I have read that angel tax was abolished. Is section 56(2)(viib) gone from the statute book, and from which year does it stop applying?
The clause has not been omitted. It remains printed in section 56(2), and the Finance (No. 2) Act 2024 inserted a third proviso reading: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' A consolidation of 2024 vintage records the insertion as being made by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, and a consolidation of 2025 vintage prints the third proviso as part of the enacted text.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. It bears on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, How Tax Law Is Read and Penalty matters.
The distinction between omission and a switching-off proviso is not academic. Because the clause survives, the definitions in its Explanation survive with it, and so does everything hanging off it — Rule 11UA(2) to (4), the notifications made under clause (ii) of the first proviso, and above all the second proviso, which deems income and a misreporting under section 270A(8) and (9) where a company that escaped the clause through a notification later breaks the notified conditions. That second proviso is not switched off by reference to the year of issue of shares; it fixes the charge in the previous year in which the failure takes place. A company that issued shares in, say, FY 2022-23 under a notified exemption and breaks the conditions afterwards should not assume the 2024 amendment saves it. There is also a live commencement question the words do not settle: the proviso says the clause 'shall not apply on or after the 1st day of April, 2025', while the departmental footnote gives the amendment effect 'w.e.f. 1-4-2025', which on the ordinary rule for a charging provision means from AY 2025-26 — that is, previous year 2024-25. Those two readings diverge for share issues made during FY 2024-25. Every entry in this library that treats section 56(2)(viib) as live law must state the year it is about.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 56(2)(viib) charges, in the hands of a company in which the public are not substantially interested, so much of the consideration received for the issue of shares as exceeds the fair market value of those shares, where the consideration exceeds the face value. Its first proviso excludes consideration received by a venture capital undertaking from a venture capital company, venture capital fund or specified fund, and consideration received by a company from a class or classes of persons notified by the Central Government. Its second proviso, where such a notification-based exclusion is later broken, deems the excess to be the company's income in the previous year of failure and deems it under-reported in consequence of misreporting under section 270A(8) and (9). The Finance (No. 2) Act 2024 added a third proviso.
The third proviso to section 56(2)(viib), as it stands, reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
Legislative technique rather than judicial reasoning: instead of omitting the clause, Parliament left it standing and disapplied it prospectively. The consequence is that everything defined by or dependent on the clause continues in force for open years, and the second proviso's deeming — which is keyed to the previous year of the failure and not to the year of issue — is not on its face displaced by a proviso addressed to the application of 'this clause' from a future date.
Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.
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Handle my notice → Ask a CA on WhatsAppThe clause has not been omitted. It remains printed in section 56(2), and the Finance (No. 2) Act 2024 inserted a third proviso reading: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' A consolidation of 2024 vintage records the insertion as being made by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, and a consolidation of 2025 vintage prints the third proviso as part of the enacted text. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. The distinction between omission and a switching-off proviso is not academic. Because the clause survives, the definitions in its Explanation survive with it, and so does everything hanging off it — Rule 11UA(2) to (4), the notifications made under clause (ii) of the first proviso, and above all the second proviso, which deems income and a misreporting under section 270A(8) and (9) where a company that escaped the clause through a notification later breaks the notified conditions. That second proviso is not switched off by reference to the year of issue of shares; it fixes the charge in the previous year in which the failure takes place. A company that issued shares in, say, FY 2022-23 under a notified exemption and breaks the conditions afterwards should not assume the 2024 amendment saves it. There is also a live commencement question the words do not settle: the proviso says the clause 'shall not apply on or after the 1st day of April, 2025', while the departmental footnote gives the amendment effect 'w.e.f. 1-4-2025', which on the ordinary rule for a charging provision means from AY 2025-26 — that is, previous year 2024-25. Those two readings diverge for share issues made during FY 2024-25. Every entry in this library that treats section 56(2)(viib) as live law must state the year it is about. If it applies to you, the first step is this: Stop describing the clause as omitted; check the third proviso and quote it, because an assessment for an open earlier year is unaffected by it.
