M/S. PIRAMAL ENTERPRISES LIMITED vs. INCOME TAX OFFICER-6 (2) (1) MUMBAI AND 2 ORS

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WP/1138/2016HC Bombay14 March 2024Author: HON'BLE SHRI JUSTICE K.R. SHRIRAM, HON'BLE JUSTICE DR. NEELA KEDAR GOKHALE4 pages
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What did the High Court hold?

The Bombay High Court held that the impugned notice dated March 18, 2015, issued under Section 148 of the Income Tax Act, 1961, was without jurisdiction. The Court found that the reasons recorded by the Assessing Officer (AO) did not disclose a reasonable belief that income chargeable to tax had escaped assessment. The AO's reasons merely stated that the intrinsic value of the shares could not justify the premium received, without any exercise to ascertain this intrinsic value. The Court reiterated its earlier decision in Vodafone India Services v/s. CIT (368 ITR 1) and also referred to its recent decision in Godrej Projects Development Pvt. Ltd. v. Income Tax Officer, holding that amounts received on account of share premium are on capital account and not taxable as income. Therefore, there was no tangible material to give the AO jurisdiction to reopen the assessment. The Rule granted was made absolute, quashing the impugned notice.

What were the facts?

The Petitioner, M/s. Piramal Enterprises Limited (as successor to M/s. Cavaal Fininvest Private Limited), challenged a notice dated March 18, 2015, issued under Section 148 of the Income Tax Act, 1961, seeking to re-open the assessment for Assessment Year 2011-12. The assessment for that year was completed under Section 143(1). The reasons for re-opening stated that the Petitioner, a 100% subsidiary of M/s. BMK Laboratories Pvt. Ltd., received a share premium of Rs. 3,525 per share on 9,90,000 equity shares. The reasons did not detail the calculation of the intrinsic value of the shares or the extent to which the premium exceeded it, merely stating that the intrinsic value could not justify such a premium. The Petitioner also contended that the re-opening notice was served on a non-existent company.

What were the issues?

1. Whether the notice dated March 18, 2015, issued under Section 148 of the Income Tax Act, 1961, for Assessment Year 2011-12, is valid, given that the reasons recorded do not disclose a reasonable belief that income chargeable to tax has escaped assessment? (Question of law and fact, concerning Section 147 and Section 148). Assessee's Contention: The reasons recorded for re-opening the assessment are insufficient. They fail to demonstrate an exercise to determine the intrinsic value of the shares and the extent to which the premium received is excessive. The Petitioner relies on the decision in Vodafone India Services v/s. CIT (368 ITR 1) which held that share premium is on capital account and not taxable. Additionally, the Petitioner argues that the re-opening notice was served on a non-existent company. Revenue's Contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 148,Section 143(1),Section 147

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1/4 207-oswp-1138-2016-J.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1138 OF 2016 M/s. Piramal Enterprises Limited (As Successors to M/s. Cavaal Fininvest Private Limited), Piramal Tower, Ganpatrao Kadam Marg, Lower Parel, Mumbai – 400 013. …Petitioner Versus 1. Income Tax Officer-6(2)(1), Mumbai, Room No. 510, 5th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400 020. 2. The Deputy Commissioner of Income Tax -7(3)(1), Room No. 669A, 6th Floor, Aayakar Bhavan, M. K. Road, Mumbai-400 020. 3. The Union of India through the Secretary, Department of Revenue, Ministry of Finance, Govt. of India, North Block, New Delhi-110 001. …Respondents Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for Petitioner. Mr. Suresh Kumar for Respondents. CORAM: K. R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED: 14th March 2024

ORAL JUDGMENT : (Per K. R. Shriram, J.)

1.

