CBDT notifies Class of Persons for purposes of Section 56(2)(viib)(ii) of Income Tax Act [Read Notification]

The Central Board of Direct Taxes (CBDT) vide notification no. S.O. 2274(E) on 24th May 2023 has notified the class or classes of persons, for the purposes of Section 56(2)(viib)(ii) of the Income Tax Act, 1961. Section 56 of the Income Tax Act states about the Income from other sources.

According to Section 56(2)(viib), where a company, not being a company in which the public are substantially interested, receives, in any previous year, any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares are chargeable to income tax under head of ‘Income from Other Sources’.

Provided that the above clause is not applicable where the consideration for issue of shares is received by a company from a class or classes of persons as may be notified by the Central Government on this behalf.

The government has notified the following class or class of persons through this notification.

The Government and government-related investors, including central banks, sovereign wealth funds, international or multilateral organisations or agencies, as well as businesses under government control or when the government owns at least 75% of the company directly or indirectly is one in the class of persons.

Further, the banks or entities engaged in the insurance business are also subject to the laws of the nation in which they are formed, established, or have their primary residence.

Additionally, any of the following entities that are residents of one of the nations or defined territories stated in the Annexure are subject to the laws of the nation in which they were created, incorporated, or are residents. :––

1. entities registered with Securities and Exchange Board of India as Category-I Foreign Portfolio Investors;
2. endowment funds associated with a university, hospitals or charities;
3. pension funds created or established under the law of the foreign country or specified territory;
4. Broad Based Pooled Investment Vehicle or fund where the number of investors in such a vehicle or fund is more than fifty and such fund is not a hedge fund or a fund which employs diverse or complex trading strategies.

The specific territories or countries mentioned in the annexure (above 3rd point) are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, United Kingdom and United States.

To Read the full text of the Order CLICK HERE

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