On amalgamation we issued shares at face value against net assets worth far more. The AO has taxed the excess under s.56(2)(viib). Does that provision apply to a scheme of amalgamation at all?
The Ahmedabad Tribunal held it does not. Section 56(2)(viib) contemplates a bilateral transaction in which a company receives consideration from a resident person for the issue of shares to that person; an amalgamation is a tripartite arrangement between the amalgamated company, the amalgamating company and the amalgamating company's shareholders — the vesting comes from one and the shares go to the others — and such arrangements are not contemplated by the deeming clause.
Decided by the ITAT (Shri Rajpal Yadav, Vice President and Shri Pradip Kumar Kedia, Accountant Member) on 2021-04-13, reported as I.T.A. No. 2081/Ahd/2018 with Cross Objection No. 103/Ahd/2019, ITAT 'A' Bench Ahmedabad, AY 2013-14; heard 03.03.2021. It bears on section 56(2)(viib), section 2(1B), section 144A of the Income Tax Act 1961, in Capital Gains, Gifts, Shares & Angel Tax and How Tax Law Is Read matters.
This is the standard attack on court- and NCLT-sanctioned amalgamations where the net assets vesting exceed the face value of the shares issued, and it is made under a provision that was introduced, on the Tribunal's own reading of the Finance Minister's speech and the explanatory memorandum, to deter unaccounted money routed through share premium. The provision has not been abolished: it remains on the statute book, but a third proviso inserted by the Finance (No. 2) Act 2024 stopped it applying on or after 01.04.2025 — so this reasoning matters for consideration received before that date, which open assessments are still working through, and not for new receipts. The reasoning has two independent legs a practitioner can use: the structural point that the section requires 'receipt' of consideration from the very person to whom shares are issued, which an amalgamation does not involve; and the argument from the proviso, which excepts consideration received by a venture capital undertaking from a venture capital company or fund and therefore presupposes a direct bilateral subscription — on the Revenue's reading, an amalgamation between two venture capital undertakings would be caught, contrary to the legislative intent. The Tribunal also refused to add a second deeming fiction to an existing one without express statutory sanction.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Under a scheme of amalgamation approved by the jurisdictional High Court, all assets, liabilities and undertaking of M/s Kalavir Estate Pvt. Ltd. vested in the assessee, Ozone India Ltd, as a going concern. Clause 10 of the scheme required the assessee to record all assets other than land and all liabilities at their book values, and to record land at fair market value with corresponding accounting effects under GAAP and AS-14, and to credit to its share capital account the aggregate face value of the new shares issued to the members of Kalavir Estate Pvt. Ltd. The assessee discharged the consideration by issuing 300 equity shares of face value Rs.10 each for each share of the amalgamating company, so that shares aggregating Rs.15 crore were issued against the vesting. The Assessing Officer, acting on an approval granted by the Additional CIT on a reference under s.144A, treated the excess of the net asset value vesting over the face value of the shares issued as caught by s.56(2)(viib), which had been introduced by the Finance Act 2012 with effect from 01.04.2013, and made an addition on that footing. The CIT(A) deleted the addition and the Revenue appealed; the assessee filed a cross-objection.
The appeal of the Revenue and the cross-objection of the assessee were both dismissed (para 14), the CIT(A)'s deletion of the s.56(2)(viib) addition thus standing. On the construction of s.56(2)(viib), the clause contemplates receipt of consideration for the shares from a resident person, that is, a transaction between a resident person and the company issuing the shares. In an amalgamation the consideration — the undertaking with all its assets and liabilities — is vested by the amalgamating company, whereas the shares are issued to that company's shareholders, so it is in effect a tripartite arrangement between the amalgamated company, the amalgamating company and the shareholders of the amalgamating company; such tripartite arrangements are not contemplated by the deeming clause.
