TaxTMI 
TaxTMI 
2021 (6) TMI 500
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....ssessee company is a deemed public limited company without giving an opportunity to the Assessing Officer to verify claims of assessee with regard to NCC Infrastructure Holding Limited being deemed public limited company because of NCC Limited which is a listed company held more than 40% shares of NCC Infrastructure Holding Limited during the year under consideration. 4. The Ld.CIT(A) erred in concluding that assessee company is a deemed public limited company ignoring the fact that assessee claimed before the Assessing Officer that NCC Infrastructure Holding Limited is a public limited company but not deemed public limited, which fact was first brought before Ld.CIT(A) and Assessing Officer had no chance to verify. 5. The Ld.CIT(A) erred in concluding that assessee is a deemed public limited company ignoring the fact that the Assessing Officer has no occasion to verify whether NCC Infrastructure Holding Limited, NCC Limited qualify to be public limited companies as per provisions of Section 2(18) in order for assessee to be qualified as public limited company. 2.1. Both the learned representatives invited our attention to the CIT(A)'s detailed discussion on the sole issue of ....
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....transgressing the express language of section 56 (2) (viib) of the Act. b) By conveniently side-stepping the key legal claim of the appellant, if only was fairly considered, would have avoided the protracted litigations. c) By overlooking the case facts as discernable from evidences placed on record and also from the details as verifiable from documents as available in public domain. d) By not providing an opportunity to the appellant to exercise its options as per Explanation (a)(ii) to section 56(2) (viib) of the Act. e) In gross denial of principles of natural justice because in this case no show- cause notice indicating the grounds for making an addition to the returned income of the appellant was issued before passing the assessment order and carrying the prejudicial additions to the returned income. 4. Considering the above aspects, it would not be a misnomer to comment that in the current case the ld.AO has carried the addition under section 56(2) of the Act with the predetermined mindset to tax the realization over and above the value per share as worked out as per one of the methods prescribed under referred section. In the interest of justice, the appellant once....
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....f share issue at premium referred to in section 56 (2) (viib ) of the Act the tax auditor has asserted 'no' and 'nil'. This evidence also advances force to the contention of the appellant being that provisions of section 56 (2)(viib) are not applicable to the assesse company to any of its allotments. 5.4 For the sake of completeness and in order to establish beyond doubt that assesse company is a 'company in which public. is substantially interested', the conditions as mentioned under section 2 (18) of the Act are run through hereunder in respect of NCC Power Projects Ltd [i.e. assesse company}., NCC Infrastructure Holdings Ltd (holding company of assesse company) and NCC Ltd ultimate holding company). For this purpose, relevant portion of the section is quoted hereunder: Section 2 (18) (b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely/- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of th....
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....ny in which public is substantially interested' All in all, since assessee company is conclusively established to be 'company in which public is substantially interested' as per section 2(18) of the Act, since the provision of Section 56(2)(viib) expressly states that the same is applicable to "company not being a company in which the public are substantially interested' , the provisions of Section 56(2)(viib) cannot be applied to any of the allotments made by the assessee company during the financial year 2013-14 even though the allotment could have been made at a price greater than fair value of such shares as worked out as per any of the methods prescribed under section 56 (2) (viib) of the Act read with rule 11 UA of Income Tax Rules. On this short ground alone, the additions carried under section 56 (2) (viib) of the Act must be deleted. 6. Merely because the fair market value as per net asset method prescribed under rule 11 UA of the Act happens to be lower than the value at which the shares are allotted doesn't automatically lead to charge under section 56(2)(viib) of the Act in cases where allotment is justifiable considering the commercial aspects. ....
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....ngs, it was craved before Id.AO that price at which the shares were issued to shareholder Gayatri Energy Ventures Pvt. Ltd is Justified in view of the business considerations. Further value as per the request, FMV as per net asset method of rule 11 UA was worked out and provided in submissions. Unfortunately in the current case Id.AO simply carried the additions to the returned income by working the addition based on difference between the issue price and fair market value as per "the net asset value method without appreciating the fact that said method is just one of the method is net asset value method prescribed under rule 11 UA and in the interest of fairness, it was essential to provide the appellant an opportunity to exercise the options prescribed under Explanation (a)(ii) to section 56(2)(viib) of the Act. Not only this, also no prior show-cause notice was issued before making the addition to the returned income as per the assessment order. It is thus the contention of the appellant that the addition has been carried in the case of appellant without adopting the machinery prescribed under the section and also after not pragmatically considering the facts holistically. 6.4....
