Ans 1.

The provisions of section 56(2)(viib) would be attracted, where consideration is received from a resident person by a company, other than a company in which public are substantially interested, in excess of the face value of shares i.e., where shares are
issued at a premium. In such a case, the difference between the consideration received and the fair market value would be chargeable to tax under the head “Income from Other Sources”.
(i) In this case, since MLX Investments (P) Ltd., a closely held company issued 1,00,000 shares (having face value of Rs 100 each) at par i.e., Rs 100 each, though issue price is greater than FMV, no amount would be chargeable to tax as income from other sources.
(ii) In this case, since shares are issued at a premium, the amount by which the issue price of Rs105 each exceeds the FMV of Rs 85 each would be chargeable to tax under the head “Income from other sources”. Hence, Rs 20 lakh, being Rs 20 (i.e. Rs 105 - Rs 85) x 1,00,000 shares, would be chargeable under section 56(2)(viib).
(iii) If shares are issued at Rs 105 each and FMV of share is Rs 120 each, no amount would be chargeable to tax even though the shares were issued at a premium, since shares are issued at a price which is less than the fair market value.