Lok Sabha Question No. 1422 (UNSTARRED), answered on 2019-07-01
Subject: CBDT Circular
Ministry: FINANCE
Asked by: Manickam Tagore B

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

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## LOK SABHA

## UNSTARRED QUESTION  NO. 1422

## TO BE ANSWERED ON MONDAY THE 1 st   JULY 2019/ASHADHA 10, 1941 (SAKA)

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## 'CBDT Circular'

## 1422. SHRI MANICKAM TAGORE B.:

'Will the Minister of FINANCE be pleased to state:

- (a) whether  the  Central  Board  of  Direct  Taxes  (CBDT)  has  issued  a Circular No. 10/2018 dated 31.12.2018 regarding clarification of applicability of section 56(2)(viia) of the Income Tax Act, 1961;
- (b) if  so,  the  details  thereof  and  the  total  number  of  assesses benefited   along with their names out of the said circular, statewise;
- (c) whether  any  remedial  action  has  been  taken  by  the  Revenue Department after the withdrawal of the said CBDT Circular; and
- (d) if so, the details thereof and if not, the reasons therefor ?'

## ANSWER MINISTER of  FINANCE (SMT. NIRMALA SITHARAMAN)

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(a) to (d) Central Board of Direct Taxes had issued Circular 10/2018 dated 31.12.2018 to clarify that provisions of section 56(2)(viia)  of  the Income-tax Act,  1961  being  anti-abuse  provisions  shall  not  be  applicable  in  cases  of receipt of shares by the specified company or firm as result of fresh issuance of  shares  including  by  way  of  bonus  shares,  rights  shares  and  preference shares or transactions of similar nature by the specified company. However, on reconsideration it was found that the matter relating to interpretation of the  term  'receives'  used  in  section  56(2)(viia)  of  the  act  is  pending  before judicial forums and stakeholders have sought clarifications on other similar provisions  in  section  56  of  the  Act.  Accordingly,  with  the  idea  of  issuing  a fresh  comprehensive  circular  on  the  subject,  the  circular  no.  10/2018  was

withdrawn by circular no. 02/2019 dated 04.01.2019. While withdrawing the circular  no.  10/2018,  it  was  also  clarified  that  the  said  circular  shall  be considered to have never been issued. Subsequently, it was clarified vide circular no. 3/2019 dated 21.01.2019  that  the  view,  taken  in  circular  no.  10/2018  (subsequently withdrawn by circular no. 02/2019) that section 56(2)(viia) of the Act would not apply to fresh issuance of shares, would not be a correct approach, as it could be subject to abuse and would be contrary to the express provisions and the legislative intent of section 56(2)(viia) or similar provisions contained in section 56(2) of the Act. Accordingly, it was further clarified that any view expressed by the Board in Circular No. 10/2018 shall be considered to have never been expressed and, the said circular shall not be taken into account by any Income-tax authority in any proceedings under the Act. CBDT  is  in  knowledge  of  only  one  case  assessed  in  Delhi  wherein Circular  10/2018  dated  31.12.2018  was  taken  into  account  during  the course of the assessment proceedings. Appropriate remedial measure as per Act to apply the circular no. 3/2019 dated 21.01.2019 is being identified.

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