2016 (11) TMI 1463 - AT - Income Tax

Addition of share capital and share application money in the hands of the assessee as income u/s 28(iv) - Held that - Share capital and share application money with premium received by the assessee company is an amount received on capital account. From the above case laws it is quite evident that sums received on capital account cannot be treated as income. Once it is held that the share capital and share application money with premium are received on capital account such receipts cannot be added as income from business and profession u/s 28 of the I.T or for that matter u/s 28(iv) of the I.T. Act. In this regard even at the risk of repetition we find that section 28(iv) provides that following amount shall be chargeable to income-tax under the head profits and gains from business or profession the value of any benefit or perquisite convertible into money or not arising from business or the exercise of a profession. In this regard we fail to understand as to how section 28(iv) is applicable on the facts of the present case where share application application money has been received. Section 28(iv) covers the value of any benefit or perquisite and not sums received on capital account which is the case in the present context. Hence in our considered opinion the AO could not resort to this provision as the receipt was of capital nature. Appeals filed by the Revenue stand dismissed

Summary

Issues Involved:

1. Deletion of addition of share premium by CIT(A).
2. Allotment of shares to group companies only.

Issue 1: Deletion of Addition of Share Premium by CIT(A)

During the assessment proceedings, the Assessing Officer (AO) noted that the assessee received ?3,39,00,000 as share application money, including ?3,30,52,500 as share premium. The AO found this premium suspicious due to the lack of significant business activity and the fact that the premium was received only from group companies. The AO concluded that the share premium should be treated as profit under section 28(iv) of the Income Tax Act, 1961, and added it to the total income of the assessee.

Upon appeal, the CIT(A) considered the assessee's submissions and obtained a remand report from the AO, which reiterated the initial findings. The CIT(A) referred to several judicial pronouncements, including the ITAT Bombay Bench decision in Green Infra Ltd. vs. ITO and the Delhi High Court decision in Jindal Equipments Leasing & Consultancy Services Ltd. vs. CIT, which supported the view that share premium is a capital receipt and not taxable under sections 68 or 56(1). The CIT(A) also noted that section 56(2)(viib), inserted by the Finance Act 2012, was not applicable to the assessment year in question.

The CIT(A) concluded that the share premium received by the appellant is a capital transaction and cannot be added under section 28(iv) as a benefit. Consequently, the CIT(A) directed the AO to delete the addition of ?3,30,52,500 on account of share premium.

Issue 2: Allotment of Shares to Group Companies Only

The AO observed that the share premium was received only from group companies and not from external entities. This led to the inference that the transactions were artificial and designed to benefit the assessee, thus justifying the addition under section 28(iv).

However, the CIT(A) and subsequent judicial references, including the Hon'ble Apex Court in the case of M/s G.S. Homes & Hotels P. Ltd. vs. DCIT, established that share capital and share premium are capital receipts. The identity and genuineness of the share applicants were not disputed, and the addition should be considered in the hands of the shareholders, not the assessee company.

The tribunal further supported this view by citing the jurisdictional High Court's decision in CIT vs. Goa Sponge and Power Ltd., which held that once the identity of the shareholders is established, the addition should be made in the hands of the shareholders if they are found to be not having adequate means.

Conclusion:

The tribunal found no infirmity in the CIT(A)'s order, which was based on established legal principles and judicial precedents. The share premium received by the assessee was deemed a capital receipt, not taxable under section 28(iv) or any other provision of the Income Tax Act. The appeals filed by the Revenue were dismissed, upholding the CIT(A)'s decision to delete the addition of ?3,30,52,500 on account of share premium.