India: Receipt of shares from subsidiary in exchange for additional equity investment not subject to section 56(2)(x)(c) (tribunal decision)
In addition, leasehold rights did not constitute immovable property for purposes of special valuation rule.
The Income-tax Appellate Tribunal (Chandigarh Bench) held that section 56(2)(x)(c) of the Income-tax Act, 1961—which treats the receipt of property other than immovable property for consideration less than its fair market value (FMV) as taxable income—did not apply to a company’s receipt of shares from its 99.9%-owned subsidiary in exchange for additional equity investment.
The Tribunal further held that for purposes of valuing the shares received by the company, leasehold rights held by the subsidiary did not constitute immovable property subject to the special valuation rule requiring that the FMV of immovable property be determined based on stamp duty value. Moreover, the FMV of the leasehold rights must be reduced by associated contractual liabilities (including local duties payable upon transfer of leasehold rights, as well as a mandatory reserve for repair and maintenance), rendering the FMV of the subsidiary shares equal to the consideration paid by the company for the shares and section 56(2)(x)(c) inapplicable in any event.
The case is: Torque Pharmaceuticals Pvt. Ltd. v. DCIT (ITA No. 547/Chandi/2025)
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