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Facts
The assessee company received a share premium of Rs.16,00,00,000/-. The Assessing Officer (A.O.) made an addition under Section 56(2)(viib) of the Income Tax Act, 1961, considering the premium to be in excess of fair market value. The assessee contended that it is a company in which the public is substantially interested, making Section 56(2)(viib) inapplicable.
Held
The Tribunal held that the assessee company is a subsidiary of Future Ventures India Ltd. (FVIL), which is a company in which the public is substantially interested, holding more than 50% of the assessee's shares. Therefore, the provisions of Section 56(2)(viib) are not attracted.
Key Issues
Whether Section 56(2)(viib) of the Income Tax Act, 1961 is applicable on the assessee company when it is a subsidiary of a company in which the public is substantially interested.
Sections Cited
56(2)(viib), 2(18)(b)(B), 2(71), 3(1)(c), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
O R D E R Per Om Prakash Kant, AM:
This appeal by the Revenue is directed against order dated 31.05.2023, passed by the learned Commissioner of Income Tax (Appeals)- National Faceless Appeal Centre, Delhi (‘ld.CIT(A) for short) for the Assessment Year (‘A.Y.’ for short) 2015-16, raising following grounds:
1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowances of Rs.16,00,00,000/- u/s. 56(2)(viib) of the Income Tax Act, made by the A.O., without appreciating the fact that assessee’s parent company did not hold whole of the shares of the assessee company (subsidiary company) throughout the previous year and thus not qualify as ‘company which in the public are substantially interested.
2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored.
2. Briefly stated, the facts of the case are that the assessee company was engaged in the business of rural and semi urban retail distribution of agricultural and consumer products for personal and household use including apparel, seeds, fertilizers and FMCG electronically on 29.11.2015, declaring total income at Rs.(-)9,69,45,055/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income Tax Act, 1961 (‘the Act’ in short) were issued and complied with. The assessment u/s. 143(3) of the Act was completed on 30.11.2017, wherein the ld. learned Assessing Officer ('ld. A.O.' for short) made addition u/s. 56(2)(viib) of the Act for receipt of share premium amounting to Rs.16,00,00,000/- from the existing shareholders against issue of fresh share capital.
3. Aggrieved, the assessee filed an appeal before the ld. CIT(A), however, could not succeed and, therefore, being aggrieved, the assessee is in appeal before the Income Tax Appellate Tribunal (‘Tribunal’ in short) raising grounds reproduced above.
We have heard rival submissions of the parties and perused the relevant materials available on record. In this case, the assessee issued shares to its existing share holders at the face value of Rs.10/- and premium of Rs.40/- for the following years:
Assessment Futures Venture India Godrej Agrovet Ltd. Anamudi Real Estates Total Year Ltd. Pvt. Ltd. Addition u/s. 56(2)(viib) No. of Premium No. of Premium No. of Premium shares (Rs.) shares (Rs.) shares (Rs.) 2013-14 16,80,000 6,72,00,000 7,20,000 2,88,00,000 9,60,00,000 2014-15 14,00,000 5,60,00,000 3,95,400 1,58,16,000 2,04,600 81,84,000 8,00,00,000 2015-16 28,00,000 11,20,00,000 7,90,800 3,16,32,000 4,09,200 1,63,68,000 16,00,00,000
In relation to year under consideration, the ld. A.O. held that the share premium charged being in excess of the fair market value, the same was liable to be added as ‘income from other sources’ invoking section 56(2)(viib) of the Act. The section 56(2)(viib) specify that when a company , not being a company in which the public are exceeds its fair market value , then amount exceeding fair market value shall be treated as income from other sources. Thus, the issue for examination before us is, whether the assessee is covered in the definition of a company in which ‘public are substantially interested;.
