TaxTMI 
TaxTMI 
2022 (4) TMI 805
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....tion to assessee application for condonation of delay and prayed that court may decide the issue as deem fit and proper in the case. 4. We have heard the rival contentions and perused the materials available on record. The prayer as mentioned by the assessee for condonation of delay of 180 days has merit and we concur with the submission of the assessee. Thus the delay of 180 days in filing the appeal by the assessee is condoned. 5. The assessee has raised the following grounds:- "1. The Ld. CIT(A), NFAC has erred on facts and in law in confirming the addition of Rs. 4,56,000/- u/s 56(2)(vii)(c)(ii) of the Act by not accepting the contention of assessee that :- (i) section 56(2)(vii) is not applicable as it is applied to tax those receipts which are received without consideration or for inadequate consideration whereas the present case is allotment of shares which cannot be equated with receipt of shares. (ii) even if section 56(2)(vii)(c) is applicable, the same would not be subject to tax in view of Explanation (e) of said section 2. The appellant craves to alter, amend and modify any ground of appeal." 6. Brief facts of the case are that the assessee is an existing sh....
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.... shares of PDFCL had face value of Rs. 10. Buy a system of valuation prescribed under rule 11UA of the Rules, the value of shares were found to be Rs. 11.52. The value is more than what was paid by assessee. The assessee is trying to distinguish between initial allotment and secondary sale of shares. But the attempted distinction has no relevance for the present purpose. Assessee's case is not that of issue of bonus shares. The company which allotted the share had its authorised number of shares which it could allot. Some of the authorised shares have been allotted to assessee. Hence, this leg of assessee's argument is rejected. Second facet of assesse's argument is that 95.350 of shares in PDFCL were owned by members covered within exception prescribed in provision to section 56(2)(vii)(c)(vii) of the Act. Instead of allotting shares to all existing shareholder who were relatives, the shares were allotted to assessee and it was in the nature of transfer of rights to assessee. Hence, the provision of section 56(2) vii (g) would not get attracted. Reliance was placed on decision in case Assistant Commissioner of Income Tax Vs. Venkanna Choudary (2020) 180 lTD 166. But in....
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....e, allotment of shares will not fall under the ambit of section 56(2)(vii)(c) & consequently addition made by AO is not as per law. 2. Without prejudice to above, even if it is held that allotment of shares is covered by section 56(2)(vii)(c), then also the addition made by AO is uncalled for in as much as the entire share capital of PDFCL as on 27.09.2013i.e. just before fresh allotment of shares to the assessee was held by its relatives being the members of the HUF as defined in Explanation (e) to this clause as per the following details:- Shareholder Name Relation with assessee Number of Shares Percentage of Holding Prakash Chand Sharma Members of the HUF 21,26,000 44.20% Kalawati Sharma 9,30,500 19.35% Shruti Sharma 4,78,000 9.94% Saurabh Sharma 4,78,000 9.94% Himanshu Sharma 4,74,000 9.85% Prakash Chand Sharma HUF Self 99,500 2.07% Shubdeep Finance Company Pvt. Ltd Karta is Director 24,000 0.49% Kaladeep Developers Pvt. Ltd Karta is Director 2,00,000 4.16% Total 48,10,000 100% Thus from the above it can be noted that 95.35% shareholding of the company is with the assessee or the persons who fall under the definit....
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....h to its existing shareholders. However, except Sh. Prakash Chand Sharma and Prakash Chand Sharma HUF, all other shareholders renounce their rights in the shares in favour of these two persons. Smt. Kalawati Sharma who was entitled to 6,38,550 shares renounced 78,056 shares in favour of assessee and balance in favour of Sh. Prakash Chand Sharma. Shubhdeep Finance Company Pvt. Ltd. and Kaladeep Developers Pvt. Ltd. renounced all 16,466 shares and 1,37,214 shares in favour of the assessee. All other shareholders renounced the shares in favour of Sh. Prakash Chand Sharma. Thus, from the relative specified in Explanation (e) to section 56(2)(vii), assessee was allotted 78,056 shares. Therefore, to the extent of allotment of these shares, the value of which @ Rs. 1.52 per share comes to Rs. 1,18,645/-, there would not arise any taxability in the hands of assessee in case section 56(2)(vii) is held applicable." 11. On the other hand, the ld. CIT-DR only relied on the order of ld. CIT(A) and stated that ld. CIT(A) has passed exhaustive order explaining the provisions of the Act. 12. We have heard both the parties, perused materials available on record and gone through orders of the auth....
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....ter of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual; (E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; (G) spouse of the person referred to in items (B) to (F); and (ii) in case of a Hindu undivided family, any member thereof;] There is no dispute in the contention of the assessee is that all the shareholders are relatives and 95% of the shares have been within the relatives. The transaction between the close relatives is not taxable under the head 'income from other sources u/s 56(2) of the Act. We are of the opinion that the section 56(2)(vii)(c) has no application and the company is liable to be taxed . The opinion and well known facts that in a private limited company major percentage of shares are holded by the relatives only. Whether it is fresh allotment of shares or existing allotment of shares? The contentions of the Ld AR for the asssesee is that the company has allotted the shares to an existing shareholder. Where the receipt of shares in as much as there is a distinction between allo....
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....ion date means, the date on which the property or consideration as the case may be received by the assessee. Thus, argued that for arriving FMV fresh allotment of shares also required to be included in the existing paid up share capital and to arrive at FMV of the shares by dividing the book value of the assets with paid up capital of the shares including fresh allotment. However, during the appeal hearing, learned Authorised Representative submitted that prior to 5th April, 2013 there were only two shareholders in the company i.e., assessee and his brother Mr. Y. Ramesh Chandra, therefore argued that any excess consideration passed on by the assessee from his brother is exempt under s. 56(2)(viii)(c)(ii) of the Act and for this purpose, the assessee has relied on the decision in the case of Kumar Pappu Singh (supra). Therefore, argued that as on 5th April, 2013, s. 56(2)(viii)(c)(ii) has no application to the assessee's case. We consider the argument of the learned Authorised Representative and find that there are only two shareholders in the company i.e. assessee and his brother Mr. Y. Ramesh Chandra in company and both the shareholders are brothers as defined in the Act under th....
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.... the Hon'ble Karnataka High Court in the case CIT vs. R. Nagaraja Rao (2013) 352 ITR 565 (Kar) : (2012) 207 Taxman 236 (Kar) it has been categorically held that 'where there are transactions involving family arrangement with respect to transfer of shares, the corporate veil of the company has to be lifted and inferred that there is no transfer of shares and accordingly capital gain tax is not exigible.' From the above it is apparent that even when there are transfer of shares physically, in the event of family arrangements, the Hon'ble High Courts have held that the entire transactions have to be viewed lifting the corporate veil and treat the transaction as if there is no transfer of shares and hence capital gain tax is not attracted. The transaction between the closer relatives should not be seen as introducing black money or evasion of the tax. Therefore, we are of the considered opinion that the transaction is within the family and close relatives and covered by the proviso to s. 56(2)(vii)(c) of the Act and there is no application of the said section for taxing the income under the head 'Income from other sources'. The Co-ordinate Bench of Tribunal Chennai in the case of Vani ....