PR. COMMISSIONER OF INCOME-TAX (CENTRAL), GURGAON vs. SMT. MEENU SATIJA

ITA/72/2018HC Punjab & HaryanaPHHC01119403201827 September 2023Author: MS. JUSTICE RITU BAHRI,MRS. JUSTICE MANISHA BATRA11 pages
AI SummaryDismissed

What were the facts?

The Revenue (Principal Commissioner of Income Tax) filed appeals against the Income Tax Appellate Tribunal's (ITAT) order which deleted an addition of Rs. 4,31,45,715/- made under Section 56(2)(vii)(c) of the Income Tax Act, 1961. The addition was based on the fair market value of bonus shares allotted to the assessee, Smt. Meenu Satija, by M/s Bestech India Pvt. Ltd. during Assessment Year 2012-2013. A search in 2012 led to a notice under Section 153A. The assessee declared an income of Rs. 18,12,410/-, which was initially accepted. However, the Principal Commissioner invoked Section 263, holding that the bonus shares, issued without consideration by capitalizing share premium and reserves, resulted in an increase in the assessee's net wealth, attracting Section 56(2)(vii)(c). The ITAT, however, quashed this order, finding no increase in wealth or element of gift.

What did the High Court hold?

The High Court held that the ratio of the Supreme Court judgments, particularly in Khoday Distilleries Ltd. vs. CIT, Inland Revenue Commissioners vs. Blott, and Commissioners of Inland Revenue vs. Fisher’s Executors, applies in favour of the assessee. These judgments establish that the capitalization of profits for issuing bonus shares does not constitute a distribution of profits or an increase in the shareholder's wealth in a manner that attracts Section 56(2)(vii)(c). The Court noted that while shareholders may benefit from an enlarged capital base, this benefit does not equate to receiving money or property from the company. The Revenue failed to present any Supreme Court precedent supporting their view that bonus shares are taxable as income. Consequently, the High Court found no grounds to interfere with the ITAT's order. The appeals filed by the Revenue were dismissed.

What were the issues?

1. Whether the ITAT was justified in deleting the addition of Rs. 4,31,45,715/- made under Section 56(2)(vii)(c) for receiving bonus shares for nil consideration against their fair market value calculated under Rule 11U & 11UA (Question of law). The Revenue argued that the issuance of bonus shares by capitalizing share premium led to an increase in the net wealth of the promoters and that the allotment was disproportionate and not based on a rational formula, intended to transfer disproportionate value in the garb of bonus shares. The Assessee contended that bonus shares do not result in an increase or decrease in the wealth of shareholders, nor do they involve any element of gift, as no new property is conveyed. They relied on Supreme Court decisions like Khoday Distilleries Ltd. vs. CIT and Inland Revenue Commissioners vs. Blott, and Commissioners of Inland Revenue vs. Fisher’s Executors, arguing that bonus shares are merely a capitalization of profits and do not represent a distribution of assets. The Revenue was unable to cite any Supreme Court judgment holding the transfer of bonus shares as income.

Which sections of the Income-tax Act were involved?

Section 260A,Section 153A,Section 143,Section 142,Section 263,Section 56(2)(vii)(c),Section 34(3)(a)(i),Section 155(5)(ii)(a),Section 154

AI-generated summary — verify with the full judgment below

2023:PHHC:127608-DB ITA No.72 of 2018 (O&M) and connected appeals -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 27.09.2023

1.

ITA No.72 of 2018 (O&M)

Principal Commissioner of Income Tax (Central), Gurgaon …Appellant Vs. Smt. Meenu Satija …Respondent

2.

ITA No.75 of 2018 (O&M)

Principal Commissioner of Income Tax (Central), Gurgaon …Appellant Vs. Sh. Sunil Satija …Respondent

3.

ITA No.76 of 2018 (O&M)

Principal Commissioner of Income Tax (Central), Gurgaon …Appellant Vs. Sh. Dharmendra Bhandari …Respondent

4.

ITA No.79 of 2018 (O&M)

Principal Commissioner of Income Tax (Central), Gurgaon …Appellant Vs. Sh. Dharmendra Bhandari …Respondent

5.

ITA No.129 of 2018 (O&M)

Principal Commissioner of Income Tax (Central), Gurgaon …Appellant Vs. Sh. Sunil Satija …Respondent AJAY PRASHER 2023.10.07 11:44 I attest to the accuracy and integrity of this document

2023:P

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