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TMI Blog2024 (2) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in Vodafone India Services (P) Ltd. ( 2014 (10) TMI 278 - BOMBAY HIGH COURT ) the amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of income during the relevant period. Thus, capital account transaction not falling within the statutory explanation cannot be brought to tax. Share premium received by issuance of shares is on capital account and gives rise to no income. Since the Act does not stipulate that non-compliance of any provision of other Act would result in turning a capital receipt into a revenue receipt, even assuming for the sake of argument that appellant had breached the provisions of Section 78(2) of the Companies Act, 1956, it would not turn the share premium amount received into a revenue receipt. As observed in Credit Suisse Business Analysis (India) (P.) Ltd. ( 2016 (8) TMI 375 - ITAT MUMBAI] , for determining the due taxes, AO should avoid bringing far-fetched fancies and ideas. Without understanding the basic philosophy of income they have referred to the provisions of Companies Act, 1956 so that the amount in question can be taxed at any cost. It is not a fair or judicio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on extraneous, impermissible and irrelevant considerations, while ignoring the relevant material and considerations? 2. Mr. Dada stated that answering the first question would take care of the second question also. Mr. Dada further stated that in question no. 1, the words in setting aside the appeal should be corrected to read as in dismissing the appeal . 3. Appellant, i.e., the assessee, was a joint venture between Indian Promoters, viz., Pantaloons Retail India Limited (PRIL), Pantaloon Industries Limited (PIL) [for ease of reference referred to as Future Group ] and M/s. Participatie Maatschappij Graafsshap Holland NV (PMG), a company incorporated under the laws of Netherland. Appellant was also a promoter of an insurance company called Future Generali India Insurance Company Limited. As a part of the joint venture arrangement and agreed business strategy, PIL, which was an Indian entity, was to be issued shares at par at Rs. 10/- each while PMG, being a foreign promoter, was to infuse funds at a premium of Rs. 2490/- per share. The shares were issued to PIL at Rs. 10/- each and PMG at Rs. 2500/- per share. Both the joint venture partners were happy with that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 22nd November 2013, 26th November 2013, 5th December 2013, 12th December 2013 and 10th March 2014 filed various documents, furnished various details and tendered explanations. 7. The Assessing Officer, notwithstanding the view taken by the Revenue for Assessment Year 2009-2010 and 2010-2011 with regard to the share premium and issue of share capital, took a view in the assessment order dated 21st March 2014 passed under Section 143(3) of the Act that the entire share premium received amounting to Rs.47,88,27,000/- was unexplained cash credit under Section 68 of the Act and added the same to the income of appellant. This addition was made on two counts, viz., (a) there was no justification for charging share premium and (b) there was violation of the provisions of Section 78(2) of the Companies Act, 1956. 8. Aggrieved by the assessment order, appellant preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. During the proceedings before CIT(A) exhaustive submissions were also filed. Notwithstanding the same, CIT(A), by an order dated 1st March 2016, upheld the addition made by the Assessing Officer. This order was carried in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to apply only from 1st April, 2013, i.e., Assessment Year 2013-2014 and the amendment to Section 68 by incorporation of the first proviso also came into effect by virtue of the Finance Act, 2012, w.e.f., 1st April 2019 and was to apply for the Assessment Year 2013-2014 and onwards. Since the amendments were not applicable to the assessment year in question, i.e., 2010-2011, there would be no basis for the Assessing Officer to treat the share premium amount as income. Of course Mr. Dada also added that this was not even an issue in the assessment order passed; (h) the ITAT itself in Credit Suisse Business Analysis (India) (P.) Ltd. V/s. Assistant Commissioner of Income Tax, Circle 15(1)(2), Mumbai (2016) 72 taxmann.com 131 (Mumbai-Trib.) has held that even the inclusive definition of income does not stipulate that non-compliance of any provision of other Act would result in turning a capital receipt a revenue receipt. This finding of its co-ordinate bench has been ignored by the ITAT in the impugned order. Similarly, the ITAT has also ignored the order in Deputy Commissioner of Income Tax 1(1)(2), Mumbai V/s. Finproject India (P.) Ltd. (2018) 93 taxmann.com 461 (Mumbai-Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares had been made upon receipt of share money as also the amount of premium paid on the said shares. 25. By virtue of the impugned notice dated 23rd March, 2015, the assessing officer seeks to reopen the assessment for the assessment year 2010-11, which is within a period of four years. Admittedly, no scrutiny assessment under section 143(3) of the Act has taken place in the present case. Even in a case where no scrutiny assessment has taken place, reassessment can be ordered only if the assessing officer has reason to believe that income chargeable to tax had escaped assessment. The Apex Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers(P.)Ltd.[2007] 161 Taxman 316/291 ITR 500 (SC) has clearly held that notice for reopening an assessment under section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. 26. The reason for the assessing officer to reopen the assessment is his belief that the share premium charged by the Petitioner was excessive and further that the transaction of the so called share premium was not established. In other words, the assessing officer apart from q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of the Petitioner company. 29. This can be guessed from the fact that the assessing officer had only flagged the share premium amount of Rs. 6,79,32,00,000/- which according to him was chargeable to tax that had escaped assessment and did not question the amount of Rs. 68 lakhs received by the Petitioner company representing the value of Rs. 68 lakhs shares of the face value of rupee 1 per share. Had the Assessing Officer any real doubts regarding the transaction itself, then there was no justification for him to question only the transaction with regard to the extent of the amount of premium charged for the said shares. 30. We therefore of the opinion that there was neither any basis for the assessing officer for his reason to believe that income had escaped assessment nor was there any tangible material which would have otherwise given jurisdiction to reopen the assessment even when the reopening was sought to be made within a period of four years. (emphasis supplied) Relying on the said judgment, this Court came to a finding in Godrej Projects Development Pvt. Ltd. V/s. Income Tax Officer, 1(1)(4) Ors. 2024 SCC Online Bom 366 that money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Services Private Limited xxxxxxxxxxxxxxx i. accept the order of the High Court of Bombay in WP No. 871 of 2014, dated 10.10.2014, and not to file SLP against it before the Supreme Court of India: xxxxxxxxxxxxxxx The Cabinet decision will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues. This will also set at rest the uncertainty prevailing in the minds of foreign investors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country. The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax . So applying any pricing formula is irrelevant. xxxxxxxxxxxxxxx c) The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to transactional value/consideration itself does not arise. d) If its income which is chargeable to tax, under the normal provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommitted 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 the 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 applicability of the said sections, we would like to refer to the submissions made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act, 1956, it will be penalised by the provisions of that Act and it would never turn a capital receipt into revenue receipt or vice versa. There is nothing on record from the balance sheet filed that the share premium amount has been utilized for purposes other than what is prescribed in Section 78(2) of the Companies Act, 1956. Just because the amount has been invested does not mean that the amount has been utilized for purposes other than what is prescribed in Section 78(2) of the Companies Act, 1956. 16. We are satisfied that the closing balance and the opening balance of the share premium money only indicates that there is an increase in the share premium account by way of infusion of funds and not depletion. There is nothing to indicate that the assessee has used the share premium money to invest in shares. The Assessing Officers have failed to understand the difference between utilization of funds and creation of share premium account in the books of accounts for the share premium receipt which was also the case in Finproject India (P.) Ltd. (Supra). 17. The reliance by ITAT on Bharat Fire General Insurance Ltd. V/s. Commissioner of Income Tax (1964) 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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