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.... agreement, the essential wherewithal's to development of power project viz. sourcing of inputs, loan finance, land, clearances and approvals, power sale contracts, were already in place with the project having reached the plug and play mode'. Naturally therefore, for businesses seeking to venture in to infrastructure, making investment in Assessee Company was lucrative option as now on as a venturer one has to assume only of Operations, commercial and legal risk because the project had already surpassed the biggest risk specific to power sector entities being the development risk. 6.5 Considering the above aspects, it is respectfully submitted that in view of the clause b to explanation to section 56 (2) (viib) of the Act, transaction of issue of shares at premium is justified having regard to business, assets, pre-existing rights etc. as on the date of fixation of price for share allotment and accordingly, your honor may please delete the impugned unjustified addition carried under section 56(2)(viib) of the Act. 6.6 Also since the additions are arbitrarily carried to the returned income, have been carried in gross violation of principles of natural justice and also a....
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....your honor to kindly consider the above bonafide aspects to kindly vacate the addition made under section 56 (2) (uiib] of the Act because the transaction falls beyond the periphery apparent form the legislative intent with which the section was introduced Amalgamation The appellant Company invites attention to the fact that Sembcorp Gayatri Power Limited has been amalgamated with and into the appellant Company vide sanction order of the Regional Director, South East Region, Hyderabad dated 31s! October, 2018 with effect from the appointed date of Is! April, 2018. The appeal was originally filed by Sembcorp Gayatri Power Limited only. However, Sembcorp Gayatri Power Limited does not exist on account of amalgamation with appellant Company and hence, the appeal should be adjudicated in the hands of the Appellant Company. In order to substantiate the fact, the Appellant Company would like to submit the copy of the scheme of arrangement along with order of the Regional Director, South East Region, Hyderabad sanctioning the scheme of arrangement vide Annexure -1 to this letter. The Assessee invites your honor's attention to recent pronouncement of Hon'ble ITAT, Hyderab....
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....e FY 2014-15. Since AHLL is a 100% subsidiary of AHEL (a listed company), AHLL is also a company in which public are substantially interested within the meaning of Section 2(18)(b)(B)(c) of the Act. The assessee is a subsidiary of M/ s. Apollo Health and Lifestyle Limited (AHLL) wherein 80% of shares of the assessee were held by AHLL during the FY 2014-15. Since AHLL is a 100% subsidiary of AHEL (a listed company), and the assessee is 80% of subsidiary of AHLL, the assessee satisfies the condition laid down in Section 2(18)(b)(B)(c) of the Act. Hence} the assessee submitted that it is a company in which public are substantially interested within the meaning of Section 2(18) of the Act. 4.2 The assessee submitted that Section 56(2)(viib) of the Act are not applicable where premium on issues of shares is received by a company in which public are substantially interested. The assessee submitted that since specific provisions of Section 56(2)(viib) dealing with taxability of share premium are not applicable in the instant case, the general provisions of Section 56(1) of the Act also cannot be invoked. The assessee submitted Section 56(1) covers all those income which are otherwise no....
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....report on the issue raised by the Assessing Officer regarding the share premium. No such report was submitted before me, hence the finding of the Assessing officer, who is very specific to show that Section 56(2)(viib) is in applicable. On verification, it Is correct that provision of Rule 11 UA for the purpose of Section 56 of IT Act, there is prescribed method for valuation of share premium under Rule 11 UA(I)(b) for the purpose of Section 56 of Income Tax. Act. The Appellant has not accepted the valuation of Rs. 741/given by the Chartered Accountant under DCF Method nor under Rule 11 UA of IT Act. It is to be noted that the Income Tax. Act is very specific regarding the issue. The appellant may have used negotiations and deliberations during the transactions. But for Income Tax. procedures the Rule 11 UA will apply. 6.10 In the background of this, the appellant has not been able to support its stand. The addition made regarding the excess share premium collected is disallowed u/ s. 56 of IT Act. 1 have verified the issue and find that the Assessing officer is correct in disallowing Rs. 58,42,01,700/_ as excess share premium. The addition of Rs. 58,42,01, 700/- is upheld." 9.....
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....6(1), the income earned by the assessee should be classified as revenue income as per Section 14 but should not fall within any of the head of income A,C,D or E. Since section 56(1) is residuary head of income, it falls in the head of income 'F' i.e. "income from other sources". This head of income consists of two parts i.e. section 56(1) and section 56(2). The first part i.e. sub-section (1) deals with income of every kind, which does not fall in any of the head of income A- E and also which is not to be excluded from the total income under this Act. The important thing is, it should fall within the definition of income u/s 2(24) of the Act. At the same time, subsection (2) of section 56, deals with specific income which is not income as per section 2(24) but specifically brought under the definition of income by the Legislature. Therefore, the income which cannot be brought to tax under section 56(2), under specific head, AO cannot bring to tax even u/ s 56(1). As held in the case of Mercantile Corporation Vs. CIT, 83 ITR 700 (SC), "where there is a specific head for the income in question and specific section providing for the head, this residuary section cannot be cal....