TaxTMI 
TaxTMI 
2022 (12) TMI 679
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....n the assets not used for the business purpose is not allowable. (ii) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in the deleting the addition of Rs.5,49,63,916/- out of addition of Rs.5,52,50,000/- made by the A.O on account of deemed dividend of income as per the provisions of section 2(22)(e) of the Act, disregarding the incontrovertible evidence with regard to loan taken by the assessee from M/s Ajmala Stationery (P) Ltd." 3. Briefly stated, the assessee is stated to be engaged in the business of supply of coal and real estate business. The assessee filed return of income declaring total income of Rs.1,20,11,130/-. A survey was conducted under Section 133A of the Act on 29.11.2012 at the business premises of the assessee. Consequently, the return of the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer inter alia observed that the assessee is engaged in the business of trading of coal only and no trade in real estate is substantiated. It was further noticed that the assessee has paid Rs.4,74,00,000/- by way of advance for purchase of land during the year ....
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.... which were never put to use for the business purpose, without considering the details of the documents for the shortage of time, by the time the details of the documents in corroborating the claim had been submitted, the assessment was concluded. * The established facts is, company also deals in real estate business and this had been ratified in his case even from LD AO & Hon, ITAT in the AY 2007-08, since this addition made grossly ignoring the facts of the case a'nd ON WRONG BELEIF THAT COMPANY DOES NOT DEAL IN REAL ESTATE BUSINESS. The copy of respective order establishing that the company also deal in the real estate business are being enclosed in the paper index book. * The Ld AO never verified this fact before going to such assessment. There is no change of company business for the during year. * Since it has been established that the company also deal in real estate business this addition on the footing of wrong belief of the Ld AO. Thus the investment made by assessee company amounting Rs. 4,74,00,000/- is in the course of the routine business this addition u/s 36(1) iii need to be deleted. 10. I have perused the submissions of the a....
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....ioned in paragraph 2 of the assessment order that the assessee is carrying on the business inter-alia of development of real estate. The money was advanced to the Municipal Corporation for purchase of land on which shops were proposed to be construction. After making the initial advance, the assessee was not able to make payments of subsequent installments. Therefore, the Corporation forfeited the amount. From the aforesaid, it is clear that the advance was made for the purpose of acquisition of stock-in-trade. It was not for the purpose of acquiring any fixed asset for running the business, rather it was for acquiring the stock-in- trade. Therefore, the advance made to the Corporation was in the course of Carrying on the business of real estate. Accordingly, the loss on forfeiture of the advance is in the revenue field. The assessee has not acquired any capital asset. It has also not obtained any advantage of enduring nature so as to constitute the expenditure to be capital expenditure. Accordingly, it is held that the loss has been incurred in revenue field in the course of business. Therefore, the same is deductible in computing the total income...." (ii) During the cou....
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.... of allotment or call money) over and above paid-up of face value of shares is considered as share premium. This is a capital receipt and is not in nature of income or revenue receipt. This is to be shown as Reserve under the head 'Reserves and Surplus" in the balance sheet of the company as per provisions of the Companies Act. Share premium can be utilized only for purposes which are permitted under the Companies Act, 1956. Any other use is considered as reduction of capital which can be made only with approval of court. The provisions of Companies Act prohibit use of share premium account for declaration of dividend. * Share premium is a capital receipt and it is contributed by shareholders while subscribing or applying for shares to be issued by the company. Therefore, when a company issues shares at a premium, it receive share application money, allotment money and call money etc. from shareholders which consists some portion towards share capital and other towards premium. Share premium is not profit: * As discussed earlier, share premium is not in nature of 'profit' or 'gain', and therefore it cannot be regarded as accumulated pr....
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....end in the hands of the assessee under section 2(22)(e). * The case of the assessee was that entire reserve and surplus amount appearing in the books of G' Ltd. consisted of share premium which was a capital receipt and could not have been distributed as dividend. * The Assessing Officer while rejecting assesses contention, took view that in sub¬clause (e) of clause (22) of section 2. the words 'whether capitalised or not' did not appear, in contrast with the earlier clauses of the section where these words found a place and, therefore, it was immaterial that the reserve and surplus consisted only of capital receipt by way of share premium. * The Commissioner (Appeals) however, accepted the claim of the assessee. He, however, found that out of the reserve and surplus account of 'G' Ltd., Rs. 190 lakhs represented share premium and Rs. 1,85,821 was on account of balance in the profit and loss account. Accordingly, he sustained the addition of Rs.1,85,821 only and deleted the balance. The revenue being aggrieved preferred appeal before the Tribunal. The Tribunal noted and observed as follows: A. There was a sum of Rs. 1,90,0....
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....alized. They are not applicable where the receipt in question forms part of the share capital of the company under the provisions of the 1956 Act. * The decision of the Commissioner (Appeals) that the amount of Rs. 1,85,821 alone out of the amount of Rs. 25,42,772 could be assessed as deemed dividend under section 2(22)(e) was thus affirmed by the Tribunal. The Tribunal has referred to the following judgments: * P.K. Badiani v. CIT [1976] 105 ITR 642 (SC) ), The term "accumulated profits" should be construed in the commercial sense and not assessable or taxable profits liable to tax under 1922 Act. Development rebate debited to profit and loss account and taken to reserve would amount to accumulated profits. * CIT v. Urmila Ramesh [1998] 230 ITR 422 ITO held that the amount distributed on liquidation of company was the accumulated profits of the Company and assessable as "deemed dividend" u/s. 2(22) of Income-tax Act, 1961. * Court held that the amount received was not assessable because the Liquidator sold assets for less than their purchase price. "Profits" are to be actual profits calculated on commercial principles. Amount t....
