Company selling its own shares in exchange of immovable property, Income Tax

[Bayyareddy DK]

Dear Sir, One of my client is selling it's own shares in exchange of immovable property? No monetary consideration is involved. Is it advisable as per law?.

Posts / Replies

[Charu Tyagi]

Sir,

For the purpose of issue of shares in lieu of property, where consideration other than cash - Value of share to be determined as per the valuation report and compliance of companies law & Income tax need to follow

Section 50C of Income Tax Act, 1961 will be applicable if if the consideration in share whose value as per valuation report is less than SDV of the immovable property.

Moreover compliance of Companies Act, 2013 like Board's meeting to held, MGT-14, PAS 4 & PAS 3 requirements, etc. also need to follow for valid transaction.

[ANONYmous TAXAtion]

• where a company is selling its own shares in exchange for immovable property, instead of receiving cash as consideration.
• In such a case, the value of the shares being issued needs to be determined. This is done through a valuation report, which is prepared by a qualified valuer.
• The valuation report takes into account various factors such as the financial performance of the company, its future growth prospects, and the prevailing market conditions.
• The value of the shares as per the valuation report is then used to determine the amount of consideration that the company will receive in exchange for the property.
• It is important to note that the issuance of shares in lieu of property needs to comply with the provisions of the Companies Act, 2013. This includes obtaining the necessary approvals from the board of directors and shareholders of the company.
• Additionally, the transaction needs to comply with the provisions of the Income Tax Act, 1961. This includes ensuring that the transaction is at arm's length and that the fair market value of the property being exchanged is not understated.
• Non-compliance with the Companies Act and Income Tax Act can result in penalties and legal consequences for the company and its directors. Therefore, it is important to ensure that all necessary compliances are met before proceeding with such a transaction.