiness of the investor and the genuineness of the transaction had not been established, and separately questioned the premium, the DCF valuation supporting it and a depreciation claim on rights in infrastructure. The Commissioner (Appeals) deleted the additions. The Revenue appealed. The appeal was heard on 13 January 2022 and pronounced on 12 April 2022.
The Revenue's appeal was dismissed. On s.56(2)(viib), the clause as it stood applied only to consideration received for the issue of shares from a person being a resident, and since the subscriber was a non-resident the clause did not apply to the assessee. On s.68, the deletion was upheld: information received from the Mauritius Revenue Authorities under Article 26 of the treaty established the investor's existence and creditworthiness and the genuineness of the transaction, and the Revenue's reliance on NRA Iron and Steel was misplaced.
Turning to the justification for the premium charged, the Tribunal set out the text of s.56(2)(viib) and read it plainly. The clause operates where a company in which the public are not substantially interested receives, in any previous year, from any person being a resident, consideration for the issue of shares exceeding the face value, and brings to tax so much of the aggregate consideration as exceeds the fair market value. On that reading the charge is confined to consideration received from a resident person, and since Opulence Investments Limited was a non-resident, s.56(2)(viib) did not apply (para 45). The Tribunal went on to record that even otherwise the facts about the share premium did not support the addition (para 46). On the cash credit ground it relied on the treaty-exchange material to hold the three ingredients of s.68 satisfied.
From the plain reading of the above provisions of the law, it is clear that it applies only in case of receipt of considering for issue of shares from a resident person.
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Handle my notice → Ask a CA on WhatsAppFor the years before the Finance Act 2023 took effect, no. As it then stood the clause caught consideration received 'from any person being a resident', and the Mumbai bench held that on a plain reading it therefore applies only where the subscriber is a resident; the subscriber here was a Mauritius company, so the clause did not apply. Two things follow. The point is a short jurisdictional one that does not require any valuation argument. And it does not close the file: the same subscription was separately attacked under s.68, and that attack failed only because the assessee could establish identity, creditworthiness and genuineness, here with information obtained from the Mauritius Revenue Authority under Article 26 of the treaty. This was decided by the ITAT (Shri Prashant Maharishi, Accountant Member and Shri Pavan Kumar Gadale, Judicial Member (Mumbai Bench)) and bears on section 56(2)(viib), section 68 of the Income Tax Act 1961. It is reported as ITA No. 7052/Mum/2019. Assessments and appeals for years up to 2023-24 involving foreign subscribers are still moving through the system, and in those years this is a complete answer to a s.56(2)(viib) addition. It is equally important to know when the answer stopped working, because the Finance Act 2023 removed the residence limitation for one assessment year before the clause was disapplied - not repealed - to consideration received on or after 1 April 2025. If it applies to you, the first step is this: Fix the assessment year first. For years up to and including 2023-24 the residence of the subscriber is decisive; for assessment year 2024-25 it is not, because the Finance Act 2023 omitted the words 'being a resident' with effect from 1 April 2024.
For assessment year 2013-14 the assessee company received share capital, at a premium of Rs 1,040 per share, from M/s. Opulence Investments Limited, a Mauritius company. The Assessing Officer added Rs 39,00,37,200 under s.68 on the footing that the identity and creditworthiness of the investor and the genuineness of the transaction had not been established, and separately questioned the premium, the DCF valuation supporting it and a depreciation claim on rights in infrastructure. The Commissioner (Appeals) deleted the additions. The Revenue appealed. The appeal was heard on 13 January 2022 and pronounced on 12 April 2022. The matter was decided on 2022-04-12 by the ITAT (Shri Prashant Maharishi, Accountant Member and Shri Pavan Kumar Gadale, Judicial Member (Mumbai Bench)). On those facts the ITAT held as follows. The Revenue's appeal was dismissed. On s.56(2)(viib), the clause as it stood applied only to consideration received for the issue of shares from a person being a resident, and since the subscriber was a non-resident the clause did not apply to the assessee. On s.68, the deletion was upheld: information received from the Mauritius Revenue Authorities under Article 26 of the treaty established the investor's existence and creditworthiness and the genuineness of the transaction, and the Revenue's reliance on NRA Iron and Steel was misplaced.
