MEASGE V K VALVES PRIVATE LIMITED,JALANDHAR vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2, JALANDHAR

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ITA 575/ASR/2019Status: DisposedITAT Amritsar02 March 2022AY 2016-1711 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the revenue authorities failed to consider the fair market value of the shares, including intangible assets, as per Section 56(2)(viib). The valuation of assets was completed before share issuance, and no rebuttal was provided by the revenue.

What were the facts?

The assessee company issued 25,000 unquoted equity shares at a premium of Rs 110 per share, valuing each share at Rs 120. The Assessing Officer (AO) treated the excess premium over face value as income under Section 56(2)(viib) based on book value, while the assessee argued for fair market value (FMV).

What were the issues?

Whether the valuation of shares for the purpose of Section 56(2)(viib) should be based on book value or fair market value, considering intangible assets.

Which sections of the Income-tax Act were involved?

Section 56(2)(viib),Section 143(3),Section 250(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR

Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE

Hearing: 24.02.2022Pronounced: 02.03.2022

ORDER Per Anikesh Banerjee, JM:

The aforesaid appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Jalandhar [in brevity the CIT(A))] dated 20.06.2019 passed u/s 250(6) of the Income Tax Act, in respect of Assessment Year 2016-17.

2.

The assessee has raised the following grounds of appeal:-

3.

The assessee’s case was assesseed u/s 143(3) of the Income Tax Act, 1961 (in brevity the Act) bearing order dated 29/12/2018.

4.

The ld. counsel of the assessee filed a paper book on dated 28/09/2020 which is kept in the file. The moot point of the case is that assessee issued 25,000 unquoted equity share with face value Rs 10/- each at premium of Rs 110/-. So, total value of each share was Rs 120/-. The assessee received total consideration Rs 30,00,000/- by issuing share to existing share holder. As per the ld Assessing officer (in brevity AO) the valuation of share will be under book value. Whereas

V K Valves P. Ltd v. ACIT the assess valued per share under FMV as prescribed under section 56(2) (viib) of the Act. The observation of ld AO, as assessment Order page 5-6, is as follows:-

5.

The Assessee filed appeal before the ld Commissioner of Income tax (Appeal)- 1/Jalandhar {in brevity the CIT(A)}. The observation of the ld CIT (A) as per appeal order page 3, 4 & 5 is as follows:-

6.

After the order of the ld CIT(A) the assessee filed appeal before us. During the hearing the ld counsel of the asssessee filed paper book with the following documents. The details of documents are as follows:-

V K Valves P. Ltd v. ACIT 7. The ld counsel pointed out that both the revenue authorities had not appreciated the section 56(2)(viib) of the Act. The details of the relevant section is as follows;- The Finance Act, 2012 inserted Section 56(2)(viib) of the Act w.e.f. 1st April, 2013, and consequently applicable from AY 2013-14, onwards. Section 56(2)(viib) of the Act imposes tax liability on company itself in respect of excessive premium collected by such company from resident subscribers of its shares. It will be thus prudent to reproduce the relevant provision applicability of which is in question: "Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under the head "Income from other sources", if it is not chargeable to income tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income tax under the head "Income from other sources ", namely :-— ** ** ** (viib) 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 exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as maybe notified by the Central Government in this behalf. Explanation.—For the purposes of this clause, — (a) the fair market value of the shares shall be the value— (i) as maybe determined in accordance with such method as maybe prescribed: or (ii) as maybe substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher."

8.

The Ld. Senior Departmental Representative (in brevity Sr. DR) vehemently argued in this issue. He fully relied on the order of the ld CIT(A). He also mentioned that valuation was done without any reasonable basis & assessee had not filed any valuation report before the ld AO.

V K Valves P. Ltd v. ACIT 9. We have heard both the parties. The ld AO had calculated the value of share on basis of book value of the assets. The revenue authorities did not recognize the assessee’s calculation of value of share on fair market value of the assets which was on the basis of section 56(2)(viib) with explanation (ii). So long as the facts and circumstances exist, the presence or otherwise valuation report per se has no effect. Both the lower authorities have failed to controvert the value adopted for land parcels in departure with the book value. No rebuttal of the fact towards the value is on record. The valuation of intangible assets of the assess also was increased on basis which was submitted before the ld CIT(A). All the valuation of assets is completed before issuance of the share. The ld CIT(A) in his order page 3 para-4.2 mentioned that without considering intangible assets the valuation of per share comes to Rs 141.06 which is substantially higher than the premium received. We thus see no valid reason whatsoever in upholding the adverse conclusion drawn by the Revenue Authorities. The order of the CIT(A) accordingly set aside and the AO is directed to delete the addition made under s.56(2)(viib) of the Act discussed above

10.

The appeal of the assessee related to all grounds is therefore treated as allowed.

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