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TMI Blog2021 (5) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... hat receipt of share capital and share premium is normal in case of a limited company and the same at any stretch of imagination cannot be equated with gift. Moreover, gift can be received only by individuals or HUFs and cannot be received by a company. Hence, this observation made by the ld. AO is dismissed in limine. With regard to yet another observation made by the ld. AO that assessee had acquired certain intangible assets at the time of acquisition of business and those intangible assets were impaired in the same year and that this fact itself proves malafide intention of the assessee for allotment of shares at a premium. We are unable to persuade ourself to accept to this contention of the ld. AO in view of the fact that though the assessee had acquired certain intangible assets while acquiring business, and though the said intangible assets had been written off during the year due to impairment, we find that assessee company had not claimed the same as deduction. Hence, the relevant observation of the ld. AO in this regard is baseless and devoid of any merit. In the instant case, we find the addition has been admittedly made by the ld. AO u/s.56(1) of the Act and no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2011-12 on 29/11/2011 declaring total loss of ₹ 17,39,073/-. We find that the assessee company was incorporated in February 2010 and had commenced business operations in Asst Year 2011-12 i.e the year under consideration. 4.1. During A.Y.2011-12, Assessee had issued 7,00,000 shares at a price of ₹ 125.361351 having face value of ₹ 10 and premium of ₹ 115.361351. Accordingly, it accounted for share premium of ₹ 8,07,52,945 in the books of account for the year under consideration. The break-up of the shares issued are as under:- - 3,57,000 shares were issued to a foreign company namely Bayer Material science AO, for a monetary consideration and - 3,08,000 shares were issued to Malibu Plastica Private Limited ( MPPL ) and 35,000 shares were issued to Malibu Tech Private Limited ( MTPL ) for non-monetary consideration i.e. consideration in the form of tangible assets, intangible assets and working capital acquired on purchase of Polycarbonbate extrusion and theremoforming sheet business from the said Indian companies. 4.2. We find that the ld. AO had sought to treat the receipt of share premium in the sum of ₹ 8,07,52,945/- (700000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the receipt of share premium per se is capital receipt which has been held in favour of the assessee by the ld. CIT(A). 4.5. We find that there is absolutely no dispute with regard to the fact that addition has been made by the ld.AO towards receipt of share premium by treating the same as income u/s.56(1) of the Act. Hence, what is to be adjudicated by us is limited and confined to the fact as to whether receipt of share premium per se could be treated as the revenue receipt so as to make it taxable u/s.56(1) of the Act. We find from the financials of the assessee company for the year ended 31/03/2011 i.e the year under consideration, it had received total receipts of ₹ 9,78,38,703/- and had incurred expenses including the impairment loss on fixed assets (₹ 1,44,73,424/-), Depreciation / amortization (₹ 65,54,508/-) to the extent of ₹ 12,17,01,621/- and thereby incurring loss before tax to the extent of ₹ 2,38,62,918/- for the year under consideration. This shows that the assessee company had started its business activities effectively during the year under consideration. 4.6. We hold that receipt of share premium per se cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For example provisions of Prevention of Money Laundering Act (PMLA)provide that certain offences committed under other statutes would be considered scheduled offence under the PMLA. Without such a clear mandate nothing can be imported to be implemented to other Act/(s).While dealing with the assessment or appeals, under the provisions of the Income-tax Act, the basic principle every officer of the department has to remember that he is representing the Sovereign and his duty is to collect Due taxes only. For determining the Due taxes they should avoid bringing far-fetched fancies and ideas. In the case under consideration they have done the same. Without understanding the basic philosophy of income they have referred to the provisions of CA, so that the amount in question can be taxed at any cost. It is not a fair or judicious approach to deal with the Subjects of the State. Even if the assessee had violated the provisions of CA, it will be penalised by the provisions of that Act. But, it would never turn a capital receipt into revenue receipt or vice versa. Now, we would also like to discuss the provision of sections 78 and 100 of the CA also. But, before testing the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet could garner ₹ 490/-per share premium from its subscribers. Such transaction may raise eyebrows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It is an undisputed fact admitted by the Revenue authorities that 10,19,000 equity shares has been subscribed and allotted to IDFC PE Fund-II which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to the IDFC PE Fund-II who is a subscriber to the assessee's share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any sense. 10.1 No doubt a non-est company or a zero balance company asking for a share premium of ₹ 490/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the share holders whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails on this account. . 12. We have considered the grievance of the Revenue from all possible angles and by applying the provisions of Sec. 56 of the Act and at our stage we have gone to the extent of testing the transaction within the parameters of Section 68 of the Act. We could not find a single evidence which could lead to the entire transaction as sham. Our view is also fortified by the share holding pattern as explained to us and as substantiated by the material evidence on record. We find that the share holders in all the related transaction under issue are directly or indirectly related to the Government of India. Therefore, considering the entire issue in the light of the material evidence brought on record, in our considerate view, the Revenue authorities have erred in treating the share premium as income of the assessee u/s. 56(1) of the Act. In our considerate view, for the reasons discussed hereinabove, we do not find it necessary to apply the provisions of Sec. 68 of the Act. We, therefore, direct the AO to delete the addition of ₹ 47,97,10,000/-. Ground No. 2 3 are accordingly allowed. 4.8. We also find that this order was subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and part of the layering process which enabled the flow of funds to move from one company to another company. In the instant case, we find the addition has been admittedly made by the ld. AO u/s.56(1) of the Act and no such enquiries doubting the genuineness of the transactions or the genuineness of the investors were doubted by the ld. AO in the instant case. Hence, the decision relied by the ld. DR, in our considered opinion, would not advance the case of the revenue. We find that all the necessary documents relating to the allotment of shares with premium together with relevant documentary evidences were indeed submitted by the assessee before the ld. AO which are not doubted at all. 4.12. In view of our aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld. CIT(A) had rightly deleted the addition made u/s.56(1) of the Act on account of receipt of share premium for the A.Y.2011-12. Accordingly, the ground No.1 to 1.5 raised by the Revenue are dismissed. 5. The ground Nos. 3 4 raised by the Revenue are general in nature and does not require any specific adjudication. 6. In the result, appeal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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