The Tribunal framed the question as whether the issue of shares in consideration of the vesting of assets, liabilities and undertaking pursuant to a scheme of amalgamation is hit by the deeming provision in s.56(2)(viib). It confined itself to that provision, because the addition had been made solely under it on the s.144A reference, and declined to take up the alleged AS-14 violation separately. It set out the Finance Minister's budget speech and the explanatory memorandum to the Finance Bill 2012 showing that the clause was introduced to deter the generation and use of unaccounted money by taxing share premium in excess of market value. Structurally, it read the clause as requiring receipt of consideration for the issue of shares from the person to whom they are issued, which an amalgamation does not involve, since the vesting is by the amalgamating company and the shares go to its shareholders — a tripartite arrangement outside the clause. It then reasoned from the proviso, which excepts consideration for issue of shares received by a venture capital undertaking from a venture capital company or fund: that exception implies a direct bilateral issue of shares by the company to a subscriber for a consideration, and a transaction at the instance of the company itself, not shares issued to discharge an obligation imposed by an amalgamation; if the Revenue's reading were adopted, an amalgamation between venture capital undertakings would be caught, inconsistently with the legislature's intention to exclude them. It also recorded and accepted the argument that so-called excess value of assets vesting on amalgamation cannot be notionally termed premium over face value for the purpose of the deeming provision, and that another deeming fiction cannot be added to an existing fiction without the express sanction of the statute.
Such tripartite arrangements in amalgamation cases are not contemplated in the deeming clause in question.
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Handle my notice → Ask a CA on WhatsAppThe Ahmedabad Tribunal held it does not. Section 56(2)(viib) contemplates a bilateral transaction in which a company receives consideration from a resident person for the issue of shares to that person; an amalgamation is a tripartite arrangement between the amalgamated company, the amalgamating company and the amalgamating company's shareholders — the vesting comes from one and the shares go to the others — and such arrangements are not contemplated by the deeming clause. This was decided by the ITAT (Shri Rajpal Yadav, Vice President and Shri Pradip Kumar Kedia, Accountant Member) and bears on section 56(2)(viib), section 2(1B), section 144A of the Income Tax Act 1961. It is reported as I.T.A. No. 2081/Ahd/2018 with Cross Objection No. 103/Ahd/2019, ITAT 'A' Bench Ahmedabad, AY 2013-14; heard 03.03.2021. This is the standard attack on court- and NCLT-sanctioned amalgamations where the net assets vesting exceed the face value of the shares issued, and it is made under a provision that was introduced, on the Tribunal's own reading of the Finance Minister's speech and the explanatory memorandum, to deter unaccounted money routed through share premium. The provision has not been abolished: it remains on the statute book, but a third proviso inserted by the Finance (No. 2) Act 2024 stopped it applying on or after 01.04.2025 — so this reasoning matters for consideration received before that date, which open assessments are still working through, and not for new receipts. The reasoning has two independent legs a practitioner can use: the structural point that the section requires 'receipt' of consideration from the very person to whom shares are issued, which an amalgamation does not involve; and the argument from the proviso, which excepts consideration received by a venture capital undertaking from a venture capital company or fund and therefore presupposes a direct bilateral subscription — on the Revenue's reading, an amalgamation between two venture capital undertakings would be caught, contrary to the legislative intent. The Tribunal also refused to add a second deeming fiction to an existing one without express statutory sanction. If it applies to you, the first step is this: Identify precisely who received what. If the assets vested from the amalgamating company but the shares went to that company's shareholders, say so in terms — the tripartite structure is the argument.