On 30th March 2016, the following order came to be passed while admitting the petition : “Heard. 2 Admit. 3 This Petition challenges a notice dated 18th March, 2015 issued under Section 148 of Income Tax Act, 1961 (the Act), seeking to re-open the Assessment Gitalaxmi CNR No : HCBM020044632016 Uploaded on - 19/03/2024 Downloaded on - 31/10/2026 00:45:09

2024:BHC-OS:4650-DB

2/4 207-oswp-1138-2016-J.doc for the Assessment Year 2011-12. The reasons in support of the impugned notice proceeds on the basis that the Assessment for the subject Assessment Year was completed by intimation under Section 143(1) of the Act. The reasons in support of the impugned notice after stating that Petitioner is a 100% subsidiary company of M/s. BMK Laboratories Pvt. Ltd. who had invested in 9,90,000 equity shares of the Petitioner having a face value of Rs. 10/- each, at premium of Rs. 3,525/- per share, does not indicate the extent to which share premium received by the Petitioner-Assessee, is in excess of intrinsic value of its shares. It merely states on verification of the balance sheet and profit & loss account that intrinsic value of the company cannot be such as to get premium of Rs. 3,525/- on each shares. The exercise to find out the intrinsic value of shares is not reflected in the reasons recorded in support of the impugned notice to form a reasonable belief that income chargeable to tax has escaped assessment.

4.

Further, prima facie, we find that the issue of premium received on share capital is concluded by the decision of this Court in Vodafone India Services v/s. CIT 368 ITR 1 in which it has been held that the amounts received on account of share premium is on capital account and cannot be subjected to tax as income.

5.

Moreover, additionally, it may be pointed out that the reasons recorded does not take into the fact that the Petitioner is a 100% subsidiary company of BMK Laboratories Pvt. Ltd. which has invested the above amount, by converting its loan into equity shares after recording its status as a subsidiary. Further, it is also contended on behalf of the Petitioner that re-opening notice has been served upon on non-existing company. This issue will be considered at the final hearing.

6.

In the above view, prima facie, the impugned notice is without jurisdiction as it does not disclose a reasonable belief that income chargeable to tax has escaped assessment. Accordingly, interim relief in terms of prayer clause (d).”

2.

A similar issue came up for consideration in the recent matter Gitalaxmi Uploaded on - 19/03/2024 Downloaded on - 31/10/2026 00:45:09

3/4 207-oswp-1138-2016-J.doc before this Court in Godrej Projects Development Pvt. Ltd. v. Income Tax Officer, 1(1)(4) and Others1. There also the Court came to a finding that there was no basis for the Assessing Officer (“AO”) for his reason to believe that the income chargeable to tax had escaped assessment. The AO appears to have not been in doubt regarding the transaction having taken place between the two companies with regard to 9,90,000 equity shares and receipt of share premium amount and what is sought to be questioned is not the transaction, but the receipt of share premium amount, which was said to be excessive and much beyond the intrinsic value of shares.

3.

Moreover, in any case the receipt of share capital including premium will be on capital account and will not give rise to any income. Therefore, there was neither any basis for the AO for his reason to believe that income chargeable to tax had escaped assessment, nor was there any tangible material which should have otherwise given jurisdiction to reopen the assessment.

4.

In the circumstances, Rule granted on 30th March 2016, is made absolute in terms of prayer clause (a), which reads as under : “a. that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other Writ, Order or Direction under Article 226 of the Constitution of India, calling for the records of the case leading to the issue of the impugned notice and passing of the impugned order and after going through the same and examining the question of legality thereof 1. 2024 SCC OnLine Bom 366. Gitalaxmi Uploaded on - 19/03/2024 Downloaded on - 31/10/2026 00:45:09

4/4 207-oswp-1138-2016-J.doc quash, cancel and set aside the impugned notice (Exhibit I) and the impugned order (Exhibit Q).”

5.

Petition disposed. There will be no order as to costs. (DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.) Gitalaxmi GITALAXMI KRISHNA KOTAWADEKAR GITALAXMI KRISHNA KOTAWADEKAR Date: 2024.03.19 11:08:14 +0545 Uploaded on - 19/03/2024 Downloaded on - 31/10/2026 00:45:09 Powered by TCPDF (www.tcpdf.org)

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