Section 79 is the substantive equivalent of 1961 s. 50 CA. Where a capital asset, being a SHARE OTHER THAN A QUOTED SHARE, is transferred at consideration < FMV (per prescribed rules), the FMV is deemed FVOC. Sub-section (2) —…
79
ITA 2025 · Section 79
Section 79 — FMV-AS-FVOC FOR UNQUOTED-SHARE TRANSFERS
Section 79 is the substantive equivalent of 1961 s. 50CA. Where a capital asset, being a SHARE OTHER THAN A QUOTED SHARE, is transferred at consideration < FMV (per prescribed rules), the FMV is deemed FVOC. Sub-section (2) — exemption powers: CG-prescribed class of persons / conditions may exempt. Sub-section (3) — 'quoted share' = SE-listed share with REGULAR quotation based on current ordinary-course transactions. Mechanism mirrors s. 78 (immovable property) but for unquoted-share transfers — addresses promoter-related under-priced share transfers and similar arrangements.
STATUTORY ARCHITECTURE
Sub-section (1) — primary deeming: FMV-of-unquoted-share > consideration ⇒ FMV is deemed FVOC. FMV is computed per prescribed rules (analogous to 1961 Rule 11UA — book-value-based for equity, NAV-based for preference, valuation-officer-method for complex). Sub-section (2) — CG-prescribed exemption power: certain transfers (e.g., to charities, to government, in specified strategic-disinvestment) may be excluded. Sub-section (3) — quoted-share exclusion: shares LISTED on recognised SE WITH regular quotation based on actual ordinary-course transactions. Listed-but-illiquid (no/sporadic trading) shares may STILL fall under s. 79.
CASE LAW
Vodafone India Services Pvt Ltd v. UoI (Bom HC) — share-issuance at below-FMV is NOT chargeable u/s 1961 s. 50CA (which applies to TRANSFERS, not ISSUES) — landmark on scope. Cinestaan Entertainment P. Ltd v. ITO (Del HC) — FMV computation under Rule 11UA — assessee's choice of valuation method (DCF or NAV) is BINDING on AO unless rules-non-compliant. Khanna and Annadhanam v. CIT (Del HC) — distinguishing 'quoted' from 'listed' — listed but no regular trading = not 'quoted'.
PLANNING NOTES
(i) For unquoted-share transfers (esp. private-company / closely-held), pre-transfer obtain VALUATION REPORT from registered valuer per Rule 11UA-equivalent. (ii) For DCF valuations (preferred for high-growth tech / startup), engage chartered-accountant or merchant-banker per Rule 11UA(2)(b). Document assumptions thoroughly — Cinestaan principle protects defensible methodology. (iii) For listed-but-illiquid shares, run quoted-share test (regular trading on current ordinary-course basis) — fail = s. 79 applies. (iv) RECEIPT side mirror: s. 92(2)(j) (deemed gift to recipient where unquoted-share received < FMV). (v) Document strategic/business reason for under-FMV transfer (estate planning / family settlement / staff incentive) — s. 79 still applies but evidence supports DVO / Rule 11UA dispute.
CROSS-REFERENCES