s.56(2)(viia) — Receipt of shares of a closely held company for less than fair market value
Charged a firm or a closely held company that received shares of a closely held company below fair market value, and reaches only a receipt from 1 June 2010 to before 1 April 2017.
Historic, and the mechanism matters. The clause was never omitted. It was sunset by section 29(II) of the Finance Act, 2017, which inserted the words "but before the 1st day of April, 2017" after "1st day of June, 2010" in the clause itself, so the clause remains on the statute book and is still printed in the Act while having no application to any receipt on or after 1 April 2017. It therefore governs a receipt from 1 June 2010 to 31 March 2017 and nothing later, and it is not to be described as deleted. From 1 April 2017 the field is occupied by clause (x), inserted by section 29(III) of the same Finance Act, which reaches every person and not merely a firm or a closely held company. There is no counterpart to the clause itself in the Income-tax Act, 2025; the provision that now occupies the field clause (x) took over is section 92(2)(m) of that Act, for a tax year beginning on or after 1 April 2026. The clause is live on a file because search and reassessment proceedings reach back into its window, and because almost all of the buy-back authority was decided under it.
Income-tax Act, 1961
s.56(2)(viia)
Income-tax Act, 2025
No equivalent: successor is s.92(2)(m)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Clause (viia) charges, under the head "Income from other sources", a receipt by "a firm or a company not being a company in which the public are substantially interested", in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, of "any property, being shares of a company not being a company in which the public are substantially interested", either without consideration where the aggregate fair market value exceeds fifty thousand rupees, in which case the whole of that value is the income, or for a consideration less than the aggregate fair market value by an amount exceeding fifty thousand rupees, in which case the excess of that value over the consideration is the income. The clause has two gateways. The recipient could only be a firm or a closely held company, so an individual or a Hindu undivided family was never within the clause. And the property could only be shares of a closely held company, so quoted shares were outside it and securities other than shares were outside it. Its proviso takes out property received by way of a transaction not regarded as transfer under clause (via), (vic), (vicb), (vid) or (vii) of section 47, and its Explanation takes the meaning of fair market value from the Explanation to clause (vii). The clause was not omitted in 2017; the words closing the window were inserted into it by section 29(II) of the Finance Act, 2017, so it survives in the Act for the years it covers. It is the clause on which almost all of the buy-back authority was decided, the Mumbai Bench in Vora Financial Services (29 June 2018) having laid down two cumulative conditions, that the shares must become the property and so a capital asset of the recipient company and that they must be shares of some other company, and only the first survives into clause (x), whose definition of property carries no "other company" qualifier.
What the provision does
Taxes a shortfall against value in the recipient's hands, within a closed window and through two narrow gateways. It charges a firm or a closely held company on the excess of the aggregate fair market value of shares of a closely held company over the consideration it paid, where that excess is more than fifty thousand rupees, and the whole of that value where it paid nothing. What it does not do is reach every person or every kind of property. An individual or a Hindu undivided family is outside it, quoted shares are outside it, and securities other than shares are outside it. It does not operate on a receipt on or after 1 April 2017, and it has not been omitted from the Act, so for a receipt inside the window both of its gateways remain available as answers while the wider clause (x) is not in play. It charges no tax on the transferor and prescribes no valuation method of its own, the Explanation taking fair market value from the Explanation to clause (vii).
Threshold questions
- Whether the receipt fell on or after 1 June 2010 and before 1 April 2017, the window the clause itself states
- Whether the recipient is a firm or a company in which the public are not substantially interested, the only two classes the clause reaches
- Whether the property received is shares of a company in which the public are not substantially interested
- Whether the receipt was without consideration, or for a consideration short of aggregate fair market value by more than fifty thousand rupees
- Whether the property came by way of a transaction the proviso takes out, under clause (via), (vic), (vicb), (vid) or (vii) of section 47
- Whether the shares were extinguished, which is the ground of the buy-back authority that survives into clause (x)
- Whether the assessment is in fact under clause (x), where the second of the two Vora conditions has no counterpart
In practice
The recurring disputes.
