TaxTMI 
TaxTMI 
2023 (9) TMI 1162
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....for short "the Act") passed in ITA No. 1541/Ahd/2017 filed by the respondent- assessee and ITA No. 1643/Ahd/2017 filed by the appellant - revenue for the Assessment Year 2013-14. 3. In Tax Appeal No. 80 of 2023, arising out of common judgement and order dated 06.05.2022 in ITA No. 1541/Ahd/2017 filed by the respondent-assessee, the revenue has raised the following substantial question of law: "(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition u/s. 56(2)(vii)(c) of the Act in respect of the additional 82,200 shares allotted to assessee due to renouncement of rights by wife & father of the assessee?" 3.1 So far as Tax Appeal No. 96 of 2023 is concerned, the same is also arising out of common judgement and order dated 06.05.2022 ITA No. 1643/Ahd/2017 filed by the appellant - revenue. The revenue has raised the following two substantial questions of law: "(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition u/s. 56(2)(vii)(c) in respect of the additional shares allotted to the assessee? (b) Whether in the facts and circu....
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....ee of 1,03,000 shares are not covered by provisions of Sec. 56(2) but in respect of additional shares received by the assessee on renunciation of right shares by wife and father of the assessee, remaining 82,200 shares and also 14,800 shares allotted to the assessee as a result of third party share-holder renunciation in favour of the assessee, the disallowance on the ground that allotment of additional shares was disproportionate to person shareholding of the assessee and hence the provisions of Sec. 56(2)(vii)(c) of the Act were not made applicable. 4.6 Both, the assessee and the revenue, therefore, filed appeals challenging the order of the CIT(A) before the Tribunal. 4.7 The Tribunal, dismissed the appeal filed by the revenue on both counts i.e. firstly, Sec. 56(2)(vii)(c) not being applicable to the right shares proportionate to not existing holdings and secondly Fair Market Value of shares were Rs. 205.55 per share. 4.8 The Tribunal partly allowed the appeal of the assessee holding that the issue of right shares proportionate to holding of wife and father was not taxable under Sec. 56(2)(vii)(c). The Tribunal, further held that the provisions of Sec. 56(2)(vii)(c) wo....
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....sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections : Provided further that this clause shall not apply to any sum of money or any property received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under section 12AA; or (h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.-For the purposes of this clause,- (a) "assessable" shall have the meaning assigned to it in the ....
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....n or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). Section 2(18) provides the definition of a company in which the public are substantially interested. It is also proposed to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. Consequential amendments are proposed in- (i) Section 2(24), to include the value of such shares in the definition of income; (ii) Section 49, to provide that the cost of acquisition of such shares will be the value which has been taken into account and has been subjected to tax under the provisions of section 56(2). These amendments are proposed to take effect from 1st June 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. B. The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Ac....
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....ement for invoking Sec. 56(2)(vii)(c). In other words, the property must pre-exist for application of Sec. 56(2) (vii)(c), which is clear from the intention of the legislature. 9. The Tribunal, applying the above reasoning, relied upon the decisions in the case of Sudhir Menon (HUF) vs. A.C.I.T, Mumbai., dated 12.03.2014 of the ITAT Mumbai 'A' Bench, and on a decision of the Hon'ble Supreme Court in the case of Ms. Dhun Dadabhoy Kapadia vs. CIT reported in 63 ITR 651 (SC). The Tribunal, also relied on a decision in the case of H. Holck Larsen Vs. Commissioner of Inome-tax, reported in 85 ITR 285 (BOM.), to hold that as long as there is no disproportionate allotment of shares, there was no scope of any property being received by them on the said allotment of shares, as there was only an apportionment of the value of their existing share holding over a large number of shares and hence no addition under Sec. 56(2)(vii)(c) would arise. It was, therefore, held that if the shares are allotted strictly on proportionate basis based on existing shareholding, then though the provisions per se are applicable, but will not operate adversely because the gain accruing on allotment of fresh sh....
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....ation of rights in favour of the assessee by third party who are not related does lead to disproportionate allocation of shares in favour of the assessee. 13. With regard to the reduction in valuation of shares to Rs. 205.55 per share by computing the FMV per share on date of allotment, taking into consideration the book value as on 31.03.2012 and adding further consideration received on account of issuance of additional shares, the Tribunal upheld the decision of the CIT(A) holding that the CIT(A) has not erred in facts and in law in computing the FMV of shares on the above lines. The Tribunal relied on a decision in the case of ACIT Vs. Y. Venkanna Choudary reported in [2019] 112 taxmann.com 71 (Vishakhapatnam -Trib) and in the case of Sadhvi Securities (P) Ltd v. Asstt. CIT reported in [2019] 109 taxmann.com 245/179 ITD 197 (Delhi - Trib.), wherein, it is held that in case the balance sheet was not drawn on the date of allotment, the previous balance-sheet which was approved in the AGM has to be considered for valuation of FMV of the shares. The Tribunal, therefore, held that since the shares were allotted before balance-sheet for A.Y 2013-14, the CIT(A) did not erred in comp....
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.....com 42 (Mumbai - Trib.). (ix) Prakash Chand Sharma HUF Vs. Income-tax Officer, reported in 139 taxmann.com 286 (Jaipur - Trib.) 17. The Tribunal, therefore, has not committed any error in answering all the four issues which are raised by it holding that Sec. 56(2)(vii)(c) of the Act cannot be invoked in respect of allocation of 1,03,000 right shares allotted to the assessee proportionate to his share holding in the company as it cannot be said that the assessee has received as there is transfer of the shares which pre-existed prior to the issuance of shares by the Company as there is vital difference between "creation" and "transfer of shares". The words "allotment of shares" having used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person who has right to choose for such allotment. Therefore, there is a difference between issue of a share to a subscriber and the purchase of a share from an existing shareholder as in the first case, because, the first case is that of creation, whereas, the second is that of "transfer" entitle to the right in action. 18. In view of the above, the provisions of Sec. 56(2) w....