Share issue premium taxation under section 56(2)(viib) failed where no consideration was received for issue of shares.

Section 56(2)(viib) applies only where a company receives consideration for issue of shares in excess of fair market value. On the facts stated, the assessee had purchased or subscribed to shares and had not received consideration for issue of shares, so the provision did not apply and the quantum addition failed. Because the penalty was dependent on the deleted addition, it could not survive independently and was also deleted as consequential.

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Issues: Whether section 56(2)(viib) of the Income-tax Act, 1961 applied where the assessee had sold shares and not received consideration for issue of shares, and whether the penalty could survive after deletion of the quantum addition.

Analysis: Section 56(2)(viib) applies only when a company not being one in which the public are substantially interested receives consideration for issue of shares in excess of the fair market value. On the facts found, the assessee had purchased or subscribed to shares and had not received consideration for issue of shares. The foundation for the addition therefore failed. Once the addition was deleted in quantum, the connected penalty, being dependent on the addition, had no independent survival.

Conclusion: Section 56(2)(viib) was held inapplicable to the assessee's transaction, the addition was deleted, and the penalty was also deleted as consequential.

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