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TMI Blog2020 (11) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... venue in this appeal is against deleting the quantum addition of Rs. 2,15,00,000/- by the CIT(A),as made by the AO on account of share premium and share application money made u/s.56(1) of the Income Tax Act. 4. The facts in brief are that, the assessee-company has filed return of income on 25-09-2012, declaring total loss of Rs. 26,75,333/-, which was processed u/s.143(1) of the Act and the case was selected for scrutiny and notices were duly issued and served on the assessee. 5. During the course of assessment proceedings, AO observed that assessee-company has issued 2,15,000 equity shares of Rs. 10/- each at a premium of Rs. 90/- per share, aggregating to Rs. 2,15,00,000/- during the year. Accordingly, the AO asked the assessee to furnish the details of share applicants along with share application forms along with the returns and confirmations from the investors and justification for issuing shares at such a higher premium. The assessee filed necessary details before the AO along with share valuation report. According to the AO, assessee could not prove the genuineness and the creditworthiness of the applicants and thereafter, issued notices u/s.133(6) of the Act. The details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defi ned to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received on application of ALP. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. This is settled by the decision of this Court in Cadell Weaving Mill Co. v. CIT [2011] 249 ITR 265/116 Taxman 77 was upheld by the Apex Court in CIT v. D.P Sandu Bros. Chember (P.) Ltd. [2005] 273 ITR 1/142 Taxman 713. This Court has in Cadell Weaving Mills Co. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the equity shares can be considered as income within the meaning of the expression as defined under the Act. 5.2.1. Thus, the premium received is a capital receipt and is not taxable as income. However, after amendment by Finance Act, 2012, share premium is taxable as "income from other sources" under sec.56(2)(viib) if the shares exceed the fair market value. But this amendment is applicable with effect from 1.4.2013 and is relevant to A.Y 2013-14 onwards but not to the assessment year under consideration. The relevant provisions of the Act are reproduced as under:- [(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof or the explanation offered by hi m is not, in the opinion of the [Assessing] Officer, satisfactory the sum so credited may be charged to income-tax as the income of the assessee of that previous year : 93[Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited: and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] 5.2.4. In view of the above background let us examined the case of the appellant. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitant premium. Ld. DR therefore submitted that the valuation report filed by the assessee in support of its valuation of equity shares is also wrong and was rightly rejected by the AO. Ld.DR submitted that the premium was rightly added to the income, u/s. 56(1)(viib) of the Act as being in excess of market value of the shares. Ld.DR also referred to without prejudice observations and findings given by the AO in the assessment order, wherein the AO has said that since the premium charges are in excess of intrinsic value of the shares, the provisions of Section 68 of the Act could also be applied and thus, the said amount is covered under the provisions of Section 68 of the Act and as the same was not explained in terms of Section 68 of the Act and accordingly, liable to be added u/s.68 of the Act also. Finally Ld.DR prayed that the order of CIT(A) be reversed and that of the AO be restored. 8. Ld.AR , relying heavily on the order of CIT(A), submitted that the AO made addition u/s.68 of the Act, which was not applicable to the instant year as the new provisions as contemplated u/s 56(1)(viib) of the Act as introduced by the Finance Act, 2012, effective from 01-04-2013, meaning the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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