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TMI Blog2013 (11) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... ture allowable under S.57(1)(iii) of the Act - Decided in favour of assessee. Reopening of assessment - Change in effective date for calculation of interest - Held that:- there is no basis for changing the effective date for calculation of interest from 26th February, 2007, when the funds are not provided to the other company, prior to that date. Since there is no dispute with reference to the date of funds being made available to the subsidiary company, i.e. only from 26.2.2007, we agree with the assessee's contention that the interest accrued only from 26.2.2007, though the debentures were dated 21.2.2007. Unless the funds are made available, no body would pay interest. Therefore, the assessee's calculation of interest is upheld and the addition made by the Assessing Officer in this behalf is deleted. Since it is one of the basic issue on facts, we do not intend to consider the legal issues raised by the parties, on various principles of law. The Assessing Officer is directed to delete the addition so made on this count - Decided in favour of assessee. The issue relating to validity of reopening of assessment has become academic. However, for the sake of record, the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd liabilities of the assessee company have been transferred to SSI Limited with effect from 1st October, 2007. The Assessing Officer issued a notice under S.143(2) on 25.9.2008, after processing the return under S.143(1). The assessee did participate in the proceedings and subsequently vide letter dated 27.10.2009 raised an objection that the Assessing Officer had no jurisdiction to proceed further in the name of the company, as no proceedings were initiated in the name of the amalgamating company. The Assessing Officer, relying on the provisions of S.170 and also the fact that this is assessment for the period prior to amalgamation, he held the proceedings as valid. The same was reiterated before the CIT(A) and contended that the assessment was on a non-existing company as with the amalgamation of the company, the original company ceased to exist in the eyes of law. It relied on the decision of the Apex Court in the case of Marshall Sons Co.(India ) Ltd. V/s. ITO(1997) 223 ITR 809(SC) for the proposition that the assessment made on amalgamating company is not valid in law. 4. The Assessing Officer examined the assessee's pre-operative expenditure statement and other details a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of jurisdiction, the learned counsel reiterated the submissions made before the CIT(A) and also referred to various provisions of S.170 and case-law on the point. On being pointed out that the assessee did not intimate the amalgamation of the company till the end of scrutiny assessment proceedings, whereas the assessee was participating in the regular hearings from 6.10.2008 to 27.10.2009, the learned counsel for the assessee relied on the legal propositions. It is admitted that assessment pertained to the period prior to amalgamation. Keeping in mind the provisions of S.170 and the fact that the assessee did not raise any objection till a show cause notice dated 19.10.2009 was issued for making addition to the income, we are of the view, that these grounds relating to the jurisdiction issue do not require any consideration. We uphold the orders of AO and CIT(A) on the issue. Accordingly, grounds raised on the validity of the jurisdiction are dismissed. 10. With reference to grounds No.7 to 10 regarding treating the interest income under the head 'income from other sources', the learned counsel did not press for the same, on the reason that subsequent grounds No.11 and 12 can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.135/Hyd/2013 15. As briefly stated above, the Assessing Officer reopened the assessment for bringing to tax an amount of Rs.50,94,958 and also brought to tax share premium of Rs.7,73,27,003. The assessee is contesting the validity of the proceedings initiated under S.147 in ground No.2; besides the addition of Rs.50,94,958 in ground No.3; addition on account of share premium in ground No.4; and ground No.5 is with reference to levy of interest under S.234B. 16. Before considering the issue of jurisdiction, it is decided to consider the additions made on merits. 