Notification by CBDT with respect to classes of person for the purpose of section 56 of income tax act 1961

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Notification by CBDT with respect to classes of person for the purpose of section 56 of income tax act 1961

Notification No. 29/2023/F. No. 370142/9/2023-TPL (Part-I)

Section 56(2) of Income Tax Act, 1961 deals with incomes, shall be chargeable to income-tax under the head “Income from other sources”. Clause (viib) of the aforesaid Section provides that 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 would be taxable

However, sub -clause (ii) of the first provisio to clause (viib) provides that the aforesaid clause will not apply where the consideration for issue of shares is received by a company from a class or classes of persons as may be notified by the Central Government in this behalf.

Accordingly Central Government has through notification No. 29/2023/F. No. 370142/9/2023-TPL (Part-I) notified certain classes of persons for the purposes of the said clause as follows:

Government and government related investors including entities controlled by Government where direct/indirect ownership of Government is 75% or more
Banks or Entities involved in Insurance Business where such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident
Any of the following entities, which is a resident of any country or specified territory listed in Annexure, and such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident :–– (a) entities registered with Securities and Exchange Board of India as Category-I Foreign Portfolio Investors; (b) endowment funds associated with a university, hospitals or charities; (c) pension funds created or established under the law of the foreign country or specified territory; (d) Broad Based Pooled Investment Vehicle or fund where the number of investors in such vehicle or fund is more than fifty and such fund is not a hedge fund or a fund which employs diverse or complex trading strategies.

Also as per second provisio to clause (viib) of Section 56(2), where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year.

Notification link- https://incometaxindia.gov.in/communications/notification/notification-29-2023.pdf

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