Under a scheme of amalgamation approved by the jurisdictional High Court, all assets, liabilities and undertaking of M/s Kalavir Estate Pvt. Ltd. vested in the assessee, Ozone India Ltd, as a going concern. Clause 10 of the scheme required the assessee to record all assets other than land and all liabilities at their book values, and to record land at fair market value with corresponding accounting effects under GAAP and AS-14, and to credit to its share capital account the aggregate face value of the new shares issued to the members of Kalavir Estate Pvt. Ltd. The assessee discharged the consideration by issuing 300 equity shares of face value Rs.10 each for each share of the amalgamating company, so that shares aggregating Rs.15 crore were issued against the vesting. The Assessing Officer, acting on an approval granted by the Additional CIT on a reference under s.144A, treated the excess of the net asset value vesting over the face value of the shares issued as caught by s.56(2)(viib), which had been introduced by the Finance Act 2012 with effect from 01.04.2013, and made an addition on that footing. The CIT(A) deleted the addition and the Revenue appealed; the assessee filed a cross-objection. The matter was decided on 2021-04-13 by the ITAT (Shri Rajpal Yadav, Vice President and Shri Pradip Kumar Kedia, Accountant Member). On those facts the ITAT held as follows. The appeal of the Revenue and the cross-objection of the assessee were both dismissed (para 14), the CIT(A)'s deletion of the s.56(2)(viib) addition thus standing. On the construction of s.56(2)(viib), the clause contemplates receipt of consideration for the shares from a resident person, that is, a transaction between a resident person and the company issuing the shares. In an amalgamation the consideration — the undertaking with all its assets and liabilities — is vested by the amalgamating company, whereas the shares are issued to that company's shareholders, so it is in effect a tripartite arrangement between the amalgamated company, the amalgamating company and the shareholders of the amalgamating company; such tripartite arrangements are not contemplated by the deeming clause.
The Tribunal framed the question as whether the issue of shares in consideration of the vesting of assets, liabilities and undertaking pursuant to a scheme of amalgamation is hit by the deeming provision in s.56(2)(viib). It confined itself to that provision, because the addition had been made solely under it on the s.144A reference, and declined to take up the alleged AS-14 violation separately. It set out the Finance Minister's budget speech and the explanatory memorandum to the Finance Bill 2012 showing that the clause was introduced to deter the generation and use of unaccounted money by taxing share premium in excess of market value. Structurally, it read the clause as requiring receipt of consideration for the issue of shares from the person to whom they are issued, which an amalgamation does not involve, since the vesting is by the amalgamating company and the shares go to its shareholders — a tripartite arrangement outside the clause. It then reasoned from the proviso, which excepts consideration for issue of shares received by a venture capital undertaking from a venture capital company or fund: that exception implies a direct bilateral issue of shares by the company to a subscriber for a consideration, and a transaction at the instance of the company itself, not shares issued to discharge an obligation imposed by an amalgamation; if the Revenue's reading were adopted, an amalgamation between venture capital undertakings would be caught, inconsistently with the legislature's intention to exclude them. It also recorded and accepted the argument that so-called excess value of assets vesting on amalgamation cannot be notionally termed premium over face value for the purpose of the deeming provision, and that another deeming fiction cannot be added to an existing fiction without the express sanction of the statute. In the words reproduced by the source cited on this page: "Such tripartite arrangements in amalgamation cases are not contemplated in the deeming clause in question."
It was decided by the ITAT on 2021-04-13 and is reported as I.T.A. No. 2081/Ahd/2018 with Cross Objection No. 103/Ahd/2019, ITAT 'A' Bench Ahmedabad, AY 2013-14; heard 03.03.2021. 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 2(1B), section 144A, 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 appeal of the Revenue and the cross-objection of the assessee were both dismissed (para 14), the CIT(A)'s deletion of the s.56(2)(viib) addition thus standing. On the construction of s.56(2)(viib), the clause contemplates receipt of consideration for the shares from a resident person, that is, a transaction between a resident person and the company issuing the shares. In an amalgamation the consideration — the undertaking with all its assets and liabilities — is vested by the amalgamating company, whereas the shares are issued to that company's shareholders, so it is in effect a tripartite arrangement between the amalgamated company, the amalgamating company and the shareholders of the amalgamating company; such tripartite arrangements are not contemplated by the deeming clause. It arises in Capital Gains, Gifts, Shares & Angel Tax and How Tax Law Is Read matters, on section 56(2)(viib), section 2(1B), section 144A of the Income Tax Act 1961, and was decided by Shri Rajpal Yadav, Vice President and Shri Pradip Kumar Kedia, Accountant Member. 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. Show that the shares were issued at face value in discharge of an obligation imposed by the scheme, not issued by the company at its own instance for a subscription price. Take the legislative history point: put the explanatory memorandum to the Finance Bill 2012 and the object of curbing unaccounted share premium on the record. Run the proviso argument — the venture capital exception only makes sense on a bilateral subscription reading — as a separate leg, in case the primary argument fails. Check the accounting: this assessee's scheme required assets and liabilities to be recorded at book value except land, which was recorded at fair market value under AS-14, and the Tribunal expressly declined to treat an alleged AS-14 violation as a separate ground because the addition had been made solely under s.56(2)(viib). Keep the two issues apart. Do not extend the reasoning to s.56(2)(viia) or to the current s.56(2)(x) without separate analysis; this order is about s.56(2)(viib) only.
