TaxTMI 
TaxTMI 
2019 (10) TMI 1226
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....ccount of receipt towards share premium (from non-resident, Participatie Maatschappiji Graafsschap Holland Nv) on the alleged ground that the same is treated as unexplained cash credit and revenue receipt. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has factually and legally erred in applying the provisions of Section 78 of the Companies Act, 1956 and holding that the alleged share premium received has been utilized for non-specified purpose resulting in violation of the provisions of Section 78 of the Companies Act, 1956 and as such loses its character as capital receipts. 3. The Appellant respectfully submits that the AO/CIT(A) failed to appreciate the fact that the premium on share issue is a capital account transaction and does not give rise to any income, accordingly not chargeable to tax under the Act. In view of the same such share premium cannot be taxed as unexplained cash credit under Section 68 of the Act. 4. The Appellant respectfully submits that the AO/CIT(A) disregarding the submissions/documents has erred in not appreciating the fact that, with respect to share premium necessary approvals for Foreign Direct ....
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....the assessee company was asked to furnish the following details:- a. Names and addresses of the persons to whom such shares were issued, b. Confirmations for the same with complete transaction ledger c. Explanation for the sources of their funds d. In case of foreign remittances, details and evidences of necessary approvals e. Justification for premium charged on the shares issued with specific reference to the basis of valuation and method applied with supporting documentary evidences, f. Copies of the Minutes recorded in the board meeting held for increasing of the share capital and determination and charging of the premium with names and addresses of all the directors and shareholders who attended the board meeting g. Documentary and supporting evidences with detailed note on factors considered for allotting shares at a premium. h. Copies of the share application form submitted, or offer letters received if any i. Copies of the share certificates/counterfoils with certificate numbers and distinctive numbers of such shares. j. Name and address of the share registrar of the assessee company ....
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....te of Foreign Inward Remittance issued by RBI and other relevant documents pertaining to the receipt of money for allotment of share capital , share premium and share application money from M/s. Participatie Maatschappiji Graafsschap Holland Nv. However, in spite of so many opportunities provided to the assessee during the course of assessment proceedings the assessee company failed to submit any reply in respect of the basis for charging of share premium from M/s. Participate Maatschappiji Graafsschap Holland Nv. vis-a-vis not charging of share premium from M/s Pantaloon Retail India Ltd. and M/s pantaloon Industries Ltd. The Assessing Officer therefore, construed that the assessee company had nothing more to offer in this regard. 7. Further, the perusal of details filed during the course of assessment proceedings revealed that the assessee company was following the same practice year after year wherein on fresh allotment of share capital to the nonresident JV promoter, share premium was charged where as no share premium was charged on allotment of fresh share capital to resident JV promoters. Further, the investment details of balance sheet as on 31.03.2011 and 31.03.2012 reve....
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....#39; net worth of investment/ earnings per share was very high in comparison to the non-resident JV promoter. The Assessing Officer analysed the share holding of the assessee company as on 31.03.2011 & 31.03.2012 and found that even though M/s. Participatie Maatschappiji Graafsschap Holland Nv had invested about 50% in the share capital, the shares held by it was only 0.40% and 0.54% as compared to 49.80% and 49.73% held by each of the other two domestic JV promoters as on 31.03.2011 and 31.03.2012 respectively. 10. The Assessing Officer found that the entire investments of the assessee company was made in Future Generali India Insurance Co. Ltd which was an associate enterprise/holding company of the resident JV promoters. Simultaneously, M/s. Participatie Maatschappiji Graafsschap Holland Nv was also making investments directly and subscribing to the shares of Future General! India Insurance Co. Ltd @ Rs. 10/- per share whereas it had to pay Rs. 2.500/- for one share of the assessee company which again was invested in Future General! India Insurance Co. Ltd. The end result was that M/s. Participatie Maatschappiji Graafsschap Holland Nv was investing directly in the shares of F....
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....e-tax Act, 1961 have been fully complied with in spirit and letter. 6.15 I find that during the course of assessment proceedings, the appellant was asked to justify the premium charged on the shares issued with specific reference to the basis of valuation and method applied with supporting documentary evidences which was not complied with. No such valuation of share premium has been submitted during appellate proceedings also. The appellant has simply contended that the said transaction was a commercial transaction wherein a set of independent investors had agreed to participate in a business venture based on their own understanding of the industry, risk-reward matrix and other relevant factors which are highly subjective for each individual investor. That the said investors had applied their own commercial acumen to arrive at the value of the shares and accordingly invested in the shares of the appellant company. In this regard, I find that M7s. Participatie Maatschsappiji Graafsschap Holland Nv had directly invested in the shares of Future General India Insurance Co. Ltd. @ Rs. 10/- per share. It defies all logic as to how M/s. Participatie Maatschsappiji Graafsschap Hol....
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....raafsschap Holland Nv has to be treated as not being on account of share premium. 6.18 The Assessing Officer found that the alleged premium received by the appellant was utilized for the purpose of purchase of investments which was a clear violation of the provisions of section 78 of the Companies Act which rendered these receipts losing its character in true sense as a capital receipt. In this connection, the appellant has submitted that the provisions of Section 68 of the Income-tax Act, 1961 were only attracted if the explanation about "the nature and source" of the amount received by the assessee was not offered to the Assessing Officer. That this was clearly not the case in the matter of the appellant company who had fully satisfied this stipulation. That there was no mention about the subsequent utilization of the amounts so received. While section 68 of the Act may not mention about the subsequent utilization of the amounts received, the same is relevant for treatment of the nature of such receipt, 'me appellant is a company and is bound to abide by the provisions of the Company Act. During the course of assessment proceedings, the appellant had simply submitted....
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....-12 & A.Y.2012-13 respectively was based on cogent facts and reasons and hence, fully justified. Accordingly, the additions u/s 68 of the Income Tax Act, 1961 made by the Assessing Officer in both the A.Ys. 2011-12 & 2012-13 are sustained. The appellant's grounds of appeal are dismissed. 13. Against the above order assessee is in appeal before us. We have heard both the Counsel and perused the records. 14. Learned counsel of the assessee submitted that assessing officer has made the addition on the premise that assessee has failed to submit basis of charging share premium. That the assessing officer has drawn adverse inference for not charging premium from Indian promoters. That assessee has used the sum involved in making long-term investment in equity shares of future Generali India insurance Co Ltd. - section 40A(2b) company. That assessee company does not have any business activity. 15. Learned counsel submitted that assessing officer has simply questioned justification of charging high premium. Learned counsel submitted that ultimately the sole reason given for addition is alleged violation of section 78 of the companies Act regarding utilisation of share premium ....
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....ompany 7.10 From the above it is apparent that but for the restriction provided u/s 78(2) the amounts credited in the share premium account would take the character of the profit and consequentially would be liable to be taxed as such. But the adherence to section 78(2) gives the share premium account the characteristic of capital receipt. In the present case before us we find that there is no examination as to whether the company has ever adhered to the prescription of the Companies Act in this regard. If the company has not adhered to the prescription of the Act, the amount involved was liable to be taxed as revenue receipt. Learned Departmental Representative pleaded that action of the authorities below is in concurrence with the above proposition. Hence, he submitted that learned CIT(A)'s order should be upheld. 17. Upon careful consideration we find that the learned CIT(A) in his order has referred to the fact that assessee's operations do not command such share premium. He has also observed that assessee's plea that issuing shares premium is a prerogative of board of directors is not applicable in this case as same shares have been issued with differential trea....
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....iental Insurance Co. Ltd. Vs. Meena Varyal (5 SCC 428) an obiter dictum of Supreme Court is binding on subordinate courts in absence of direct pronouncement on that question elsewhere by Supreme Court. 19. We further find that honourable Supreme Court in the case of ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. (262 ITR 146 dated 15.9.2008) has expounded that non consideration of honourable Supreme Court decision whether cited or not can lead into an order of the tribunal to be suffering from mistake apparent from record. From this it implies that it is incumbent upon subordinate courts to follow the law laid down by the honourable Supreme Court. We find that by referring to the non-compliance of section 78 of the Companies Act the learned commission of income tax has in substance referred to this aspect. The assessee has been evasive in its reply to the question of compliance of provisions of section 78 of the companies act. The assessee has submitted that this is an aspect which arises post receipt of the money. In other words assessee contends that it is not relevant. However this is contrary to the exposition of the honourable Supreme Court as above. Furthermore assessee sub....