Visakhapatnam ITAT rejects
taxability u/s. 56(2)(vii)(c) in the hands of assessee-individual for share
allotment under 'rights issue' in a family owned company at less than fair
market value during AY 2013-14; The entire shareholding in a closely held
company was held by assessee alongwith 7 of his close relatives [as defined
under explanation to 56(2)(vii)(c)], during subject AY, the company issued the
equity shares on rights basis for which only the assessee had applied and the
other relatives did not choose to subscribe for the rights issue; Rejects
Revenue’s stand that since there is no relation between the company and the
assessee there is no case for invoking the explanation of ‘relative’ to exempt
the assessee from taxing the excess fair market value; ITAT observes that
though the assessee had received the excess shares, renouncement was from the
close relatives, ITAT rules that “surrender of the rights of the close
relatives in favour of another close relative is covered for exemption u/s
56(2)(vii)(c) of the Act,”; ITAT concludes that the transactions between close
relatives are outside the scope of application of 56(2)(vii)(c) and should not
be seen as introducing black money or evasion of the tax, cites Chennai ITAT
ruling in Vaani Estates Pvt. Ltd., Karnataka HC ruling in R. Nagaraja Rao,
Madras HC ruling in Kay Arr Enterprises.:ITAT
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