TaxTMI 
TaxTMI 
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2024 (12) TMI 242
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....mit appeal filed by the revenue for adjudication. 3. The revenue has raised the following grounds of appeal for the A.Y. 2013-14: "2. The learned CIT(A) erred in deleting the addition made u/s. 56(1) of the IT Act, amounting to Rs. 615.34 crores, being income from other sources of the assessee, assessable for the A.Y. 2013- 14, after giving a finding that the payment towards equipment purchase was not at arms length price. 2.2 The learned CIT(A) erred in deleting the addition made u/s. 56(1) of the IT Act, without appreciating the fact that the assessee had taken out of its own unaccounted money in the form of purchase cost, by inflating the purchases from Non-residents and the same excess money was brought back to the assessee's own account in the form of share premium, which is nothing but round tripping of the assessee's own unaccounted funds in the quise of share premium. 2.3. The Ld. CIT(A) erred in considering the transaction between the assessee and the non-residents as genuine investments in shares with a premium, covered by the Bombay High Court decision in the case of M/s. Vodafone India Services Private limited (2014) 50 taxmann.com 300 (Bombay), and the Board....
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....aid share premium transactions are not genuine transactions and was only a colourable devise in order to accommodate the assessee's own un accounted funds, through non-residents, and the receipts are taxable as Income from other sources. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of ld. CIT(A)may be set aside and that of the Assessing Officer be restored." 4. The brief facts of the case are that, the Assessee M/s.RKM Powergen Private Limited ('appellant' or 'company') is a private limited company incorporated in the year 2004. The assessee is a Joint Venture between R.K.Powergen Private Limited ('RKP') and Mudajaya Corporation Berhad, Malaysia ('MJC") and Enerk International Holdings Limited, Seychelles ('Enerk'). During the previous years' relevant to the AY 2010- 11 to AY 2015-16, the assessee was engaged in setting up a 1440 MW coal based thermal mega power plant comprising 4 Units of 360 MW each at Chhattisgarh State (hereafter referred to as "Project"). The Project is funded by a consortium of lenders with more than 75% of the loans coming ....
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....-15. MIPP International Limited, Mauritius ('MIPP') is said to be a subsidiary SPV of the MJC Group, engaged in supplying equipment and related activities for power projects. Enerk is also a shareholder in MIPP. The relationship between the appellant and MIPP was disclosed to the Project lenders and in all corporate filings. The majority of the plant and equipment for the appellant's Project were imported from MIPP. Since MIPP was an "associated enterprise" as defined in Section 92CA(1) of the Act, the assessee furnished report in Form 3CEB from a Chartered Accountant certifying that the price of the equipment purchased are at arm's length in accordance with Section 92E of the Act. The appellant filed the return of income for the AY 2010-11 to AY 2015-16 declaring total income as under: Asst Year Date of filing of ROI Returned Income/(Loss) under normal provisions Book profits u/s. 115JB of the Act 2010-11 25-09-2010 (89,63,844) - 2011-12 29-11-2011 Nil - 2012-13 27-11-2012 (5,89,47,420) - 2013-14 29-11-2013 (22,54,86,166) - 2014-15 28-11-2014 (60,35,08,083) 18,09,08,099 2015-16 27-11-2015 (12,64,23,594) - The receipt of the share capita....
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....oncluded on 13.01.2016. During the search, certain documents were seized from the premises of the appellant. The reassessment for AY 2010-11 and the assessment for AY 2012- 13 to AY 2014-15 were concluded after the search and the details of receipt of share capital from MJC and Enerk was accepted without any adjustment. The Transfer Pricing order u/s. 92CA(3) of the Act for the AY 2013-14 was completed after the conclusion of the search, wherein the TPO proposed TP downward adjustment of Rs. 407.25 crores on the imports from MIPP. The TPO did not propose any adjustment on the receipt of share capital reported in the Form 3CEB. The assessee had filed appeal against the order u/s. 143(3) r.w.s.92A(3) for AY 2013- 14 and the same was pending before the CIT(A)-18, Chennai. 4.4 Further, on 13.11.2017, after two years of the search, the Assistant Commissioner of Income Tax, Central Circle 1(1), Chennai (Assessing Officer') issued a notice under Section 153A r.w.s 153C of the Act. In response to the said notice, the assessee filed the return of income on 30.11.2017 for the assessment years from AY 2010-11 to AY 2014-15. Subsequently, a notice under Section 143(2) and notice under Sec....
