2024 (10) TMI 182

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....he following reliefs:- "a) Issuance of declaration that Section 56(2)(viib) of the Income-Tax Act, 1961, inserted vide Finance act, 2012, is ultra vires being violative of Article 14 of Constitution of India, 1950; b) In the alternative to prayer (a). this Hon'ble Court may read down the provision as being applicable in situations where any unaccounted income or money can possibly be involved and would not apply to issuance of shares by a wholly owned subsidiary to its holding company; and c) In addition to Prayer (a) or (b), issuance of a writ of Certiorari quashing the impugned directions dated 29.06.2024 issued by the Ld. DRP to the extent of the addition arising out of Section 56(2)(viib) of the Income Tax Act....

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....yzed the deeming provisions of Section 56(2)(viib) of the Act threadbare and inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of Section 56(2)(viib) was analyzed in Ozone case and it was observed that the objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by iss....

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....l view came to be expressed by the Tribunal in Deputy Commissioner of Income-tax vs. Kissandhan Agri Financial Services (P.) Ltd. ITA No. 8734/Del/2019 to the following effect:- "12. This apart, as pointed out on behalf of the assessee, the shares have been subscribed by the holding company, i.e., the existing shareholders only. Pertinent to say, Section 56(2)(viib) creates a legal fiction whereby the scope and ambit of expression 'income' has been enlarged to artificially tax a capital receipt earned by way of premium as taxable revenue receipt. Hence, such a deeming fiction ordinarily requires to be read to meet its purpose of taxing unaccounted money and thus needs to be seen in context of peculiar facts of present case.....