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TMI Blog2020 (12) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. The subject matter of the appeal pertains to the Assessment year 2012-13. The appeal was admitted by a bench of this Court vide order dated 24.10.2017on the following substantial questions of law: "Whether under the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessing authority is not correct in determining the fair market value as per Rule 11A UA of the IT Rules at Rs. 12,49,00,000/- on 1,00,00,000 bonus shares received by assessee and bring the same to tax under the head income from other sources by holding that section 56(2)(v) and (vii) cannot be invoked by assessing authority even when the assessing authority has rightly invoked the said provision as all the ingredients are sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical Group (India) Pvt. Ltd. The Assessing Officer invoked Section 56(2)(vii) of the Act and treated the receipt of bonus shares as income from other sources and assessed the fair market value of the bonus shares at Rs. 12,49,00,000/-. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 04.08.2015 allowed the appeal preferred by the assessee inter alia on the ground that conversion of reserve into capital did not involve release of profit and therefore, provisions of Section 56(2)(vii) of the Act are not applicable to the assessee and directed deletion of a sum of Rs. 12.49 Crores. The revenue thereupon approached the Income Tax Appellate Tribunal (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re allotted, they are not received but are created in the hands of the allottees shareholders. It is also submitted that shares do not exist at all until they are allotted and there is a difference between creation of shares and transfer thereof. It is also urged that company cannot be regarded as holding its own shares and when the company issues for the first time, there is no question of property already possessed by the company being thereby transferred to the allottee. It is also argued that if an assessee subscribes to shares there can be no receipt from the company as there is no transfer when an allotment of share is made and in case of allotment of bonus shares, no benefit accrues to the shareholders. It is also argued that Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 11U and Rule 11UA of the Income Tax Rules can be considered as income from other sources as per Section 56(2)(vii) of the Act. A careful scrutiny of Section 56(2)(vii) of the Act contemplates two contingencies firstly, where the property is received without consideration and secondly, where it is received for consideration less than the fair market value. The issue of bonus shares by capitalization of reserves is merely a reallocation of the companies funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. The total funds available with the company remains the same and issue of bonus shares does not result in any change in respect of capital structure of the company. [See: 'GENERAL INSU ..... X X X X Extracts X X X X X X X X Extracts X X X X
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