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....,55,68,096 186,64,95,391 2012-13 230,46,51,600 233,55,66,922 137,83,70,108 2013-14 615,34,48,800 641,28,07,603 352,92,52,393 2014-15 525,59,82,720 832,05,84,608 577,16,23,267 "8. The contentions and submissions of the assessee company have been considered carefully and found that the same are not tenable for the following reasons: 8.1.Original assessments: The assessee's contention that the issues mentioned in the show Cause notice were already considered in the original assessment made for the A.Y. 2013-14 dated 31/03/2017 is factually incorrect, since the issue of unexplained income in the nature of share premium was not discussed in the said order. 8.2. Jurisdiction u/s. 153C of the Act: The assessee's contentions regarding jurisdiction is not tenable for the following reasons: i. As mentioned in para 4.1 above, page Nos. 1 to 35 of the seized annexure-"ANNIST/RKM/LS/S1" contain details of MOA & AOA of M/s Enerk International Holdings Limited and its HSBC bank account statements etc. Page Nos. 36 to 67 of the said annexure contain details of financial statements of M/s.Enerk International Holdings Limited for the F.Y. 2012-13 ....
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....es of US Dollars/INR to M/s MIPP International Ltd. Towards supply of Plant and Equipments during the F.Y. 2010-11 to 2014-15 totalling to INR4071,64,01,520. Further, it is noticed from the financials of M/s.Enerk International Holdings Limited and M/s.Mudajaya Corporation Berhad that M/s.MIPP International is an associate company of M/s.Enerk lnternational Holdings Ltd. and M/s.Mudajaya Corporation RK from these seized material, it is categorically clear that funds flown out from M/s. Berhad. From these seized material, it Is categorically clear that funds flown out from M/s. RKM. Powergen Pvt. Ltd. passed on to M/s.MIPP International (a Mauritius based Company) in which M/s.Enerk International Holdings Ltd. is 20% shareholder and M/s.Mudajaya Corporation Berhad is 80% shareholder. M/s.R.K.M.Powergen Pt. Ltd. purchased equipment from M/s.MIPP International Limited. In turn, M/s MIPP International passed on the benefits (out of the sale of equipment to M/s.RKMPowergen Pvt. Ltd) to its shareholders M/s.Mudajaya Corporation Berhad and M/s.Enerk International Holdings to which in turn invested in the shares of M/s.RKMPowergen. Thus, there was a circuit offunds flown from M/s.R.K.M. Po....
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....from the supply of equipments to M/s.RKM Powergen Private Limited, the said company M/s.MIPP International Limited distributed dividends to its shareholders viz.,M/s.Mudajaya Corporation Berhad and M/s.Enerk International Holdings Limited which in turn invested in the shares of M/s.RKM Powergen Private Limited i.e., in the assessee company with a huge premium of Rs. 240 per share. 8.3.2.2.Further, the following findings were made in the order of the TPO dated 20/12/2018of the JCIT, TPO-2, Chennai made for the A.Y. 2014-15: i. M/s.R.K.M.PPL entered into a mechanical and electrical plant and machinery supply contrary with MIPP on 18/07/2007 (or phase-1 (1 360MVW) and on20/02/2009 for phase-2 (3*36OMW). ii. M/s R.K.M called for tenders for the power plant through a 'notice inviting tender published in "business line" on 19/08/2008, Whereas, the contract was awarded to M/s.MIPP for the first unit more than 1 year before the notice was published calling for bids for all the four units. iii. Bids were called for only for three packages, whereas, the contract was awarded to M/s MIPP for a total of 17 packages for each one of the three units of phase-2. iv. Tender notice was ....
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....7,25,95,597/- for the A.Y. 2013-14 vide his order u/s 92CA(3) of the Act dated 01/02/2017 out of the total value of Imports made of Rs. 1471,30,09,946 and that the TPO made downward adjustment of Rs. 32,05,84,608/- out of the total value of imports made of Rs. 1350,64,11,226/- for the A.Y.2014-15 vide order w's 92CA(3) of the Act dated 20/12/2018. 8.3.3. Circuit of funds flow: M/s.Enerk International Holdings Ltd. is a 20% shareholder and M/s.Mudajaya Corporation Berhad is 80% shareholder (ultimate beneficiaries for the profits earned by M/s MIPP) which got funds from M/s MIPP in the form of dividends which were used to make investments in M/s.R.K.M. Powergen Pvt. Ltd. at a huge premium of Rs. 240. 8.3.4 Further, it is pertinent to mention here that shares were allotted to the assessee's associate company M/s.R.K. Powergen Private Limited at face value of Rs. 10/- per share only, while the other investors were allotted shares at a huge premium of Rs. 240 per share in addition to the face value of Rs. 10 per share. 9. The case laws quoted by the assessee are not applicable to the instant case, as the facts of the cases quoted by the assessee company are different from the ....