Turning to the justification for the premium charged, the Tribunal set out the text of s.56(2)(viib) and read it plainly. The clause operates where a company in which the public are not substantially interested receives, in any previous year, from any person being a resident, consideration for the issue of shares exceeding the face value, and brings to tax so much of the aggregate consideration as exceeds the fair market value. On that reading the charge is confined to consideration received from a resident person, and since Opulence Investments Limited was a non-resident, s.56(2)(viib) did not apply (para 45). The Tribunal went on to record that even otherwise the facts about the share premium did not support the addition (para 46). On the cash credit ground it relied on the treaty-exchange material to hold the three ingredients of s.68 satisfied. In the words reproduced by the source cited on this page: "From the plain reading of the above provisions of the law, it is clear that it applies only in case of receipt of considering for issue of shares from a resident person."
It was decided by the ITAT on 2022-04-12 and is reported as ITA No. 7052/Mum/2019. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 56(2)(viib), section 68, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed. On s.56(2)(viib), the clause as it stood applied only to consideration received for the issue of shares from a person being a resident, and since the subscriber was a non-resident the clause did not apply to the assessee. On s.68, the deletion was upheld: information received from the Mauritius Revenue Authorities under Article 26 of the treaty established the investor's existence and creditworthiness and the genuineness of the transaction, and the Revenue's reliance on NRA Iron and Steel was misplaced. It arises in Gifts, Shares & Angel Tax, Cash Credits & Unexplained Money and Assessment & Scrutiny matters, on section 56(2)(viib), section 68 of the Income Tax Act 1961, and was decided by Shri Prashant Maharishi, Accountant Member and Shri Pavan Kumar Gadale, Judicial Member (Mumbai Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the residential status of the subscriber on record with proof - tax residency certificate, incorporation documents, regulatory filings - rather than asserting it. Take the point as a threshold objection to the charge, before any argument about Rule 11UA or the valuation method, and ask for it to be decided first. Prepare the s.68 defence separately and in parallel. Winning on s.56(2)(viib) does not answer an unexplained cash credit allegation about the same money. Where the investor is in a treaty jurisdiction, consider whether information already exchanged under the exchange-of-information article is on the Department's own file and can be called for.
Superseded by amendment. The reading is correct for the statute as it stood, and remains correct for assessment years up to and including 2023-24, but it has been displaced prospectively. Section 32 of the Finance Act 2023 omitted the words 'being a resident' from s.56(2)(viib) with effect from 1 April 2024, so from assessment year 2024-25 consideration received from a non-resident is within the clause. CBDT Notification 81/2023 dated 25 September 2023 rewrote Rule 11UA to provide additional valuation methods and to deal with non-resident investors, and CBDT Notifications 29 and 30 of 2023 dated 24 May 2023 (already in this library) exempted specified classes of non-resident investor. Section 23 of the Finance (No. 2) Act 2024 then inserted a proviso to s.56(2)(viib), with effect from 1 April 2025, that 'the provisions of this clause shall not apply on or after the 1st day of April, 2025'. The practical effect is that assessment year 2024-25 is the only year in which a non-resident subscription can attract the clause. No appeal against this order to the Bombay High Court was located, and the wording of both amendments was verified against the Finance Act 2023 as published on a government site and against the Finance (No. 2) Act 2024 as published in the Gazette. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The quoted sentence is reproduced exactly as printed, including 'receipt of considering for issue of shares', which is evidently a typing slip for 'consideration' in the order itself. The order also spells the clause as 'section 56(ii)(viib)' at one point in the same paragraph; the provision meant is s.56(2)(viib). Paragraph 44 opens 'Now, we come to the justification of premium charged', which confirms that paragraph 45 is the Tribunal's own reasoning and not an extract from the order of the Commissioner (Appeals). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed. On s.56(2)(viib), the clause as it stood applied only to consideration received for the issue of shares from a person being a resident, and since the subscriber was a non-resident the clause did not apply to the assessee. On s.68, the deletion was upheld: information received from the Mauritius Revenue Authorities under Article 26 of the treaty established the investor's existence and creditworthiness and the genuineness of the transaction, and the Revenue's reliance on NRA Iron and Steel was misplaced.
TaxSphere, “DCIT v Chiripal Poly Films Ltd”, https://taxnotice.vittsphere.com/caselaw/case/chiripal-poly-films-56-2-viib-non-resident-subscriber/ (validity last checked 2026-09-07)
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