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TMI Blog2025 (4) TMI 1261X X X X Extracts X X X X X X X X Extracts X X X X ..... at though the share premium was received in the F.Y. 2011-12 & 2012-13, no shares were allotted against them as late as March 2021. 2. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 3. Brief facts as culled out from records are that assessee carries on its business activity in the field of charter hiring of drilling rigs and work over rigs. It obtained secured loans in foreign currency to finance the purchase of rigs, which were employed into its business. However, it went into financial trouble when one of its contracts, for which it had purchased additional rigs got cancelled much before the end of its contract period due to recession in the oil industry, and assessee did not have sufficient funds to finance the loan repayment. Assessee had to sell its rigs in order to service the interest and principal payment on these loans. Owing to this financial crisis, business came to standstill. 3.1. Assessee filed its return of income on 31.03.2018, reporting total income at Nil after setting off of the business loss and unabsorbed depreciation. In the course of assessment proceedings, ld. Assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an, Sion Main Road, Mumbai - 400 022. AAFPM7322J 23,61,165 30.57% 4. Mrs. Swarnakanta ShorilaL Makad 14, Krishna Niketan, Sion Main Road, Mumbai-400022. AAFPM9641J 6,91,230 8.95% 5 Mrs. Mamta Rajesh. Makad 14, Krishna Niketan, Sion Main Road, Mumbai-400022. AAFPM9642M 6,76,500 8.76% 6 Infrastructure Leasing & Financial Services Ltd. IL&FS Financial Centre, Plot No. C22, G Block, B KC, Bandra (E), Mumbai 051. AAACI0989F 2,78,125 3.60% Total No. of Shares 77,25,000 100% 3.3. In its explanation, as mentioned earlier, it was submitted that assessee went into financial crisis and did not have sufficient funds to meet its interest payments on secured loans. Hence, it obtained share application money from its existing members and their related parties in order to finance the interest payments. These monies were not taken from any outside third party, but from existing members and parties belonging to the same group. The said amounts were paid by them to the assessee out of their own personal funds which was corroborated by the respective balance sheets and confirmation letters placed on record. According to the assessee, the Makad family infused money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated factual position, claimed, now that shares have been issued and allotted to the persons from whom the company has received share application, no addition is called for under Section 28(iv). 4.2. In addition, it placed reliance on the following decisions which covers the case of the assessee: 4.2.1. DCIT v. Inex Infotech Pvt. Ltd [2016] (11) TMI 1463 ITAT Nagpur, dated 25.11.2016, wherein it was held in para 28 that - "28. From the above it is evident that the share capital and share application money with premium received by the assessee company is an amount received on capital account. From the above case laws, it is quite evident that sums received on capital account cannot be treated as income. Once it is held that the share capital and share application money with premium are received on capital account, such receipts cannot be added as income from business and profession u/s 28 of the I.T or for that matter u/s 28(iv) of the I.T. Act. In this regard even at the risk of repetition we find that section 28(iv) provides that following amount shall be chargeable to income-tax under the head profits and gains from business or profession, "the value of any benefit or per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted to the respective shareholders against the share application money pending for allotment. In this respect due disclosure was made in the said balance sheet and the amount against share application money pending allotment was reported as Nil with corresponding increase in the amount of share capital and premium. Disclosure made is in note No. 24 forming part of the financial statement placed in the Paper Book page No. 127. 5.1. It is contented that the investors who paid these amounts towards share application are related to each other and existing shareholders in the assessee company who are aware of the fact about the financial crisis faced by the assessee and therefore, did not pursue for allotment of the shares nor took any other adverse action pending such allotment. Yet another fact undisputed as placed by the assessee is that ultimately shares have been issued and allotted to the respective investors against the share application money paid by them for which necessary corroborated documentary evidences were placed on record before the ld. CIT(A). These documentary evidences evidently established that the transaction of share application money received by the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are chargeable to income-tax under the head "profits and gains of business or profession" and clause (iv) thereto states that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. A plain reading of this provision shows conditions precedent for such taxability i.e. (1) that there should be benefits or perquisites; and that (ii) such benefits or perquisites should arise from the business or exercise of the profession. The expression 'arising from the business' essentially implies that the benefit or perquisite must be in the nature of a business receipt or revenue receipt. No matter how wide be the scope of section 28(iv), the difference between capital receipt and revenue receipt cannot be overruled. One must bear in mind the fact that section 28 only refers to the 'income' which can be charged to income tax under the head 'profits and gains from business or profession', and, therefore, when a particular advantage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the ame to tax under section 28(iv). It is settled law that a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 2016. The Hon'ble Apex Court expounded as under : " We modify the order of the High Court by holding that the amount (Rs.45,84,000/-) on account of share capital received from the various share-holders ought not to have been treated as business income. The High Court, therefore, in our considered view, fell into error in reversing the order of the Tribunal on the aforesaid issue." In the aforesaid case Karnataka High Court had held following the case of Shree Nirmal Commercial Ltd. 193 ITR 694 (Bom.) and 213 ITR 361 (FB) that both the capital and refundable deposits received by Housing Company from its shareholders in consideration for allotting areas to them is assessable as business profits. 19. In this regard we may also gainfully refer to Hon'ble Bombay High Court decision in the case of Idea Cellular Ltd. vs. Union of India (supra). In this case the Hon'ble Bombay High Court has referred to the assessee's contention that the benefit which arises on capital account cannot be subject matter of income u/s 28(iv) of the said Act and in this regard the assessee had relied upon the decision of ITAT in the case of ITO vs. Shreyas Investment P. Ltd. 141 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of any benefit or perquisite and not sums received on capital account which is the case in the present context. Hence in our considered opinion the AO could not resort to this provision as the receipt was of capital nature. 21. In the background of aforesaid discussion and precedent, we do not find any infirmity in the order of learned CIT(Appeals). 22. Since we are deciding the issue on the basis of Hon'ble Apex Court decision and Hon'ble Jurisdictional High Court decision, we do not find any need to deal with the other case laws referred by the learned counsel of the assessee which are also relevant on the facts of this case and support the assessee's case." 5.4. In the present case before us also, assessee had received share application money from its existing shareholders. In this respect, provisions of section 68 were not urged upon by the ld. AO. Thus, accepting the identity and creditworthiness of the investors and genuineness of the transaction, addition made by the ld. AO is by way of invoking provisions of section 28(iv) to bring this amount to tax under the head 'profit and gains' 'business or profession' on account of assessee receiving benefit or per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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