X Ltd., closely held company issues 1,000 shares to Mr. A (resident) whose face value is 10, issue price is 40 and fair market value is 42. What is the taxability of X Ltd.? Would your answer be different if the fair market value is 31 instead of 42?

Chapter No. 04 - Other Sources - Share premium received by closely held company [Sec. 56(2)(viib)]

Shares are issues at premium. The total consideration per share is 40. As fair market value is more than the consideration received, nothing is taxable as per Sec. 56(2)(viib).

If the fair market value is 31, then excess consideration of 9 per share (i.e. 40 – 31) is taxable u/s 56(2)(viib).

Dated: 19-8-2015