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2021 (4) TMI 592 - AT - Income Tax


Issues Involved:
1. Deletion of addition made under Section 56(2)(viib) of the Income Tax Act.
2. Fair market value of shares.
3. Disallowance of Architect fees attributable to unsold inventory.

Detailed Analysis:

1. Deletion of Addition Made Under Section 56(2)(viib) of the Income Tax Act:

The Revenue appealed against the deletion of an addition of ?43,99,66,156/- made by the Assessing Officer (AO) under Section 56(2)(viib) of the Income Tax Act. The AO observed that the assessee received net assets worth ?54,21,16,156/- from the amalgamating company (KEPL) against the issue of shares worth ?15,00,00,000/-. The AO considered the excess value of assets received as taxable income under Section 56(2)(viib).

The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision, noting that the shares were issued at face value as part of a court-approved amalgamation scheme. The CIT(A) emphasized that Section 56(2)(viib) aims to tax share premiums exceeding fair market value, not shares issued at face value during amalgamation. The CIT(A) concluded that the provision does not apply to this case, as the shares were issued without any premium.

The Tribunal upheld the CIT(A)'s decision, stating that the issue of shares at face value in a court-approved amalgamation does not fall under the purview of Section 56(2)(viib). The Tribunal also noted that the legislative intent behind Section 56(2)(viib) is to tax unjustified premiums, not transactions like amalgamations.

2. Fair Market Value of Shares:

The AO determined the fair market value of the shares at ?6.81 per share, based on Rule 11UA of the Income Tax Rules. The AO argued that the shares issued by the assessee carried an intrinsic value of ?10,21,50,000/- (1,50,00,000 shares x ?6.81 per share) against the net assets acquired worth ?54,21,16,156/-. The AO considered the difference of ?43,99,66,156/- as taxable income.

The CIT(A) disagreed, stating that the shares were issued at face value as part of an amalgamation scheme, not at a premium. The CIT(A) noted that the fair market value determination was irrelevant in this context, as Section 56(2)(viib) does not apply to shares issued at face value during amalgamation.

The Tribunal supported the CIT(A)'s view, emphasizing that the provision targets share premiums, not face value transactions in amalgamations.

3. Disallowance of Architect Fees Attributable to Unsold Inventory:

The AO disallowed ?1,49,137/- as architect fees attributable to unsold inventory. The CIT(A) deleted the disallowance, and the Revenue appealed against this decision.

The Tribunal did not provide a detailed analysis of this issue in the judgment, as the primary focus was on the applicability of Section 56(2)(viib).

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decision to delete the additions made under Section 56(2)(viib). The Tribunal concluded that the provision does not apply to shares issued at face value during a court-approved amalgamation. The judgment emphasized the legislative intent behind Section 56(2)(viib) and the inapplicability of the provision to the case at hand.

 

 

 

 

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