AVINASH S SADAMATE ACIT CIRCLE 3 3 1, MUMBAI vs. RUCHI RENEWABLE ENERGY PVT LTD, MUMBAI

The assessing officer during the assessment invoked the provisions of section 56(2)(viib) by holding that share premium received by assessee while allotting share to the investor company is unjustified and needs to be taxed as income under section 56(2)(viib). Though, the assessee valued the share as per DCF Method. The investor company being a public limited company, therefore, rigorous of section 56(2)(viib) is not applicable on the transaction of assessee with its parent company. The ld. AR of the assessee submits that facts of the present case is clearly covered by the decision of Hyderabad Tribunal in Apollo Sugar Clinics Ltd. vs DCIT (2019) 105 taxmann.com 254 (Hyderabad – Trib.). The investor company is a public limited company in which public are substantially interested within the meaning of section 2(18)(b)(B)(c) of the Act.

The assessing officer recorded the date of allotment, number of shares, face value of shares and premium charged on different dates as recorded in para 5.2 of assessment order. The assessing officer also recorded that assessee relied on the valuation report for charging premium by following DCF method. The assessing officer called the financial statement of assessee for assessment year under consideration and the previous year. The assessing officer also issued notice on applicability of provisions of section 56(2)(viib).

In response to such show cause notice, the assessee filed detailed explanation vide reply dated 01.11.2018. The contents of such reply are restricted at page no. 3 & 4 of assessment order. The assessing officer by referring the report share valuation disregarded valuation as recorded in para 5.11 of assessment order and held that the receipt of premium of share has no justification and is not sustainable in law. The assessing officer brought the share premium of Rs. 16,13,49,825/- to tax under section 56(2)(viib).

The assessing officer has not doubted the receipt against the face value of share of Rs. 9219990 (9.21 crore). Aggrieved by the additions, the assessee filed appeal before the ld. CIT(A). Before ld. CIT(A), the assessee filed a valid detailed written submission. The submission of assessee are recorded at page no. 32 to 53. The assessee objected against the addition. The assessee in their submission specifically contended that assessing officer ignored the important factor that provisions of section 56(2)(viib) are not at all applicable to the assessee-company because it is wholly owned subsidiary of a listed company i.e. Ruchi Infrastructure Ltd., a company in which public are substantially interested. The investor company qualifies to be company in which public are substantially interested. The addition made by ld. Assessing Officer is without any basis and totally arbitrary. The assessee also referred the definition of public company under section 2(18)(b)(B)(c) r.w.s. 2(71) of Companies Act, 2013 are also covered subsidiary of listed company. The assessee stated that assessing officer overlooked the fact that assessment is entirely baseless as section 56(2)(viib) does not apply to a public company at all. The assessee also relied on certain case law.

“9. As regards ground nos. 3 to 8 regarding addition of receipt in the nature of share premium, the ld. AR submitted that the year under consideration is the first year of operation and assessee-company is the second level subsidiary of M/s. Apollo Hospitals Enterprises Ltd., (AHEL). At the time of issue of shares, assessee-company was a 99.99% subsidiary of M/s. Apollo Health and Life Style Ltd., (AHLL) which is subsidiary of AHEL. Since AHEL is a public limited company and by virtue of Section 2(18)(vii) of the Act, the assessee-company also a company in which public are substantially interested. Hence, the provisions of Section 56(2)(viib) will not attract. This fact was also acknowledged by the Assessing Officer in his order. However, the Assessing Officer invoked provisions of Section 56(1) to bring this transaction as income from other sources. He has not considered the fact that this transaction is capital investment and not an income within the meaning of Section 14 of the Act. For this proposition, he relied on the following case law:

9.1 With regard to Section 14A disallowance, he submitted that assessee has not claimed any exempt income. Therefore, the provisions of Section 14A will not apply.

11.1 The Assessing Officer instead of invoking Section 56(2)(viib), he went ahead by disallowing the excess of the premium received by assessee by invoking the provisions of Section 56(1) of the Act. In order to invoke Section 56(1), the income earned by the assessee should be classified as revenue income as per Section 14 but should not fall within any of the head of income A,C,D or E. Since section 56(1) is residuary head of income, it falls in the head of income 'F' i.e. "income from other sources". This head of income consists of two parts i.e. section 56(1) and section 56(2). The first part i.e. sub-section (1) deals with income of every kind, which does not fall in any of the head of income A - E and also which is not to be excluded from the total income under this Act. The important thing is, it should fall within the definition of income u/s 2(24) of the Act. At the same time, sub-section (2) of section 56, deals with specific income which is not income as per section 2(24) but specifically brought under the definition of income by the Legislature. Therefore, the income which cannot be brought to tax under section 56(2) specific head, AO cannot bring to tax even u/s 56(1). As held in the case of S. G. Mercantile Corporation v. CIT [1972] 83 ITR 700 (SC), "where there is a specific head for the income in question and specific section providing for the head, this residuary section cannot be called in aid". Similarly, when there is specific provision introduced by the Legislature to bring the specific transaction as income in section 56(2)(viib) because the transaction of issue of shares is capital in nature but under the circumstances as mentioned in above section, this transaction will be considered as income.

11.2 In the given case, the fact is clear that assessee has received share premium and Assessing Officer has mandate to invoke only Section 56(2)(viib) and no other section. This transaction will never fall in any of the heads of income as per Section 14 of the Act. Therefore, in our considered view,

Assessing Officer is not correct in bringing this capital investment as income of the assessee after satisfying himself that assessee's case does not fall u/s. 56(2)(viib) of the Act. Therefore, the addition made by Assessing Officer is deleted.”

Order was pronounced in the open Court on 18/08/2025.