TAXEWORLD.COM PVT. LTD.,NAVI MUMBAI vs. ITO - 10(3)(4), MUMBAI

This appeal by assessee under Section 253 of Income-tax Act (the Act) is directed against the order of ld. CIT(A)-24, Mumbai dated 10.07.2016 for Assessment Year 2011-12, The assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee is a Private Limited Company, engaged in maintaining portal of online filing of return of income and was a registered as ERI with the Income-tax Department. The assessee also share portal with www.incometaxindiaefiling.gov.in. The assessee filed its return Mum 2016-M/s Taxeworld.Com. P. Ltd. of income on 31.03.2013 for relevant Assessment Year declaring total income of Rs. 7,500/-. The return of income was selected for scrutiny. The Assessing Officer while passing the assessment order made addition of Rs. 1.61 crore under section 56(2(viib) of the Act on taking the view that the assessee received premium of Rs. 40/- each on 200,000 share and premium of Rs.90/- on 90,000 shares. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. Therefore, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that there was no provision under the Act to tax on the date when the assessee- company received the share premium. The amendment under section 56(2)(viib) of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013 and applicable from Assessment Year 2013-14. Therefore, no addition under section 56(2)(viib) is sustainable. The ld. AR of the assessee further submits that valuation report of the share is also placed on record vide page no.45 of Paper Book. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in Principal Commissioner of Income-Tax Versus Apeak Infotech 397 ITR 148 (Bom.) on the ratio that the amount received on issue of share capital as premium are on capital account and cannot be considered to be income. Mum 2016-M/s Taxeworld.Com. P. Ltd.

On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR further submits that there is a difference in premium of allotment of share during the same period. The assessee issued 500 share at par at the face value of Rs. 10/- each and 2,00,000/- share issued at premium of Rs. 40/- each and 90,000 share at premium of Rs. 90/- aggregating to Rs. 1.61 crore. In alternative submission, the ld. DR for the revenue submits that the Assessing Officer may be directed to tax the share premium under section 68 of the Act.

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on the various case law relied by representatives of the parties. During the assessment proceeding, the Assessing Officer noted that the assessee has issued 3,00,000 equity share of face value of Rs. 10/- each, out of which 500 share was issued at par, 2,00,000 share were issued at a premium of Rs. 40/- each and 90,000 share at a premium of Rs. 90/- each. The assessee credited the premium under the head Reserve and Surplus in the balance-sheet. The assessee was asked to furnish the details of share premium received during the year along with fair market value of the shares. The assessee furnished its reply. In the reply assessee contended that the premium was charged based on the realizable value of portal under development as compared with other like portal. The Assessing Officer noted that the assessee has not furnished valuation report. The contention of assessee was not accepted. The Mum 2016-M/s Taxeworld.Com. P. Ltd. Assessing Officer treated the share premium of Rs. 1.61 crore as income of assessee as Income from Other Sources. Before the ld. CIT(A) the assessee contended that the provisions of section 56(2)(viib) are applicable from Assessment Year 2013-14 and that additions are improper. Before the ld. CIT(A), the assessee also contended that issue of share premium in a Private Ltd. Company is always a commercial decision which does not require any justification. It is the prerogative of Board of Director of assessee to decide the premium and it is the wisdom of shareholder whether they want to subscribe on a premium or not. It was also contended that the revenue authorities cannot question the charging of premium without any bar under law. The ld. CIT(A) not accepted the contention of assessee and confirmed the action of Assessing Officer in holding that transaction is a device to avoid tax. We have also seen that the assessee has furnished the valuation report of share of the assessee valued by M/s LKG Corporate Advisory Services Ltd. vide their report dated 14.06.2010, copy of which is placed on record (page no. 45 to 51 of PB). 6. The Hon’ble Bombay High Court in PCIT vs. Apeak Infotech (supra) held that the amounts received on issue of share capital including premium were on capital account and could not be considered to be income. The definition of income as provided under section 2(24) of the Income-tax Act, 1961 at the relevant time did not define income as any consideration received for issue of share in excess of its fair market value. The Hon’ble Court further Mum 2016-M/s Taxeworld.Com. P. Ltd. held that section 56(2)(viib) was inserted by Finance Act, 2012 with effect from April 1,2013 and thus, would have, no application to the share premium received by the assessee in the previous year relevant to the assessment year 2012-13. It was further held that the amendment to section 68 of the Act by addition of a proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and could not be invoked.

The present case relates to Assessment Year 2011-12. The assessee received the said share premium much prior to the insertion of section 56(2(viib) of the Act with effect from April 1, 2013. Considering the fact that section 56(2)(viib) was inserted by Finance Act, 2012 with effect from 01.04.2013 and respectfully following the decision of Hon’ble Bombay High Court in case of Principal Commissioner of Income-Tax Versus Apeak Infotech (supra), we do not find any justification in making addition under section 56(2)(viib) of the Act. Hence, the grounds of appeal