2024 (12) TMI 980 - AT - Income Tax

Addition u/s 28(iv) - allotment of shares at lesser price than the 3rd party - HELD THAT - The only provision to tax the receipt of a property other than immovable property without any consideration or for a consideration less than the aggregate fair market value of the property is provided under sub-clause(c) of clause (x) of subsection 2 of section 56 of the I.T. Act, 1961. Prior to insertion of this clause (x), there was no charging section to tax the receipt of property without consideration or for a consideration less than the aggregate fair market value of the property. Therefore, in the absence of any charging provision to tax the receipt of a property, without consideration or for a consideration less than the fair market value of the property at relevant point of time, the said transaction of acquisition of shares by the assessee at par in comparison to the shares allotted to 3rd person at a premium of Rs. 350 per share cannot be taxed in the hands of the assessee. Even otherwise, the transaction of acquisition of shares or investment in shares of the companies for which there was no allegation about any unexplained investment or genuineness of the transaction falls in the capital field and not in the revenue field. Tribunal in SHREYANS INVESTMENTS (P.) LTD. 2013 (3) TMI 392 - ITAT KOLKATA has elaborately considered the applicability of provisions of section 28 in respect of the transactions/benefit/perquisites not falling in the nature of revenue receipts as well as not arising from the business or profession. If the alleged benefit is not arisen from business or profession of the assessee or from exercise of the profession of the assessee, then the same cannot be brought to tax under the provisions of section 28(iv) of the I.T. Act, 1961. Further, if the alleged benefit is also in respect of transaction which falls in the capital field being investment in shares, then in the absence of any real income, the same cannot be brought to tax by invoking the provisions of section 28(iv) of the Act. It is pertinent to note that the income arising from sale of these shares would be taxed under the head Capital Gain then the transaction of acquisition of shares can t be held in revenue field - Decided against revenue.

Summary

Issues Involved:

1. Whether the allotment of shares at face value to the assessee, while shares were allotted at a premium to others, constitutes a taxable benefit under Section 28(iv) of the Income Tax Act.
2. The validity of the reopening of the assessment under Section 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Share Allotment under Section 28(iv):

The primary issue was whether the allotment of shares at face value to the assessee, while the same shares were allotted at a premium to others, constituted a taxable benefit under Section 28(iv) of the Income Tax Act, 1961. The Revenue argued that the difference in the share price constituted a non-monetary benefit arising from the business nexus, hence taxable under Section 28(iv). The assessee contended that the shares were allotted as part of an investment, not a business transaction, and thus, the benefit did not arise from any business or profession carried on by him.

The Tribunal noted that for Section 28(iv) to apply, the benefit must arise from the business or exercise of a profession and must be a revenue receipt, not a capital receipt. The Tribunal relied on precedents, including the Supreme Court's decision in Mahindra & Mahindra Ltd., which clarified that for Section 28(iv) to apply, the benefit must be in a form other than money and should arise from business or profession. Since the shares were acquired as an investment, the transaction was in the capital field, not revenue. Moreover, the Tribunal observed that the assessee did not carry on any business during the relevant assessment year, as his income comprised salary, house property, capital gains, and other sources. Therefore, the alleged benefit did not arise from business activities, and Section 28(iv) was not applicable.

2. Validity of Reopening of Assessment:

The assessee challenged the reopening of the assessment under Section 148 of the Income Tax Act. The Tribunal did not delve deeply into this issue, as the primary focus was on the applicability of Section 28(iv). However, the Tribunal's decision to uphold the CIT(A)'s order, which favored the assessee on the merits, implicitly suggests that the reopening was not justified, given the lack of taxable income under Section 28(iv).

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the allotment of shares at face value did not constitute a taxable benefit under Section 28(iv) of the Income Tax Act. The Tribunal emphasized the distinction between capital and revenue receipts and concluded that the benefit, if any, was in the capital field and not taxable as business income. The Tribunal's decision was based on established legal principles and precedents, ensuring that only real income arising from business activities is subject to taxation under Section 28(iv).