Page 299 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

Notes zz That is, 90% or more of the assets are used to generate active business income;

zz The total value of the corporation cannot exceed $50,000,000;
zz While you hold the shares, the company must be an eligible active business
corporation for at least 730 days;

zz And the big hurdle, 90% or more of the company’s assets are used to generate active
business income and not passive income such as investment income.
Source: http://benefaction.ca/case-study-gifts-of-preference-shares/

Self Assessment

State whether the following statements are true or false:
1. In certain circumstances, preference shares also carry voting rights.

2. Preference shares may not be cumulative preference shares.
3. The rate of capitalisation will depend not only on the percentage of dividend but also on
the other benefits attached to the preference shares.
4. The two dominant characteristics of a preference share are that it does not have a preference
regarding both the dividend and capital.
5. In case of public companies and their private subsidiaries, preference shareholders have
voting rights in respect of resolutions that directly affect their rights and also in respect of
resolution when dividends on such shares remains unpaid for certain periods as specified
in law.

13.2 Valuation of Shares for Other Purposes

There are various other purposes in relation with valuation of shares which are given in the
following sub-sections.

13.2.1 Valuation for Purposes of Stamp Duty

When an instrument is chargeable with ad valorem duty in respect of any share, such duty shall
be calculated on the value of the share according to the average price or the value thereof on the
instrument (Section 21 of Indian Stamp Act, 1899).
For the purposes of the Indian Stamp Act, 1899, the term ‘average price’ means perhaps the
market price. In case of quoted shares, if there are many quotations of the shares in question
on the date of the instrument, then the average price is to be taken for stamp duty purposes. In
case of unquoted shares also value has to be ascertained for the purpose of this provision. This
view is supported by the Bombay High Court in the case of Madhusudan Dwarkadas Vora vs.
Superintendent of Stamp Duty (141 ITR 802). In the said case, the honourable judge quoting the
judgment of Mysore High Court, given in case of CED vs. J. Krishnamurty (1974) (96 ITR 87), said
“…..the Court was concerned with the valuation of unquoted shares for the purpose of estate duty.
There was no such rule under the Estate Duty Act for such valuation. The court observed that in
the absence of rules, valuation for the purpose of the Act had to be made in accordance with the
well recognised valuation method followed in India. The method of valuation prescribed by rule
1D of Wealth Tax Rules being the only statutorily recognised method of valuation of unquoted
shares it would not be wrong to adopt the method for Estate Duty Act purposes.”
Where the stamp duty has to be paid on the sale of shares, the actual selling price will be taken
for its calculation.

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