Before the ld. CIT(A), the assessee submitted that the assessee is covered under the definition of ‘company in which the public is substantially interested’ provided in section 2(18) of the Act and hence provisions of section 56(2)(viib) of the Act are not applicable over the assessee. The assessee particularly referred to the definition of ‘Company in which public are substantially interested’ as provided in section 2(18)(b)(B)(c) of the Act, according to which a company ( say ‘X’ company) in which more than 50% shares are held throughout the year by a company in which public is substantially interested ( say ‘Y’), then said company ( ‘X’) shall be treated as a company in which public is substantially interested for the purpose of section 56(2)(viib)
of the Act. As the assessee company is a subsidiary of M/s Future Ventures India Ltd, another company in which public are substantially interested , the ld. CIT(A) after going through the submission of the assessee, accepted its contentions and deleted the addition by observing as under:
4.3 The appellant has made a detailed submission on the issue that provision of section 56(2)(viib) do not apply to a company in which public are not substantially interested. The appellant has contended that the investors in appellant assessee are Future Ventures India Limited, Godrej Agrovet Limited and Anamudi Real Estates Pvt Ltd. These investors have extended Inter Corporate Deposits (ICDs) to appellant. During this AY, assessee has received a premium of Rs. 16,00,00,000/- from these 3 companies as a result of capitalization of working capital loan extended by these 3 companies to appellant. Appellant has allotted 16,00,000 shares at Face Value Rs. 10/- and premium of Rs. 40/- per share to the investor companies during FY 2014-15 relevant to AY 2015-16. 28,00,000 shares at a premium of Rs. 11,20,00,000/- were allotted to Future Ventures India Limited (FVIL), 7,90,800 shares at a premium of Rs. 3,16,32,000/- were allotted to Godrej Agrovet Limited and 4,09,200 shares at a premium of Rs.
(A.Y. 2015-16) Asst. CIT vs. Aadhaar Wholesale Trading and Distribution Ltd. 1,63,68,000/- were allotted to Anamudi Real Estates Pvt Ltd. Future Ventures India Limited (FVIL) is a group company of Future Group and Godrej Agrovet Limited and Anamudi Real Estates Pvt Ltd. are subsidiaries of Godrej Industries Ltd. As per the above shareholding, it is clear that the appellant is a subsidiary of M/s. Future Ventures Enterprises Ltd. (FVIL) (now known as Future Consumer Ltd.) which holds more than 51% of the shareholding. FVIL is a listed company on BSE and NSE stock exchanges since 2011 and accordingly, it is a public company as per section 2(71) of the Companies Act, 2013 or Sec 3(1)(c) of the Companies Act, 1956. As per section 2(18)(b)(B) of the I. T. Act, 1961, FVIL holds 70% of the shares as well as voting rights in the appellant company with no fixed dividend rights. 4.4 The provisions of Sec. 56(2)(viib) of the I. T. Act, 1961 are as under. "where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that accede the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares." "company in which the public are substantially interested a company is said to be a company in which the Public are substantially interested- 4.5 The provisions of section 2(18)(b)(B) of the I. T. Act, 1961 are as under b) if it a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item(A)or in item(B) are fulfilled, namely... (A) shares in the company for being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits were, as on the last day off the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder, [(B) shares in the company (not being shares entitled to a fixed of dividend whether with or without further right to participate in profits) carrying not less than fifty percent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by- (a) the Govemment, or (b) a corporation established by a Central, State or Provincial Act (c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company nominees throughout the previous year 4.6 In the view of the above facts, the provisions of section 56(2) (viib) of the Act are not attracted to the appellant, which is a subsidiary of a public limited company. The appellant has relied on decisions of Hon'ble ITAT Hyderabad in the cases of Apollo Sugar Clinics Ltd [2019] 105 taxmann.com 254 and M/s Sembcorp Energy India Limited [ITA No. 1774/Hyd/2019] in support of its contention. Respectfully following the above decisions of Hon'ble ITAT Hyderabad and in view of the facts and circumstances of this case, these grounds are allowed.
We find that the Revenue has not disputed the fact that ‘Futures Venture India Ltd’. is a company in which public are substantially interested and the said company is holding more than 50% of the shares of the assessee company and, thus, as per the section 2(18)(b)(B) of the Act, the provisions of section 56(2)(viib) of the Act are not attracted on the assessee company and hence not liable for invoking of section 56(2((viib)
of the Act. Therefore, we do not find any infirmity in the order of the ld. CIT(A) on the issue and dispute and, accordingly, we uphold the same. The sole ground of appeal raised by the Revenue is accordingly dismissed.
In the result, the appeal filed by the Revenue is accordingly dismissed. Order pronounced in the open court on 07.11.2024.
Sd/- Sd/- (Rahul Chaudhary) (Om Prakash Kant) Judicial Member Accountant Member Mumbai; Dated : 07.11.2024 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai