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TMI Blog2018 (10) TMI 1393X X X X Extracts X X X X X X X X Extracts X X X X ..... 90/- as share premium. The above said preference shares are redeemable at Rs. 750/- each after expiry of five years from the date of issue. The shares were allotted to a single person named M/s. Sahara India Commercial Corporation Limited. The Assessing Officer asked the assessee to justify huge premium collected on issue of preference shares. The assessee explained that preference shares stand on different footing from equity shares and hence the tests applied to equity shares should not be applied to preference shares. The assessee made following submissions before the Assessing Officer in this regard:- " this is in reference to the query raised by your goodself for A. Y. 20] 1-12 in respect of 610825 shares allotted to Sahara India Commercial Corporation Limited at the premium of Rs,490/- resulting into total share premium ofRs.29,93,04,250/-. Facts of the assessee 's case: During the year under consideration, the assessee Geon Studio Pvt. Ltd. has issued 610825 Non-cumulative Non-Convertible Redeemable preference shares to its holding company, Sahara India Commercial Corporation Limited at an issued price of Rs. 500/- (including face value of Rs. 10/-. and premium of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have such rights. Preference share holders can at the most receive face value of the preference shares & premium (which is decided at the time of issue of shares) on redemption/winding up. For instance, a preference share of face value of Rs. 100 redeemable at a premium of 10% at the time of redemption will fetch Rs. 110 on redemption irrespective of the value of the assets of the company. Accordingly, it is submitted that the valuation of such quasi debt instruments is entirely made on the basis of the returns received by the investor of such instruments. As evident from the boards resolution, each preference share would be redeemable at a price of Rs. 750/- per share on expiry of the 5 year period. Thus, the said investment would fetch [he investor, Sahara India Commercial Corporation Limited a return of approximately 10%p.a. over a period of 5 years on such preference shares. The said aspect clearly proves the valuation made by the assessee company. The above illustration clearly highlights the difference in the valuation rules for equity shares vis-a-vis preference shares. In the assessee's case, an investor has invested Rs. 500 per share on which a reasonable return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred above and also directed the DRP and CIT(A) to follow the above said decision. Further, the CIT(A) also noticed that the assessee has issued the Preference Shares only to its holding Company named M/s Sahara India Commercial Corporation Ltd, which fact has not been disputed at all by the AO. He also noticed that the assessee has issued the Preference Shares by following due procedures prescribed under the Companies Act. Accordingly, the Ld CIT(A) took the view that there is no justification in determining the Share Premium at Rs. 28/- per share. He also expressed the view that the share premium amount has been determined on a reasonable basis, since the preference shares are redeemable at Rs. 750/- per share after five years. Accordingly he deleted the addition made by the AO. The revenue is aggrieved by the decision of Ld CIT(A). 5. The Ld D.R submitted that the Ld CIT(A) has proceeded on the basis that the AO has invoked the provisions of sec.56(2)(viib) of the Act for making this addition. He submitted that the AO, nowhere invoked the provisions of sec.56(2)(viib) of the Act. He submitted that the AO has, impliedly, invoked the provisions of sec.68 of the Act, as he di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of Rs. 500/- by way of preference shares and repaid Rs. 750/- after five years. He submitted that the assessee had also received Unsecured loans from M/s Sahara India Commercial Corporation Ltd during the year under consideration and the AO has accepted the same as genuine. He submitted that the decision rendered in the case of Major Metals (supra) cannot be taken support of, as the said decision has been rendered against the orders passed by Settlement Commission. He submitted that the Power of Hon'ble High Court against the orders passed by Settlement Commission is not appellate power, but restricted to (i) grave procedural defects such as violation of mandatory procedural requirement of provisions in Chapter XIX-A and or violation of rules of natural justice; (ii) absence of nexus between reasons given and decision taken by Settlement Commission. He submitted that it was so held by Hon'ble Karnanata High Court in the case of N.Krishnan vs. Settlement Commission (1989)(180 ITR 585)(Kar). The Hon'ble Karnataka High Court further held that ban error of fact or of law alleged to have been committed by Settlement Commission cannot be looked into by High Court. The Ld A.R also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money received against issue of Preference shares also, the AO has accepted the face value and also the premium upto Rs. 28/- per share. Hence the basis for making the impugned addition was that the AO was of the view that the share premium should not have exceeded Rs. 28/- per share. In this regard, it is pertinent to note that the AO has not taken support of any of the provisions of the Income tax Act to assess the alleged excess premium. There should not be any dispute that all receipts do not constitute income assessable under the Act, meaning thereby, no receipt can be assessed to income tax unless there is authority under the law to assess the same. The Hon'ble jurisdictional High Court has held in the case of Vodafone India Services P Ltd (supra) that the receipt by way of share capital is Capital receipt. In the instant case, the AO has accepted that the assessee has received money by issuing Preference Shares. The grievance of the AO is that the Share Premium is excessive in nature. As stated earlier, the AO has not drawn support from any of the provisions of the Act to assess the alleged excess premium. 11. The Ld CIT(A) has made it clear that the provisions of sec. 56( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on rendered by Hon'ble Bombay High Court in the case of Major Metals (supra), the Ld A.R has pointed out that the said decision has been rendered by Hon'ble Bombay High Court against the orders passed by Settlement Commission, wherein the jurisdiction of Hon'ble High Court is restricted. The Ld D.R could not contradict this contention of the Ld A.R. The decision rendered by Mumbai bench of Tribunal in the case of M/s Angel pipes and Tubes (P) Ltd (supra) only discusses about the scope of provisions of sec.68. In the case of Varsity Education Management P Ltd (supra), the Tribunal has taken support of the decision rendered by Hon'ble Bombay High Court in the case of Major Metals and the decision rendered by Mumbai Tribunal in the case of Angel Pipes and Tubes P Ltd (supra) and held that the excess share premium was not explained to the satisfaction of the AO. 15. However, in the instant case, we are of the view that the "nature" of the transaction has been explained by the assessee as Share Premium, which could not be contradicted by the revenue with any other material. There is no dispute with regard to the "Source". Hence, in effect, the conditions prescribed in sec. 68 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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