2017 (9) TMI 1590 - HC - Income Tax

Share premium received by the assessee-company - whether cannot be taxed under section 68 - whether the amount received as share premium on issue of share by the respondent-assessees-companies could be taxed as profits and gains of business in the hands of the assessees under section 28(iv)? - Held that - We find that the issue of bringing the share premium to tax under section 68 of the Act was not an issue which was urged by the appellant-Revenue before the Tribunal. The only issue which was urged before the Tribunal as recorded in para 11 of the impugned order is the addition of share capital and share application money in the hands of the assessee as income under section 28(iv) of the Act. We find that the Commissioner of Income-tax (Appeals) did consider the issue of applicability of section 68 of the Act and concluded that it does not apply. The Revenue seems to have accepted the same and did not urge this issue before the Tribunal. Mr. Bhoot, learned counsel appearing for the Revenue also fairly states that the issue of applicability of section 68 of the Act was not urged by the Revenue before the Tribunal. It is a settled position in law as held by this court in CIT v. Tata Chemicals Ltd. 2002 (4) TMI 42 - BOMBAY High Court that in an appeal under section 260A of the Act, the High Court can only decide a question if it had been raised before the Tribunal even if not determined by the Tribunal. Therefore, no occasion to consider the question as prayed for arises. Also the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012- 13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents- assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. - Decided in favour of assessee Whether the share premium receipt is capital in nature? - Held that -We find that the impugned order of the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) to hold that share premium is capital receipt and therefore, cannot be taxed as income. This conclusion was reached by the impugned order following the decision of this court in Vodafone India Services Pvt. Ltd. (2014 (10) TMI 278 - BOMBAY HIGH COURT ) and of the apex court in G. S. Homes and Hotel P. Ltd. (2016 (8) TMI 613 - SUPREME COURT). In both the above cases the court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. Also the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the respondent-assessee in the previous year relevant to the assessment year 2012-13 - Decided against revenue

Summary

Issues:
- Whether the share premium received by the respondent-assessees-companies could be taxed as profits and gains of business under section 28(iv) of the Income-tax Act, 1961.
- Whether the share premium receipt is capital in nature and not subject to taxation.

Issue 1: Taxability of Share Premium under Section 28(iv)

The six appeals by the Revenue challenged the Tribunal's order dismissing the appeals related to the assessment year 2012-13. The Revenue contended that the share premium received should be taxed as profits and gains of business under section 28(iv) of the Act. The Assessing Officer had added the share premium to the income of the assessees, but the Commissioner of Income-tax (Appeals) ruled in favor of the assessees. The Tribunal also held that share premium falls under capital account and cannot be taxed as income, citing relevant case laws like Vodafone India Services Pvt. Ltd. and G. S. Homes and Hotels P. Ltd. The Tribunal's decision was based on the principle that amounts received on share capital, including premium, are on capital account unless there is express legislation stating otherwise.

Issue 2: Nature of Share Premium as Capital Receipt

The second issue revolved around whether the share premium receipt is capital in nature and therefore not taxable as income. The Tribunal, upholding the view of the Commissioner of Income-tax (Appeals), concluded that share premium is a capital receipt and cannot be taxed as income. The decision was based on precedents like Vodafone India Services Pvt. Ltd. and G. S. Homes and Hotels P. Ltd., which established that amounts received on issue of share capital, including premium, are on capital account and not considered income. Additionally, the court highlighted that the definition of income under section 2(24) of the Act at the relevant time did not cover consideration received for the issue of share in excess of its fair market value. The court also noted that amendments to section 68 of the Act were not applicable to the assessment year 2012-13.

In conclusion, the High Court dismissed all six appeals by the Revenue, emphasizing that the share premium received by the respondent-assessees is on capital account and cannot be taxed as income. The court's decision was based on established legal principles and relevant case laws, affirming that share premium falls under capital receipt and is not subject to taxation as profits and gains of business under section 28(iv) of the Income-tax Act, 1961.