Share premium as capital receipt cannot be taxed as other sources without proof of business use or income character.

Share premium on issue of shares retained its character as a capital receipt and could not be taxed as income from other sources merely because of alleged Companies Act non-compliance. Taxability had to be determined under the Income-tax Act alone, and breach of another statute did not by itself convert a capital receipt into revenue income. The factual claim that the premium was used for day-to-day business purposes was not proved, particularly where the opening and closing balances in the share premium account remained the same. On that basis, the addition was deleted.

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Issues: Whether share premium received on issue of shares could be treated as income chargeable under the head "Income from other sources" on the basis that the assessee allegedly violated the Companies Act and used the premium for business purposes.

Analysis: The assessment was founded on the premise that alleged non-compliance with provisions of the Companies Act converted a capital receipt into a revenue receipt. The Tribunal held that taxability must be determined strictly under the Income-tax Act, and that breach of another statute, by itself, does not alter the character of a receipt for income-tax purposes. It further found that neither the Assessing Officer nor the first appellate authority established, on evidence, that the share premium had been deployed for day-to-day business use. The record showed that the opening and closing balances of the share premium account were the same, and the contrary factual assumption was not proved. The reliance placed on decisions dealing with different factual settings was held to be misplaced.

Conclusion: The share premium retained the character of a capital receipt and was not taxable as income from other sources. The addition was deleted and the issue was decided in favour of the assessee.

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