What the courts have decided on section 56(2)(viia), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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DCIT, Central Circle 8(3), Mumbai v Sanjana Cryogenic Storages Ltd
ITATHelps taxpayerNo later treatment found
The Approving Panel held that my client's arrangement is NOT an impermissible avoidance arrangement, but the Assessing Officer has taxed the same transaction under another section anyway. Can he do that?
The Mumbai Tribunal did not decide the wide question, but it held that the Assessing Officer could not, while giving effect to the statutory process under section 144BA, proceed on a factual premise diametrically opposed to the findings returned by the Approving Panel on the very arrangement referred to it. It then dismissed the Revenue's appeal on the narrower ground that a company buying back its own shares, which must then be extinguished, does not 'receive' property within section 56(2)(x) at all.
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Madhur Coal Mining Pvt Ltd v DCIT (ITAT Kolkata) — s.50D used to substitute fair market value where shares were sold to group companies below value
ITATHelps departmentUnder appeal
My company sold unquoted shares of group companies below their Rule 11UA value in a year before section 50CA existed. The Assessing Officer has invoked section 50D and substituted fair market value. Can he do that when I have disclosed an actual sale price?
On these facts the Tribunal held he could. It upheld the section 50D addition for AY 2015-16 — a year before section 50CA was on the statute book — because the assessee produced no share purchase agreement, no sale deed and no valuation report to show that the price stated in the return had actually been received from the related-party buyers, so the consideration was treated as not ascertainable within section 50D.
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Minda SM Technocast P Ltd v ACIT
ITATHelps taxpayer
The AO revalued unquoted shares using circle rates for the company's land. Can he do that under Rule 11UA?
No. The Rule 11UA formula works off the balance sheet — the book values of the investee company's assets and liabilities, its paid-up equity capital and the paid-up value of the shares. There is nothing in the provision permitting the officer to substitute market values or circle rates for the land.
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Statutory position — section 49(4): the amount charged under section 56(2)(x) becomes the cost of acquisition on a later sale
CBDT Circulars & InstructionsCuts both ways
The Assessing Officer has charged my client under section 56(2)(x) on the stamp-duty difference. When he sells the property, does he pay capital gains on that same amount all over again?
No. Section 49(4) provides that where the capital gain arises from the transfer of a property the value of which has been subjected to income-tax under clause (vii), clause (viia) or clause (x) of section 56(2), the cost of acquisition of that property is deemed to be the value taken into account for the purposes of that clause. The amount already taxed as income from other sources therefore comes back as cost, and is not taxed a second time as capital gain.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