Whether the two-condition analysis built on this clause can be carried into a clause (x) assessment
Under clause (viia) there were two independent reasons why a buy-back was outside the charge, that the shares did not become the recipient's property and that they were not shares of any other company. For the Revenue only the first can survive, because the definition of property in clause (x) includes shares and securities generally without the "other company" qualifier, so a reply that reproduces the two-condition analysis is half a reply and clause (x) is wider than its predecessor. That is correct as far as it goes. For the assessee the surviving ground is sufficient and is the ground on which the clause (x) cases were in fact decided, the Delhi High Court in Globe Capital (7 April 2026, [2026] 185 taxmann.com 513 (Del.)) holding that once the shares are bought back the purported property extinguishes and the Mumbai Bench in Sanjana Cryogenic (31 August 2026) holding that receipt and extinguishment cannot be severed, so the requirement that the transaction result in receipt of property by the person taxed is unaffected by the widening of the clause. What is open is whether anything beyond extinguishment survives the translation, and a submission that cites the clause (viia) authority without making that translation leaves the Revenue's answer standing.
What the Delhi High Court did with the clause (viia) authority
At paragraph 29 of Globe Capital (Delhi High Court, 7 April 2026) the Court said "We however, accept the contention of Mr. Agrawal that the Tribunal's reliance upon judgment of its Hyderabad Bench was misplaced, because the applicable provisions therein was Section 56(2)(viia) and not Section 56(2)(x) of the Act of 1961, which the AO has resorted to in the extant case", adding that the reliance was "only incidental". The paragraph is cited for two things it does not say. It is not an endorsement of the clause (viia) decisions, because the Court accepted the criticism of the Tribunal's reliance on them rather than merely noting the point. And it is not a doubt cast on the substance of their reasoning, because the Court said nothing against that reasoning, reached the same destination under clause (x) by its own route of extinguishment under section 68(7) of the Companies Act, 2013, and the Mumbai Bench afterwards treated the clause (viia) reasoning as consistent with the position under clause (x). Where that Bench described the High Court as having observed that reliance on an earlier decision under clause (viia) was not, by itself, appropriate, it put the point lower than the judgment does, and the words quoted above are from the judgment and not from the later order. So the paragraph is cited for what it says, the clause (viia) line is not carried into a clause (x) assessment as authority, and the clause (x) argument is built on the extinguishment ground.
Whether the line of authority is settled enough to rely on at the assessment stage
The decided cases on the question, from 2018 to 2026, all run one way, and the line now includes a High Court. For the assessee that is a body of authority no assessing officer can simply disregard, and the records help, the Tribunal in Globe Capital having recorded that no contrary higher judicial authority was placed before it and the first appellate authority in Sanjana that no contrary judicial view was brought on record. For the Revenue the position is thinner than it looks, because Globe Capital is the only High Court decision on the question and is an oral judgment, there is no decision of the Supreme Court, almost all of the Tribunal authority is on clause (viia) rather than clause (x), and in Updater Services (ITAT Chennai, 14 November 2025) a coordinate bench set aside and remitted a clause (viia) buy-back addition together with the section 115QA levy while expressly recording that it had not expressed any opinion on the merits. The Revenue has not conceded the point and was still arguing it in 2026, so the line is strong but the contest is live.
Whether the defence survives where extinguishment cannot be proved
The whole of the reasoning in the buy-back decisions rests on the shares having been extinguished. For the assessee extinguishment is an integral statutory consequence of a buy-back, not an independent commercial act, because section 68(7) of the Companies Act, 2013 compels the company to extinguish and physically destroy the shares bought back, so the character of the transaction does not depend on separate proof. For the Revenue the ratio carries a factual precondition, which is exactly what one Tribunal acted on in TPS Infrastructure (ITAT Delhi, 14 December 2022) when it accepted the legal position but restored the matter to the Assessing Officer to verify that the shares had in fact been extinguished by reduction of paid-up capital, directing deletion only if that was confirmed. Where that leaves a file is practical rather than doctrinal. The register required by section 68(9) with both its dates, the return filed with the Registrar, the capital redemption reserve entry and the movement in paid-up capital between two balance sheets are the evidence of the point on which the defence turns, and a company that cannot produce them is arguing law without facts.