India: Conversion of compulsorily convertible debentures not subject to section 56(2)(viib) (tribunal decision)
Section 56(2)(viib) applies when the debentures are issued, not when they are converted.
The Income-tax Appellate Tribunal (Delhi Bench) held that section 56(2)(viib) of the Income-tax Act, 1961—which treats consideration received by a closely-held company for the issue of shares over their fair market value (FMV) as taxable income—did not apply when equity shares were issued upon conversion of compulsorily convertible debentures (CCDs) because the provision applies when the CCDs are issued, not when they are converted.
The Tribunal further held that for purposes of computing the FMV of the CCDs upon issuance, the audited balance sheet at the time of issuance is determinative. However, if there is no audited balance sheet as of that date, then the most recent audited balance sheet prepared prior to the date of issuance is relevant, rather than the audited balance sheet prepared after the date of issuance.
The case is: Eduwizards Infosolutions Private Limited v. DCIT (ITA No. 4704/Del/2025)
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