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July 29, 2022

Rounding off of FMV of shares not provided under Rule 11UA

by CA Shivam Jaiswal in Income Tax

Rounding off of FMV of shares not provided under Rule 11UA

Facts and Issues of the case

The assessee is a private limited company engaged in real estate business. During the period relevant to assessment year under appeal, the assessee allotted 1,25,000 equity shares to M/s.Weeko Real Estate Pvt. Ltd. The shares were issued at premium. The fair market value of the equity shares were determined in accordance with the method prescribed under Rule 11UA(c) of the Income Tax Rules,1962. As per the method prescribed the fair market value of the share was Rs.3560.77 per share. While allotting the shares, the assessee rounded off value to the nearest multiple of 100 and allotted the shares at Rs.3600/- per share. In the course of assessment proceedings the Assessing Officer treated the difference of Rs.39/-( i.e. Rs.3600 – Rs.3560.77) as income under the provisions of section 56(2)(viib) of the Income Tax Act, 1961

Observations by the court

The Court heard both sides , orders of authorities below examined and the decisions on which reliance has been placed by the respective sides considered. The issue before us is in narrow compass i.e. whether round off of fair market value determined under section 11UA IT Rules is permitted. It is an admitted fact that as per Rule 11UA(c),the fair market value of equity shares is Rs.3560.77 per share. The assessee has allotted 1,25,000 equity shares @ Rs.3600/- per share, purportedly, by rounding off to the nearest multiple of hundred the Assessing Officer made addition of the difference in the fair market value and the value of which shares were allotted. Since, the assessee had issued 1,25,000 equity shares an addition of Rs.48,75,000/- ( i.e. 1,25,00x 39) was made under section. 56(2)(viib) of the Act.

The Hon’ble Apex Court has time and again held that, in a taxing statute one has to look merely at what is clearly said in the section . There is no room for any intendment. There is no concept of equity in tax law. Nothing is to be read in, nothing is to be implied. One has to look at plain language of the provisions of the section. For the purpose of construction of a taxing statute, the context, scheme of the relevant provision as a whole and its purpose is relevant.

Where the statute is absolutely clear and unambiguous, recourse to beneficial/purposive interpretation cannot be taken. The Rule of literal interpretation would apply. Departure from literal rule while interpreting section is an exception, that too where literal rule would result in absurd construction of provision.

In the instant case the provisions of section 56(2)(viib) of the Act or Rule 11UA nowhere provides for rounding off to nearest rupee or multiple of ten or hundred. The provisions are plain, clear and unambiguous. Thus, in the light of above observation, the impugned order is upheld and the appeal by assessee is dismissed.

Conclusion

The rounding off of fair market value of the shares is not provided under section 56(2)(viib) or Rule 11UA.

Royal-Accord-Realtors-Pvt.-Ltd.-Vs-DCIT-ITAT-Mumbai

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