2000 (5) TMI 173 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 28(iv) of the Income-tax Act, 1961.
2. Valuation of the benefit.
3. Chargeability of interest u/s 234B and 234C.

Summary:

Issue 1: Applicability of section 28(iv) of the Income-tax Act, 1961

The principal issue was whether the differential price availed by the appellant-companies in acquiring equity shares through a preferential allotment constitutes "income" u/s 28(iv) of the Income-tax Act, 1961. The Tribunal held that the benefit contemplated by the Assessing Officer on the basis of the comparative price differential between the preferential issue price and the market price cannot be construed as "benefit" or "benefit in the nature of income" arising from business during the relevant previous year. The benefit or advantage was only conceptual in nature, and the real advantage would be eventual capital gain derived on the sale of those preferentially allotted shares on a future date. Therefore, the additions made by the Assessing Officer under section 28(iv) were not sustainable in law. The Tribunal deleted the addition of Rs. 32,85,00,000 in the case of M/s. KNB Investments (P.) Ltd. and Rs. 29,70,73,500 in the case of M/s. KAR Investments (P.) Ltd.

Issue 2: Valuation of the benefit

The Tribunal noted that the shares were acquired with the specific objective of retaining the controlling interest in Dr. Reddy's Laboratories Ltd. and were subject to a lock-in period of three years. The shares could not be sold during this period, and thus, the market price was not applicable. The correct method of valuation was the break-up value method, and in this case, the break-up value and the preferential issue price at Rs. 90 per share were cross-matching. Therefore, there was no benefit arising from the preferential allotment of shares.

Issue 3: Chargeability of interest u/s 234B and 234C

As the primary issue of benefit itself was decided in favor of the appellant-companies, holding that there was no benefit arising in the preferential allotment of shares, the Tribunal found it unnecessary to decide on the chargeability of interest u/s 234B and 234C. The remaining grounds were not considered as they would be academic in nature.

Conclusion:

The appeals of the assessees were allowed, and the Assessing Officer was directed to modify the assessments accordingly.