Section 56(2)(viib) charges, in the hands of a company in which the public are not substantially interested, so much of the consideration received for the issue of shares as exceeds the fair market value of those shares, where the consideration exceeds the face value. Its first proviso excludes consideration received by a venture capital undertaking from a venture capital company, venture capital fund or specified fund, and consideration received by a company from a class or classes of persons notified by the Central Government. Its second proviso, where such a notification-based exclusion is later broken, deems the excess to be the company's income in the previous year of failure and deems it under-reported in consequence of misreporting under section 270A(8) and (9). The Finance (No. 2) Act 2024 added a third proviso. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The third proviso to section 56(2)(viib), as it stands, reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
Legislative technique rather than judicial reasoning: instead of omitting the clause, Parliament left it standing and disapplied it prospectively. The consequence is that everything defined by or dependent on the clause continues in force for open years, and the second proviso's deeming — which is keyed to the previous year of the failure and not to the year of issue — is not on its face displaced by a proviso addressed to the application of 'this clause' from a future date. In the words reproduced by the source cited on this page: "Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 56(2)(viib), section 270A, section Rule 11UA, 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 cuts both ways and is cited by both sides. The third proviso to section 56(2)(viib), as it stands, reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book. It arises in Gifts, Shares & Angel Tax, How Tax Law Is Read and Penalty matters, on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. For any share issue in FY 2024-25, note the divergence between the proviso's own words ('on or after the 1st day of April, 2025') and the departmental commencement note ('w.e.f. 1-4-2025', which on the ordinary rule means AY 2025-26), and take the point expressly rather than assuming it. For companies that took the benefit of a notification under clause (ii) of the first proviso, keep testing compliance with the notified conditions — the second proviso still bites in the year of failure and carries a deemed misreporting under section 270A(8) and (9). Label every section 56(2)(viib) authority in a file note with the assessment year it decides; the DCF-versus-NAV dispute continues to govern all open years up to AY 2024-25.
Still good law. The insertion is recorded in a consolidation of 2024 vintage as a pending amendment and appears as enacted text in a consolidation of 2025 vintage; an earlier 2024 consolidation does not carry it. No later amendment to the clause has been found in the current text. How any Tribunal or Court has read the commencement of the third proviso has not been checked, and no decision on it has been found. That matters, because the proviso's own words and the amendment note do not sit together comfortably: the proviso says 'shall not apply on or after the 1st day of April, 2025', which on its face is a date, while the note gives the commencement as 1 April 2025 in the form ordinarily used for an assessment-year change. This entry records the divergence and does not resolve it. The practical point is the one the title makes. The clause has not been omitted. It remains in section 56(2) with its first and second provisos and its Explanation, and all of it applies to a share issue before the cut-off. An assessment or an appeal on such an issue is governed by the clause as it stood, and an argument that the clause ceased to exist will fail. One further change to the clause is not dated here. The words 'being a resident' appear in its opening in a consolidation of 2018 vintage and are gone from the 2025 one; which Act removed them has not been established. If the residence of the company issuing the shares matters to your matter, read the clause as it stood for your year. 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.
THIS ENTRY CORRECTS A COMMON WORKING ASSUMPTION: that the Finance (No. 2) Act 2024 omitted clause (viib). It did not. The clause remains on the statute book with its first and second provisos and its Explanation; what the Act did was add a third proviso switching the clause off on or after 1 April 2025. ON THE CORROBORATION. Three consolidations of the section were read, each with its heading and vintage checked. One, of 2024 vintage, prints clause (viib) with two provisos and no third. A second, of later 2024 vintage, prints the same two provisos followed by the italicised note 'Following third proviso shall be inserted after the second proviso in clause (viib) of sub-section (2) of section 56 by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025:'. The third, of 2025 vintage, prints the third proviso in square brackets as enacted text. All three carry the heading 'Income from other sources'. That sequence is what establishes both the insertion and its date. A SEPARATE CHANGE THAT IS NOT DATED HERE. The words 'being a resident' appear in the opening of clause (viib) in a consolidation of 2018 vintage and are gone from the 2025 one. Which Act removed them has not been established, and this entry states nothing about it. If the residence of the company matters to your matter, check the clause as it stood for your year. ON THE COMMENCEMENT. The Memorandum to the Finance (No. 2) Bill 2024 has not been read, so the assessment year 2025-26 reading of the commencement is stated as the ordinary rule and not as verified guidance. 'decided_on' carries the commencement date the amendment note gives - 'by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025' - and is not a judgment date or the date of checking, which is in 'checked_on'. It is recorded as a commencement date only, and the entry does not thereby resolve the divergence between that note and the proviso's own words. ON THE WORDS OF THE PROVISO. It reads 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' Read literally that is a date and not an assessment year, and the amendment note gives the commencement as 1 April 2025 in the ordinary form used for an assessment-year change. The divergence is recorded here and is not resolved. WHY THE DISTINCTION MATTERS IN PRACTICE.WHY THE DISTINCTION MATTERS IN PRACTICE. A clause that is switched off prospectively is not a clause that never existed. For a share issue before 1 April 2025 the clause, its provisos and its Explanation all apply, and an assessment or appeal on such an issue is governed by them. 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 third proviso to section 56(2)(viib), as it stands, reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
TaxSphere, “Statutory position — section 56(2)(viib) was NOT omitted: the Finance (No. 2) Act 2024 inserted a third proviso switching the clause off from 1 April 2025”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-section-56-2-viib-switched-off-by-third-proviso-not-omitted/ (validity last checked 2026-09-08)
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