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TMI Blog2024 (6) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... us shares to preference shares is covered as dividend but issue of bonus shares to equity shares in not covered as dividend u/s 2(22)(b). The revenue could not dispute the fact that the assessee was holding equity shares and not the preference shares. Since the bonus to equity shareholders is not covered within the ambit of Sec. 2(22)(b), the same has rightly been held by Ld. CIT(A) to be not applicable to the facts of the case. In such a situation, the same could not be brought to tax u/s 56(2). We are of the opinion that Ld. CIT(A) has correctly relied on the cited decisions of Dalmia Investment Co. Ltd. [ 1964 (3) TMI 17 - SUPREME COURT ] holding that issuance of bonus shares to equity shareholders do not amount to payment of dividend since the conversion of reserves into capital by issue of bonus shares do not involve release of profits to the shareholders and the said profits remain employed in the business. Similarly in Hansur Plywood Works Ltd. [ 1997 (11) TMI 1 - SUPREME COURT ] held that issuance of bonus shares does not amount to distribution of accumulated profits of a company. here is no inflow of fresh funds or increase in the capital employed, which remains the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween actual consideration and fair market value of shares is to be treated as Income from other sources under this clause. 2.2 The ld.CIT(A) failed to appreciate that the AO has adopted fair market value of shares @ Rs. 275 per share based on the value on which M/s.Updater Services Pvt ltd bought back shares from M/s. Tangi facility business Solutions in the same financial year. Further during the AY 2015-16 also, M/s. ICICI Ventures and transferred 41,31,989 shares of M/s.UDS to M/s. TFSPL for Rs. 113,00,16,352, at Rs. 273.48 per share. Hence, the AO correctly adopted fair market value of share @ Rs. 275 per share while assessing the income from other sources u/s. 56(2)(viia). 2.3 The Ld.CIT(A) erred in observing that the provisions of Sec.56(2) and 56(2)(viia) for purpose of taxing under the head Income from other sources and quantifying the amount of dividend income are inapplicable to the facts of the case. The Ld.CIT(A) failed to appreciate that the AO relied on Sec.56(2)(viia) to tax the value of shares received under the head Income from other sources since the shares were acquired without any consideration as against the fair market value of Rs. 254,55,24,025/-. As is evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be chargeable to tax. Therefore applying the value of Rs. 275/- per share to number of bonus shares as received by the assessee, Ld. AO held that the amount of Rs. 254.55 Crores would be taxable in the hands of the assessee as dividend. The value of Rs. 275/- was justified in the background of the fact that during AY 2015-16, one of the shareholder M/s ICICI Ventures had transferred 41,31,989 shares of USPL to the assessee at Rs. 273.48 per share. M/s USPL bought back the shares under a scheme as sanctioned by Hon ble High Court of Madras in CP No.122 of 2016. The Ld. AO also noted the provisions of Sec. 56(2)(viia) which provide that if any company has received any property during the year beings shares of company, not being a company in which the public are substantially interested, the same has to be taxed as income from other sources . The assessee acquired the shares at nil value as against FMV of Rs. 275 per share. Therefore, the benefit received by the assessee would be taxable as income from other sources . Finally, the assessment was framed adding impugned dividend of Rs. 254.55 Crores which was subjected to further challenge before first appellate authority. Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) that issue of bonus shares could not be regarded as dividend u/s 2(22)(b). Accordingly, Ld. AO was directed to delete the impugned addition against which the revenue is in further appeal before us. Our findings and Adjudication 4. We find that the basic facts are not in dispute. Admittedly, the assessee acquired 41,31,989 number of shares of USPL in AY 2015-16 at Rs. 273.48 per share. During this year, USPL bought back 20,75,000 shares from the assessee @Rs.275/- per share. Later on 92,56,451 shares were received by the assessee as bonus shares in the ratio of 45 shares for every 10 shares held by it. The bonus thus received by the assessee was held to be dividend by Ld. AO u/s 2(22)(b). However, Ld. CIT(A), in our considered opinion, has correctly appreciated the provisions of Sec.2(22)(b). The issue of bonus shares to preference shares is covered as dividend but issue of bonus shares to equity shares in not covered as dividend u/s 2(22)(b). The revenue could not dispute the fact that the assessee was holding equity shares and not the preference shares. Since the bonus to equity shareholders is not covered within the ambit of Sec. 2(22)(b), the same has rightly been held by Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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