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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order,dtd.19.1.2015, of CIT(A)-24,Mumbai the assessee has filed the present appeal.Assessee-company,engaged in the business of providing various business support and information technology enabled services to its group companies as well as infrastructure support services,filed its return of income,on 11.10.10.declaring total income at Rs.95.88 lakhs under the normal provisions of the Act and book profit of Rs.2.11 crores under the provisions of 115JB of the Act.The Assessing Officer (AO)completed the assessment u/s. 143 (3)of the Act,determining the income of the assessee at Rs.58.20 crores. 2.The effective Ground of Appeal is about treating the share premium received by the assessee,amounting to Rs.56.10 crores as a business receipt and thereby confirming the addition of share premium u/s.56(1) of the Act to its total income.During the assessment proceedings,the AO found that the assessee had issued 40 lakhs equity share of face value of Rs.10/- each out of which 10 lakh shares had been issued at par,that the premium received by the assessee was credited to Securities Premium under the head reserves and surplus in the balance sheet. He called for the details of premium receipt.Relying on the
993-Credit s decision of the Chennai Tribunal in the case of Ascendas India (P) Ltd.,he held the value of the shares were not readily ascertainable due to various constraints, that the value of shares could be taken only at Rs. 10 per share, that the receipt of use premium of Rs. 187/- per-share was a device to avoid tax. He relied upon the cases of McDowell (154 ITR 148), Banyan and Berry (222 ITR 831) and Azadi Bachao Andolan and others (256 ITR 563) and held that the intention behind the transaction would be the guiding factor to decide as to whether the judicial process could approve the transaction. He also analyse the provisions of section 78 of the Companies Act(CA)and examined as to whether the premium collected by the assessee had been utilised as per the conditions laid down in the said section. He held that the assessee had used the share premium collected for the day-to-day business activities, that it was a clear violation of section 78 of the Companies Act, that the share premium loss its character and it became trading receipt.He relied upon the cases of Bharat Fire and General Insurance Ltd. (53 ITR 108)Rambahadur Thakur Ltd.(261ITR390),Lasmandas Oswal(126 ITR 446) and held that the onus of proving the source of money received by the assessee was on it, that the assessee had failed in its duty to substantiate the character of the share premium.He invoke the provisions of section 56 (1) to bring the above receipt as income under the head income from other sources, that the provisions of section 56 (2) did not bark taxing any item under section 56 (1).He finally concluded that the assessee had received Rs. 56.10 corrodes in the guise of share premium and that the same had to be taxed under the head income from other sources.
3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it was argued that the assessee had issued cumulative redeemable preference shares of face value of Rs.10/- each at a premium of Rs.187/-, that the shares were converted into equal number of equity shares at the same time, that in compliance with the FDI Regulations a 2
993-Credit s valuation report was obtained from a chartered accountant, that the fair value of the preference share was determined to be Rs.10/-, that the price at which the shares were to be issued to the shareholder was a commercial decision of the company,that issue of shares at a premium only resulted in a reduced number of shares held by the shareholder and did not change the characterisation of the receipt from capital to revenue, the capital contribution in terms of the amount remained the same, that the shareholder’s right to receive company’s assets on liquidation remained same,that the consideration for the company was to issue shares that represented hundred percent of its capital which did not vary with a higher or lower number of the shares issued.It was further contended that the CA did not put any restriction on issue of shares by an Indian company at a premium,that the allegation made by AO about avoiding payment of tax was without any basis,that share premium received by a company on issue of shares was part of the capital of the company and a capital receipt.The assessee referred to cases of Green Infra Ltd.(145 ITD 240)and DP World Pvt. Ltd.(140ITD694). It was further argued that the AO had factually erred in stating that assessee had utilised major portion of share premium for day-today activities and thus had violated the provisions of section 78 of the CA,that the AO had confused the application of cash on the Assets side of the Balance sheet for business purposes as effective use of share premium,that the assessee had clarified to the AO,during the assessment proceedings,that share premium at the beginning of the year was the same as the end of the year, that share premium had not been utilised at all, that the AO had relied upon the cases that had no relevance to decide the issue. The assessee referred to the case of Vodafone India Services Pvt. Ltd.(368ITR1)and argued that premium received on issue of share was a capital receipt and the same should not be taxed under the head ‘ income from other sources’ .