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....the assessee preferred an appeal before the ld.CIT(A) in the appeal filed against the assessment under Section 143(3) for Assessment Year 2013-14, the ld.CIT(A) confirmed the downward adjustment made and further enhanced the downward adjustment. Further, the assessee preferred an appeal before the Ld.CIT(A) against the order passed u/s. 153C of the Act by the Assessing Officer for Assessment Years 2010- 11 to 2014-15. 5. The ld.CIT(A) deleted the addition of share premia under Section 56(1) for Assessment Years 2010-11 to 2014-15but confirmed and enhanced the downward adjustment made by the TPO for Assessment Year 2014-15, holding as under: "7.5 Addition u/s. 56(1): 7.5.1 The Assessing Officer has added the following share premia paid by the two foreign investors, as income of the assessee u/s. 56(1): Mudajaya Corporation Bhd Enerk International Ltd Addition to Income Asst Years No. of shares Paid up share capital Rs. 10/ share Share premium Rs. 240 per share No. of shares Paid up share capital Rs. 10/ share Share premium Rs. 240 per share DCF value per share in Rs. Allotments made 2010-11 78,86,163 788,61,630 ....
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....14-15, the TPO has made downward adjustments on the value of import from MIPP. - Mudajaya and Enerk hold 80% and 20% shareholding in MIPP respectively. They are the ultimate beneficiaries of profits earned by MIPP. They obtained dividends from MIPP, which were used to make investments in the assessee company with huge premium of Rs. 240 per share. There is circuit fund flow. 7.5.6 The Appellant submitted that the share prices are determined by commercial negotiations with investors. The valuation of shares based on the Discounted Cash Flow (DCF) method (for AY 2010-11, it is as per CCI guidelines) was done only to comply with the requirements of RBI Guidelines pertaining to allotments made to Non- Residents. As per the FEMA Regulations dealing with Foreign Direct Investments, shares should be issued to foreign investors only at a price equal to or higher than the value of the shares as determined by the DCF method. While issuing shares to non-resident investors, companies create an obligation for India in favour of a foreign country and therefore RBI and FEMA require that shares are issued at a price equal to or higher than the price determined by valuation. The foreign direct ....
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....s been received based on the Shareholders Agreement. A Shareholders Agreement dated 8th February 2007 and a Supplemental Shareholders Agreement dated 20 February 2009, incorporating this share price for foreign investors was executed by the Appellant, RK and Mudajaya, copies of which have been furnished to the AO. This was approved by the shareholders at the EGM of Mudajaya Group Berhad, 100% Holding Company of MCB on 15th June 2007 and 28thApril 2009, copy of which has been furnished to the AO. Their Investment Banker, OSK Investment Bank, Berhad, had given an independent opinion dated 17@ May 2007 and 8th April 2009 on the fairness of the subscription price of the equity shares. It is undisputed that Mudajaya is a listed company in existence for decades before RK or RKM were incorporated. It carries on independent business. It agreed to pay a price of Rs. 250 per share because of the commercial prospects of the Appellant and the track record of the Indian promoters. The decision to invest was approved by their shareholders before whom a fairness opinion of an independent banker was placed. This information is in the public domain. This is the commercial context in which the forei....
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....onies in the share premium account are to be returned to the shareholders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence Companies Act clearly mentions that amount received as premium is a capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves. 7.5.11 With reference to the share transactions with Mudajaya and Enerk, the assessee further stated that as required by the Foreign Exchange Management Act (hereaft....
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....ed out by the appellant that this was impermissible, he chose to assess the share premia under section 56(1). Appellant stated that it cannot be assessed as unexplained income in view of the latest decision of the Hon'ble Supreme Court in PCIT v Bharat Securities [2020] 113 taxmann.com 32 (SC) and PCIT v Rohtak Chain Co P Ltd [2019] 110 taxmann.com 59 (SC) in which it was held that once the identity of the shareholders is proven share capital cannot be assessed under Section 68 that shares were issued at excess premium. The assessee also cited Bombay High Court in CIT v Gagandeep Infrastructure P Ltd [2017] 80 taxmann.com 272 (Bombay) and CIT v Green Infra Ltd [2017] 78 taxmann.com 340 to the same proposition that once the identity of the shareholders is proven and the amounts are received through banking channels, share capital cannot be assessed under Section 68 even if shares were issued at excess premium. The assessee also quoted the Delhi High Court decision in CIT v Steller Investments Ltd (1991) 192 ITR 287 (upheld by the Supreme Court in [2001] 115 Taxman 99), Supreme Court decision in CIT vs Lovely Exports P Ltd [2008] 216 CTR 195 (SC), the jurisdictional Madras High Cou....
