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2015 (11) TMI 295 - AT - Income TaxTreatment of share premium receipts - capital or revenue receipt - Held that - CIT(A) correctly followed the decision of Hyderabad Bench of ITAT in the case of M/s. PVP Ventures Limited, Hyderabad 2013 (11) TMI 225 - ITAT HYDERABAD wherein it was held that the receipt as share premium is a capital receipt and cannot be considered as revenue receipt. - Decided against revenue
Issues Involved:
1. Taxability of share premium receipts as capital or revenue receipts. 2. Applicability of Section 56(2) of the Income Tax Act for AYs 2008-09 and 2009-10. 3. Legitimacy and uniformity of share premium collection by the assessee company. Issue-wise Detailed Analysis: 1. Taxability of Share Premium Receipts as Capital or Revenue Receipts: The Assessing Officer (AO) treated the share premiums of Rs. 56,00,000/- for AY 2008-09 and Rs. 1,35,00,000/- for AY 2009-10 as 'Income from Other Sources' by treating the amounts as 'Trade Receipts.' The AO concluded that the assessee adopted a non-uniform policy for collecting share premium and that the method of determining the premium was not explained. The AO argued that the company was in its formative stage and had no basis for collecting share premiums, thereby treating it as a device to avoid tax. Before the Commissioner of Income Tax (Appeals) [CIT(A)], the assessee contended that the share premiums were capital receipts and not taxable as income. The CIT(A) agreed with the assessee, stating that the share premiums were collected through banking channels and confirmed by the investing parties. The CIT(A) noted that the AO did not dispute the genuineness of the investments but only questioned the basis of collecting the premium. The CIT(A) concluded that the share premium receipts should be treated as capital receipts based on judicial precedents, including the decisions of the Hon'ble Delhi High Court in Addl. CIT Vs. Om Oils & Oil Seeds Exchange Limited and the Hon'ble High Court of Madhya Pradesh in CIT Vs. Kishnarom Baladeo Bank (P) Ltd. 2. Applicability of Section 56(2) of the Income Tax Act for AYs 2008-09 and 2009-10: The CIT(A) observed that the provisions of Section 56(2) of the Income Tax Act, which consider unreasonable premiums as income, were effective from 01-04-2013. Therefore, these provisions were not applicable to the assessment years 2008-09 and 2009-10. The CIT(A) relied on the decision of the ITAT, Hyderabad in ITA No. 647/Hyd/2011 and ITA No. 135/Hyd/2013, which held that share premiums received before the amendment could not be taxed as income. 3. Legitimacy and Uniformity of Share Premium Collection by the Assessee Company: The AO argued that the assessee adopted a pick-and-choose policy for collecting share premiums and did not follow a uniform method. The AO questioned the basis of collecting premiums from selected parties and treated the premiums as unaccounted trade receipts. However, the CIT(A) found that the share premiums were collected based on valuations presumably made by the assessee and received through banking channels. The CIT(A) noted that there was no incriminating information found during the search and seizure operations to suggest any fraudulent activity. The CIT(A) concluded that the share premiums could not be questioned without doubting the genuineness of the share application money received from the same parties. Conclusion: The ITAT upheld the order of the CIT(A), agreeing that the share premiums were capital receipts and not taxable as income. The ITAT relied on judicial precedents, including the decision of the Hon'ble Bombay High Court in Vodafone India Services (P) Ltd vs. Union of India, which held that amounts received on the issue of share capital, including premiums, are capital receipts and not taxable as income. The ITAT dismissed the Revenue's appeals, concluding that the share premiums collected by the assessee for AYs 2008-09 and 2009-10 were not taxable as income from other sources. Order: Both the Revenue appeals were dismissed, and the order was pronounced in the open Court on 9.10.2015.
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