993-Credit s 3.1.After considering the submission of the assessee and the assessment order the FAA held that face value of the shares had been Rs.10/- only, that it was not known as to how assessee had worked out the premium at Rs.187/- per share,that no evidence was adduced either before AO or before him to demonstrate that shares could fetch premium of Rs.187/- per share. Referring to judgment of Vodafone (supra),the FAA held that judgment was rendered in the context of determination of ALP by the TPO,that the issue of equity shares was treated as International Taxation Transaction,that the Hon’ble Court had examin -ed the applicability of Chapter-X of the Act and had concluded that provisions of the said chapter were not applicable,that the facts and circumstances in the judgment rendered was different from the facts of assessee’s case.He further held that in the case of Vodafone (supra),the Hon’ble Jurisdictional High Court had held that provisions of section 56(1) of the Act would not be applicable, that the share premium received by the assessee could not be taxed under the head income from other sources.Thus,principally,he deleted the addition made by the AO.However, referring to the provisions of section 78(2) of CA,he held that the assessee had not complied with the statutory requirements of the said Act,that the assessee did not bring any evidence on record to show that premium had been utilised as per section 100 to 102 of the CA,that it had utilised the premium collected for its business activities, that share premium had lost its character and took the colour of trading receipt. He relied upon the case of Sundaram Iyengar and Sons Ltd.(222ITR344) of the Hob’ble Supreme Court. He held that it was possible that nature of a receipt might undergo a change from capital to revenue over a period of time, that the AO had rightly held that share premium had changed its colour/character. He upheld the addition made by AO amounting to Rs.56.10 crores.
993-Credit s 4.During the course of hearing before us, the Authorised Representative (AR) argued that the CBDT,vide its Instruction no.2/2015 dt.29.1.2015,had informed the officers of the Department about accepting the order of Hon’ble High Court of Bombay in the case of Vodafone (supra).He further argued that facts of the case of Sundaram Iyengar and Sons Ltd. were not applicable to the case under consideration, that assessee had not utilised the share premium for its business.He referred to the case of Hillcrest Reality SDN.BHD (IA No.9920 of 2009 in CS(OS) 1832/2008,dt.18.8.2009) of the Hon’ble Delhi High Court. He also referred to the section 78 and 100 of the CA. The DR supported the order of the FAA and referred to the cases of Hillcrest Reality SDN.BHD(supra)and Bharat Fire and General Insurance Ltd.(53ITR108).
5.We have heard the rival submissions and perused the material on record.We find that the FAA had upheld the disallowance because he was of the opinion that the assessee had not violated the provisions of CA.In other words,if the assessee had not contravened the sections 78 or 100 of the CA,the amount in question would not have been liable to tax.In our opinion,the approach of the FAA is fundamentally wrong.The taxability of an amount has to be decided within the four corners of the Income Tax.Section 4 of the Act is the charging section and section 2 defines the word income.Even the inclusive definition of income does not stipulate that non compliance of any provision of other Act would result in turning a capital receipt a revenue receipt.An infringement of a particular Act is dealt by that Act,unless and until it deals with other Act/(s). For example provisions of Prevention of money laundering Act(PMLA)provide that certain offences committed under other statutes would be considered scheduled offence under the PMLA.Without such a clear mandate nothing can be imported to implemented to other Act/(s).While dealing with the assessment or appeals, under the provisions of the Income tax Act,the basic principle every officer of the department has to remember that he is the representing the Sovereign and 5
993-Credit s his duty is to collect Due taxes only.For determining the Due taxes they should avoid bringing farfetched fancies and ideas.In the case under consideration they have done the same.Without understanding the basic philosophy of income they have referred to the provisions of CA,so that the amount in question can be taxed at any cost.It is not a fair or judicious approach to deal with the Subjects of the State.Even if the assessee had violated the provisions of CA,it will be penalised by the provisions of that Act.But,it would never turn a capital receipt in to revenue receipt or visa-versa. Now,we would also like to discuss the provision of section 78 and 100 of the CA also.But,before testing the applicability of the said sections,we would like to refer to the submissions made by the assessee in that regard.Neither the AO nor the FAA has proved that the share premium money was utilised by it for running its day today business.The assessee had proved that the opening and the closing balance of the share premium money account was same for the year under consideration.We find that the factual position assailed by the assessee was not proved incorrect by both the authorities.If there was no difference in the balances how the conclusion was drawn that the share premium money was utilised for business purposes and not preserved for the purposes for which it was collected.Without any evidence both the authorities held that the assessee had used the money for purposes other than the purposes for which it was collected.Therefore,in our opinion there was no foundation of the building that was built by them.We are not in position to validate such a classical factual blunder.Section 100 of the CA deals with reduction of share capital.In short,the stand taken by the FAA is not endorsable either legally nor factually.We would also like to mention that the facts of the case of Sundaram Iyengar and Sons Ltd.(supra),relied upon by the FAA,has not relevance to decide the issue before us.It does not deal with the issue of share premium money and its taxability. So,considering the facts and circumstances of the case,we are reversing the 6
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