Still good law. A citator search returns 18 later decisions, and the order has become the leading Tribunal authority on the reach of section 56(2)(viib). It was genuinely applied in BLP Vayu (Project-1) Pvt Ltd v PCIT, Gurgaon (ITAT Delhi, 31 May 2023), where the Bench took up its analysis on its own motion and decided on it. It is relied on in the same way in a line of later orders - Sunnyday Green Energy Pvt Ltd v ITO (ITAT Delhi, 7 February 2025), Gateway Office Parks Pvt Ltd v ACIT (ITAT Chennai, 19 February 2025), Renew Wind Energy (Budh 3) Pvt Ltd v PCIT-7 (ITAT Delhi, 30 April 2025) and Ambattur Developers Pvt Ltd v ITO (ITAT Chennai, 11 November 2025) - for the propositions that the deeming provision does not reach holding-subsidiary allotments and that the assessee, not the AO, chooses the valuation method. A name search found no section 260A appeal by the Revenue to the Gujarat High Court (the only Gujarat High Court hit is a 2012 company petition sanctioning the amalgamation of Kalvir Estates with Ozone India). Nothing overruling or doubting it was found. 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 scheme in question was between the assessee, Ozone India Ltd, and M/s Kalavir Estate Pvt. Ltd., 300 equity shares of the assessee being issued at face value for each share of the amalgamating company, so that shares worth Rs.15 crore were issued against the vesting of assets. The addition was made solely under s.56(2)(viib) on a reference under s.144A approved by the Additional CIT, and the Tribunal expressly declined to take up the alleged AS-14 violation in isolation for that reason. I retrieved the header, paragraphs 4.8, 4.10, 9, 9.1, 9.2, 10.2, 10.3, 10.4, the paragraph on the tripartite structure, paragraph 11.3 and the disposal at paragraph 14, all verbatim. I did NOT retrieve paragraphs 12 and 13, so the Tribunal's final formulation of its conclusion is not reproduced here; the holding stated rests on the tripartite and bilateral reasoning and on the disposal at paragraph 14 dismissing the Revenue's appeal. The paragraph containing the tripartite sentence is not separately numbered in the indiankanoon rendering; it immediately precedes paragraph 11.3. 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 appeal of the Revenue and the cross-objection of the assessee were both dismissed (para 14), the CIT(A)'s deletion of the s.56(2)(viib) addition thus standing. On the construction of s.56(2)(viib), the clause contemplates receipt of consideration for the shares from a resident person, that is, a transaction between a resident person and the company issuing the shares. In an amalgamation the consideration — the undertaking with all its assets and liabilities — is vested by the amalgamating company, whereas the shares are issued to that company's shareholders, so it is in effect a tripartite arrangement between the amalgamated company, the amalgamating company and the shareholders of the amalgamating company; such tripartite arrangements are not contemplated by the deeming clause.
TaxSphere, “DCIT v Ozone India Ltd”, https://taxnotice.vittsphere.com/caselaw/case/ozone-india-56-2-viib-does-not-reach-shares-issued-under-a-scheme-of-amalgamation/ (validity last checked 2026-09-08)
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I applied under s.144A and the Additional Commissioner directed the Assessing Officer in my favour. Two years later the department has issued a s.148 notice on exactly the same point. Can it do that?
The Additional Commissioner approved my search assessment along with hundreds of others in a single letter that says nothing but 'approved'. Is that enough under s.153D?
My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
Our scheme said the merger takes effect from 1 January but the NCLT only sanctioned it two years later. The Assessing Officer has issued notices to the transferor company for the two years in between. Which date governs?
