Court rules share premium is capital, not taxable income under Income-tax Act, 1961

The High Court dismissed all six appeals by the Revenue, ruling that the share premium received by the respondent-assessees is of a capital nature and not taxable as income. The court upheld the Tribunal's decision that share premium falls under the capital account and cannot be taxed as profits and gains of business under section 28(iv) of the Income-tax Act, 1961. The court relied on established legal principles and case laws like Vodafone India Services Pvt. Ltd. and G. S. Homes and Hotels P. Ltd. to support its conclusion.

---

---

Issues:
- Whether the share premium received by the respondent-assessees-companies could be taxed as profits and gains of business under section 28(iv) of the Income-tax Act, 1961.
- Whether the share premium receipt is capital in nature and not subject to taxation.

Issue 1: Taxability of Share Premium under Section 28(iv)

The six appeals by the Revenue challenged the Tribunal's order dismissing the appeals related to the assessment year 2012-13. The Revenue contended that the share premium received should be taxed as profits and gains of business under section 28(iv) of the Act. The Assessing Officer had added the share premium to the income of the assessees, but the Commissioner of Income-tax (Appeals) ruled in favor of the assessees. The Tribunal also held that share premium falls under capital account and cannot be taxed as income, citing relevant case laws like Vodafone India Services Pvt. Ltd. and G. S. Homes and Hotels P. Ltd. The Tribunal's decision was based on the principle that amounts received on share capital, including premium, are on capital account unless there is express legislation stating otherwise.

Issue 2: Nature of Share Premium as Capital Receipt

The second issue revolved around whether the share premium receipt is capital in nature and therefore not taxable as income. The Tribunal, upholding the view of the Commissioner of Income-tax (Appeals), concluded that share premium is a capital receipt and cannot be taxed as income. The decision was based on precedents like Vodafone India Services Pvt. Ltd. and G. S. Homes and Hotels P. Ltd., which established that amounts received on issue of share capital, including premium, are on capital account and not considered income. Additionally, the court highlighted that the definition of income under section 2(24) of the Act at the relevant time did not cover consideration received for the issue of share in excess of its fair market value. The court also noted that amendments to section 68 of the Act were not applicable to the assessment year 2012-13.

In conclusion, the High Court dismissed all six appeals by the Revenue, emphasizing that the share premium received by the respondent-assessees is on capital account and cannot be taxed as income. The court's decision was based on established legal principles and relevant case laws, affirming that share premium falls under capital receipt and is not subject to taxation as profits and gains of business under section 28(iv) of the Income-tax Act, 1961.

---