Relaxations from Sections 56(2)(x) / 50CA of the IT Act

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The Income Tax Act, 1961 (‘IT Act’) contains certain deeming provisions, namely section 56(2)(x) and 50CA, whereunder, inter alia, the sale and purchase of shares for a price that is less than the fair market value could result in incremental income implications in the hands of the buyer as well as the seller. The Central Board of Direct Taxes (‘CBDT’) has prescribed transactions undertaken by certain classes of persons to which these Sections of the IT Act will not be applicable. These exemptions will be effective retrospectively from the April 1, 2020 and will be applicable for Assessment Year 2020-21 and subsequent Assessment Years:

i.     Section 56(2)(x) (which applies to the acquirer)has been relaxed for, (a) receipt of unquoted shares of companies (including their subsidiary and subsidiary of such subsidiary) where (A) in cases of oppression and mismanagement, on an application moved by the Central Government under Section 241 of the Companies Act, the board of directors of such company has been suspended by the National Company Law Tribunal (‘NCLT’) and new directors have been appointed by the NCLT on the recommendation of the Central Government; and (B) the shares of such company and its subsidiaries and the subsidiary of such subsidiary have been received pursuant to a resolution plan approved by the NCLT; and (b) receipt of equity shares, of the reconstructed bank, received by the investor or the investor bank, as the case may be, where the equity shares have been allotted by the reconstructed bank under the Yes Bank Limited Reconstruction Scheme, 2020; and

ii.   Section 50CA (which applies on the transferor) has been relaxed for transfer of unquoted shares of companies (including their subsidiary and subsidiary of such subsidiary) in the scenario mentioned at (i)(a) above[1].

[1] Notification No.42 /2020/F. No.370149/143/2019-TPL, dated June 30, 2020.

Published In:Inter Alia - Quarterly Edition - June 2020 [ English
Date: June 30, 2020