17. The third ground is with reference to addition of Rs.50,94,958. Facts in brief relating to this issue are that the assessee company made investment of Rs.248.32 crores in the debentures of M/s. New Cyberabad City Projects P. Ltd. during the assessment year 2007-08 out of which Rs.169.06 crores worth of debentures were allotted to it on 21.2.2007. As per the mutual negotiation between the assessee and the said company, the effective date for payment of interest was determined as 26.2.2007. The assessee company calculated the interest at 22% as per the agreement from the effective date for payment of interest (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as share premium in the Balance Sheet as on 31.3.2007. The Assessing Officer found that the assessee has allotted 2.65 crores of shares at Rs.10 per share to its promoter company and thereafter, the assessee has allotted 26,85,185 shares to M/s. Karvy group at Rs.27 which includes premium of Rs.17 per share on 20.10.2006 and 7,44,508 shares to various NRI investors at Rs.52.55 per shares, which includes premium of Rs.42.55 per shares as on 10.01.2007. It was the contention of the assessee that the share premium was arrived at through negotiations by the management with these investors. The Assessing Officer held that the share premium was not genuine and it was income from unknown sources, which has been disclosed under the head share premium, so as to escape taxation. By discussing this issue in para 5 of the assessment order and invoking the ratio of the judgment of the Apex Court in the case of Mc-Dowell and Co. Ltd. VS. Commercial Tax Officer (154 ITR 148), Assessing Officer brought to tax the above amount of share premium as income of the assessee under the head 'income from other sources'. 22. Before the learned CIT(A), it was contended that the share premium was genuine a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03 times greater than the face value. There is no justifiable reason or evidence for such an action. 7.7 I also find that the argument of the appellant regarding the impending amalgamation of this company and the increase in price of the shares is not borne by evidence submitted by the appellant itself. On 20 October 2006 when there was no news of any amalgamation the shares of Rs.l0/- were sold for Rs.27/- Le at a premium of Rs.17/- per share. On 10th of January 2007 this premium increased to Rs.42.55 paise per share due to the impending amalgamation as the appellant would have us believe. However, on 25th January 2007 the share premium fell to O! This is absolutely in direct contradiction to the explanation given by the appellant as discussed. The proposed amalgamation was very much in the offing and nothing whatsoever had changed either with the appellant or with the other company to alter the valuations in shares of the appellant company. On this date which is only 15 days from the sale of the earlier shares at Rs.52.55 paise per share the premium should either have been the same or higher. 7.8 The aforementioned facts clearly point out that the explanations given by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued at a premium to a local group, M/s. Karvy and also to NRIs at premium rates which was stated to be after negotiations. The share premium cannot be brought to tax as it is a capital receipt and not on revenue account. Provisions of S.56(2) are amended by the Finance Act, 2012, so as to consider the unreasonable premium as income is effective from 01.04.2013. However, without any allegation of fraud or quid pro quo for any illegal transaction or any type of unjust enrichment or without any justification for receiving so much premium, in the absence of legal provision the capital receipt on premium account cannot be considered as income as made out by the Assessing Officer and the CIT(A). In this case assessee justifies the premium on proposed merger of the assessee company with another public listed company by name M/s. SSI Ltd, whose shares are being traded at a higher price than issue price, which became reality after wards. 26. In the case of Addl. CIT V/s. Om Oils and Oil Seeds Company (152 ITR 552), the Hon'ble Delhi High Court held that the share premium received was not taxable, observing that the amount was not a revenue receipt includible in the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest as income from other sources. Since he has examined the issues in detail, including the investments made thereon, it cannot be said that the Assessing Officer has not applied his mind while considering the amounts he intend to bring to tax. Therefore, reopening of the assessment on the reason that some of the accrued income was not offered to tax does not arise, as the assessee has validly accounted interest from the time monies were placed at the disposal of the subsidiary company. Therefore, reopening of assessment per se is bad in law. On this reason also, the assessee gets relief. 28. In the result, this appeal of the assessee is treated as allowed. S.A. No.122/Hyd/12(in ITA No.647/Hyd/2011) 29. This is a stay application filed by the assessee on 22.08.2012, requesting for stay of demand raised in assessment proceedings under S.143(3) contested in ITA No.647/Hyd/2011. The application was regularly posted, but ultimately on 9.4.2013, the same was adjourned to this date on the reason that the quantum appeals are coming up for hearing. Now that the quantum appeals are decided as above, the stay application of the assessee becomes infructuous. Accordingly, the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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