TaxTMI 
TaxTMI 
2016 (8) TMI 656
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.... distribution tax to be paid by the assessee?" 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition on account of cessation of liability u/s 41(1) of the Act when the litigation in the form of an SLP before Supreme Court had come to an end by the Hon'ble Court holding the appeal by the assessee a defective appeal?" 2. Ground No.1 was not pressed by ld. DR, the same, is, therefore, dismissed in limine as not pressed. 3. We have heard rival contentions and found from the record that during the year under consideration, the assessee company had issued equity shares by way of bonus shares to its existing shareholders. The share capital of the assessee company as on 31/3/2009 consisted of 50,000 equity shares of Rs. 10/each fully paid up as against general reserve at Rs;5,42,62,295 as on that date. The assessee company had issued 49,50,000 equity shares of Rs. 10/each fully paid up by way of bonus shares to its equity shereholders. The said bonus shares were issued out of the amount lying in the general reserve account. Accordingly, an amount of Rs. 4,95,00,000 was transferred from general rese....
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.... provisions is that in the case of a bonus shares, there is no release of any asset of the company, since the profit is capitalized for purpose of increase of share capital. The same is also enacted by the Regulations of Schedule I, Table A 'of the Companies Act, 1956. When any action is taken by the company under the aforesaid Regulations, it would be seen that no part of the assets of the company is distributed or paid to any shareholder. The funds standing to the credit of the reserve account or the profit and loss account or .which are 'otherwise available for distribution are all genuinely capitalized, the paid up share capital being correspondingly increased. What the shareholders get is merely a paper certificate as evidence of their interest in the new issued capital or the additional capital on the old partly paid shares of the company, as the case may be. The transaction would take nothing out of the company's coffers and put nothing into the pockets of the shareholder. The very language of subparagraph (2) of Regulation 96 that the sum resolved to be capitalized shall not be paid in cash, but shall be applied in paying up amounts for the time being u....
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....of addition made by the AO under reference is answered in negative as per decision of Hansur Plywood works Ltd Vs'. CIT (229 ITR 112). Similarly, there is no operation and applicability of section 1150 of the Act on this issue as mentioned by AO in' para9( j) pg.13 of the assessment order because there is no distribution of dividend in terms of section 1150 as well as in terms of section 2(22) of the Act. Hence, for the reasons above, under the facts and circumstances of the case, ground no. 3 of the appeal is allowed and taxability of Rs. 4,,95,00,000/u/ s 1150 of the Act as held by the AO vide the said assessment order is deleted. 5. The AO also made addition u/s.41(1) of the Act for cessation of liability towards M/s Colgate Palmolive India Ltd. This addition has been discussed by the AO in para' 6 of the assessment order. Rs. 75,33,226/was appearing in the books of the assessee ,as security deposits of Colgate Palmolive Ltd. it has been observed by the AO that the confirmation of the above liability was sought from M/s Colgate Palmolive (India) Ltd: by issue of notice u/s 133(6) of the Act. M/s Colgate Palmolive (India) Ltd. vide letter dtd.14.12.2012 have stated....
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....ion of treating the aforesaid amount as income of the assessee company in the year ended 31st March, 2010 relevant to A. Y. 201011 is incorrect, contrary to the facts on record and contrary to the law. 9. The assessee company, therefore, most humbly submits that no part of the amount of Rs. 75,33,226/can be added to its income in the A. Y. 201011 as the said liability has not ceased but it is subsisting as on 31st March, 2010." 7.3 The legal position is quite clear that "unilateral entries in accounts will not amount to cessation of liability", as per decision in the case of CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR (SC). In this particular case the appellant ,is acknowledging the liability and same is duly .reflected 'in the books' of accounts. The appellant has also shown the willingness to .writeoff the said liability after verification' with M/s Colgate Palmolive India Ltd. based on the letter/record by the AO. However, somehow the exercise of verification and writingoff in the books of the appellant is not carried out and completed in this assessment year which is under appeal. At the same time the SLP No. 9820 of 2006 referred above is....