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....ationery Pvt. Ltd. enclosed in the PIB. The copy of the ITR-6 for the A. Y. 2011-12 M/s Ajmala Stationery Pvt. Ltd. enclosed in the PIB. The copy of the "Statement of the account of M/s Ajmala Stationery Pvt. Ltd. enclosed in the PIB. From the perusal of all the above documents it has been evidenced that the amount of the share premium account Rs.2,44,530,000/- which had been shown clearly in the Balance Sheet of ending 2011 as well. The same has also been duly shown in the ITR-6 of the AY 2011-12. Later on by mistake the share premium amount had been shown infthe sub head: General Reserve under the main head: RESERVE AND SURPLUS which in the year 2016 has been rectified and shown as sub head: securities premium account correctly. However the facts remain the same that the amount Rs.2,44,530,000/- is of share premium account, and ultimately it has to be shown under the head RESERVE AND SURPLUS with sub head securities premium account and this amount is not available to distribute any dividend and further the amount of the share premium amount cannot be deemed as dividend u/s 2(22)e of the act. The copy of the M/s Ajmala Statione....
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....r the purposes specified in the companies act and not covered under the deeming provisions of section 2(22)(e). In this regard I have perused the provisions of the law and the various judicial precedents on this issue and I find merits in the arguments of the appellant. The Hon'ble Delhi ITAT in the case of DCIT vs. MAIPO India Ltd. (ITA No. 2266) vide its order dated 07.03.2008 has addressed this issue and has held as follows: "3. Before the AO, the assessee, inter alia, took up the contention that the entire reserves and surplus of Rs. 1,85,42,869 appearing in the books of Gorgeous Chemical (P) Ltd. consisted of "share premium" which was a capital receipt and could not have been distributed as dividend. The AO rejected the contention, stating that in Clause (e) of Sub-section (22) of Section 2 the words "whether capitalised or not" did not appear, in contrast with the earlier clauses of the sub-section where these words found a place and therefore it was immaterial that the reserves and surplus consisted only of capital receipt by way of share premium. 4. On appeal, the CIT(A) accepted the aforesaid contention of the assessee. He however found that out of th....
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....e rival contentions and we are inclined to uphold the decision of the CIT(A). There is no dispute that a sum of Rs. 1,90,00,000 out of the reserves and surplus account of Gorgeous Chemical (P) Ltd. as on 31st March, 1996 represented share premium collected by the said company. Section 78(1) of the Companies Act deals with the application of premium received on issue of shares. It says that the premium received shall be transferred to a separate account styled "the share premium account" and further says that the provisions of the Companies Act relating to the reduction of the share capital of the company shall apply as if the share premium account were paid up share capital of the company. Sub-section (2) mentions five purposes for which alone the share premium account may be applied without attracting the provisions of the Companies Act relating to the reduction of the share capital. These are: (i) To pay up fully paid bonus shares to be issued to the members. (ii) To write off preliminary expenses of the company. (iii) To write off expenses of issue of shares or debentures or under-writing commission paid or discount allowed on such issues. (iv....
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....ium on issue of shares is to be regarded as money paid on capital account and not as revenue receipt. Another effect of the section is that distribution of shares (now securities) premium amount as dividend is not permitted, and it is taken out of the category of divisible profits. But premiums received on the issue of shares, under the 1913 Act, were profits and so could be distributed as dividends. [Bharat Fire & General Insurance Ltd. v. CIT (1964) 34 Com Cases (SC)]. Any distribution of the amount among shareholders except in any of the modes specified in Sub-section (2) can only be by way of reduction of capital and this will require the sanction of the Court and the procedure laid down in Section 100. The above view based on the interpretation of Section 78 of the Companies Act settles the dispute before us in favour of the assessee. When there is a statutory.bar on the share premium account being used for distribution of dividend, the deeming provision of Section 2(22)(e) cannot apply. Not only is there a prohibition on the distribution of the share premium account as dividend under the Companies Act, the same is obliged to be treated as part of the share c....
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.... return of capital, cannot represent profits of the company. 10. For the above reasons, we are in agreement with the decision of the CIT(A) that the amount of Rs. 1,85,821 alone out of the amount of Rs. 25,42,772 can be assessed as deemed dividend under Section 2(22)(e) of the IT Act. We affirm his order on this point and dismiss the appeal filed by the Revenue with no order as to costs." 18. The same reasoning has been upheld by the Hon'ble Delhi ITAT once again in its judgment last month in the case of Ramesh Chand Goyal, New Delhi vs ITO, New Delhi dated 15 February, 2017 in ITA No. 1187/Del/2014 for the Asstt. Year 2009-10 wherein it has once again held as below: "Thus, the Tribunal in above case has clearly held that the share premium account cannot partake the nature of commercial profit and, therefore, it cannot be called as accumulated profits. Respectfully following the above decision of the Tribunal, we uphold that the share premium amount appearing in the financial statement of the assessee cannot be included while computing the accumulated profit of the assessee company as on the date of loan or advance to the concerned firm. Since the lea....