2017 (8) TMI 336 - AT - Income Tax

Premium beyond the actual worth received by the assessee on account of sale of shares - revenue or capital receipt - whether the receipt is income from other sources - eligibile transfer u/s 2(47) - Held that - It is pertinent to note that Ld. CIT(A) had referred issue to FT & TR Division of Department for verifying transaction through Competent Authority of Government of Mauritius. It has been observed by Ld. CIT(A) that investigation report forwarded by FT & TR division does not indicate any non- genuine transaction in this case. He further observes that assessing officer has not questioned genuineness of transaction and hence issue need not be examined under section 68 of the Act. Ld. CIT(A) thus came to conclusion that prize of shares fixed by virtue of agreements are mutually agreed between two parties. Further, there is a categorical finding by Ld. CIT(A) that issue of share capital was a source of funding and not a case of transfer of any undertaking which could attract provisions of section 50A or 50B of the Act. Share premium received by assessee from Mauritius Company has to be considered as capital receipt. See case of Vodafone India services private limited 2014 (10) TMI 278 - BOMBAY HIGH COURT - Decided against revenue

Issues:
1. Treatment of Short Term Capital Gain
2. Classification of excess amount received on sale of shares
3. Determination of sale of shares as slump sale
4. Deletion of Short Term Capital Gain by CIT(A)
5. Appeal grounds raised by revenue

Analysis:

Issue 1 - Treatment of Short Term Capital Gain:
The appellant, a revenue, challenged the deletion of Short Term Capital Gain by the CIT(A) for the assessment year 2008-09. The assessing officer (AO) treated a certain amount as revenue receipt, adding it to the assessee's income. The CIT(A) deleted this addition, leading to the appeal. The primary contention revolved around whether the amount in question should be considered a revenue or capital receipt. The CIT(A) relied on the agreement between the parties and emphasized that the price of shares was mutually agreed upon, hence, should be accepted as correct. Additionally, the CIT(A) referred to judicial precedents to support the argument that the premium on the issue of shares is a capital receipt and cannot be taxed as revenue income under any circumstances.

Issue 2 - Classification of Excess Amount Received on Sale of Shares:
The dispute centered on whether the excess amount received by the assessee on the sale of shares should be considered income from other sources. The CIT(A) held that the premium charged for changing the ownership of the company's shareholding was a capital receipt, not income from other sources. This decision was supported by citing relevant legal cases where share capital was considered a capital receipt and not taxable as income from other sources.

Issue 3 - Determination of Sale of Shares as Slump Sale:
The question arose regarding the classification of the sale of shares as a slump sale under Section 50B. The CIT(A) concluded that the sale of shares did not constitute a slump sale under Section 50B as it was a source of funding and not a transfer of any undertaking. The CIT(A) highlighted that the allotment of shares is not a transfer as per the definition under Section 2(47) of the Act.

Issue 4 - Deletion of Short Term Capital Gain by CIT(A):
The CIT(A) deleted the Short Term Capital Gain made by the AO, emphasizing that the premium on the issue of shares was a capital receipt and could not be taxed as revenue income. The CIT(A) further clarified that the transaction involved the issuance of share capital, which was a source of funding and not a transfer of any undertaking, as erroneously assumed by the AO.

Issue 5 - Appeal Grounds Raised by Revenue:
The revenue raised various grounds of appeal challenging the CIT(A)'s decision. However, the Tribunal dismissed all the grounds raised by the revenue, upholding the CIT(A)'s order. The Tribunal concurred with the CIT(A)'s findings that the share premium received was a capital receipt and not taxable as revenue income.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal and affirming that the share premium received was a capital receipt, not subject to taxation as revenue income.

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