2016 (11) TMI 723 - HC - Income Tax

Doubtful source of the money paid by the farmers - Held that - The shareholders had appeared before the Assessing Officer. The only grievance is that they had not appeared again. The matter pertains to questions of fact and the Tribunal and the Commissioner of Income-tax (Appeals) have found that the money, in fact, was received by the company. In consideration thereof, shares were issued and amount has been credited to the appropriate account. If the shareholders have acquired the money illegally, the respondent-assessee cannot be held liable. There is nothing to show that the money belongs to the company/assessee itself. The Revenue must then proceed against the shareholders. The appeal is, therefore, dismissed as no substantial question of law arises.

Summary

Issues:
Assessment of increased share capital from farmers, Doubtful source of money, Liability of the company vs. shareholders, Dismissal of appeal due to lack of substantial legal question.

Analysis:
The judgment pertains to an appeal against the Tribunal's order for the assessment year 2006-07. The Assessing Officer noted an increase in the paid-up share capital by &8377; 80 lakhs due to 15 shareholders subscribing to shares, identified as farmers. The contention raised was the farmers' lack of awareness about the share market and the doubtful source of their money. The shareholders had initially appeared before the Assessing Officer, and it was established that the money was received by the company, shares were issued, and the amount was credited accordingly. However, the key issue was whether the company could be held liable if the shareholders acquired the money illegally. The judgment emphasized that if the money did not belong to the company itself, the Revenue should pursue action against the shareholders rather than the company.

The court dismissed the appeal as it found no substantial question of law to address. The decision highlighted that the Tribunal and the Commissioner of Income-tax (Appeals) had already established the receipt of money by the company and the issuance of shares in return. The judgment refrained from making any observations on the assessment proceedings concerning the 15 parties who subscribed to the shares. This case underscores the importance of distinguishing between the liability of a company and its shareholders regarding the source of funds and the issuance of shares, directing the Revenue to take appropriate action against the concerned parties based on the established facts.