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....e ground for another addition in the form of unexplained income. Even if the statements made in the show cause notice that the profits made on the supply of equipment were the source of the share capital were assumed correct, it would still not constitute unexplained income of the assessee. The downward adjustment by the TPO can only result in the downward adjustment in the actual cost of the equipment for depreciation and cannot constitute income in the hands of the appellant. Even according to the TP order the profit margin of MIPP was 26.67%. Rs. 245 Crores remains unpaid to MIPP. Downward adjustment made for two years only (AYs 2013-14 and 2014-15) and that does not match the share premium of Rs. 1973.77 crores (Rs.1847.05 crores in RKM + Rs. 126.72 crores in RK). According to transfer pricing orders, approx. 27% of value of imports was considered for downward adjustment. Even if the TPO orders were to be accepted, such profits would amount to Rs. 1120.55 crores out of total imports of Rs. 4150.20 crores only, whereas the total additions proposed in the case of assessee and RK exceed this conjectured profit. Without prejudice, the entire share capital and premia could never hav....
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....n the Supreme Court decision in G. S. Homes &Hotels (P.) Ltd. [2016] 73 taxmann.com 120 (SC) to submit that the amount of share capital received from the various shareholders cannot be as assessed as business income. 7.5.15 Reliance has been placed by the assessee on the decisions of the Bombay High Court in PCIT v ApeakInfotech[2017] 88 taxrnann.com 695 (Bombay) for the proposition that share premium receipt is on capital account and cannot be assessed as income. 7.5.16 For the proposition that Section 56(1) cannot be used to assess as income what does not fall under the definition of income under Section 2(24), assessee relied on the decisions of the Hon'ble Supreme Court of India in CIT v DP Sandu Bros [2005] 142 Taxman 713 (SC) and the Bombay High Court in Cadell Weaving Mill Co. v CIT [2011] 249 ITR 265/116 Taxman 77. 7.5.17 Assessee relied on the following case-laws that share premium cannot be taxed u/s 56(1): (i) Bombay High Court in Vodafone India Services Private Limited v Additional CIT[2014] 50 taxrnann.com 300 (Bombay): Share capital is a capital receipt not falling within the definition of income and that consequently it cannot be assessed under Section ....
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.... unexplained income. It is settled law that share premium could never be considered as income under Section 56(1) of the Act and to that effect the assessee has quoted catena of decisions. In the case of Vodafone India Services Private Limited v Additional CIT [2014] 50 taxmann.com 300 (Bombay), it has been clearly held that share premium is a capital account transaction and it does not give rise to income. This decision has been accepted by the department and no further appeal filed before Hon'ble Supreme Court. CBDT has also given an Instruction No. 2 of 2015 dated 29 January 2015, refraining the officers of the department from treating the share premium as income. In view of the above, addition u/s 56(1) is not possible on the impugned share premium capital transactions. 7.5.19 In view of various details and documentary evidences filed by the assessee on identity and other elements during the assessment proceedings, it is seen that the AO himself was satisfied that there is no case u/s 68 and also in view of the decisions of Hon'ble Supreme Court in PCIT v Bharat Securities [2020] 113 taxmann.com 32 (SC) and PCIT v Rohtak Chain Co P Ltd [2019] 110 taxmann.com 59 (SC),B....
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....) also till the AY 2023-24 which is not taxable u/s 56(2)(viib) till then. 7.5.22 With reference to differential rate of allotment of shares to the domestic investor (RK Powergen Pvt. Ltd) and the foreign investors, the issue is dealt u/ s 56(2)(viia) in terms of provisions of Rule 11 UA(l)(c)(b) separately and it would be discussed in the order in the case of RK Powergen Pvt. Ltd under relevant AYs. 7.5.23 As mentioned in para 7.5.13 above, the Appellant has stated that it had not commenced business or commercial operations and the payments to MIPP were made through banking channels; these remittances were funded by secured loans obtained from banks and financial institutions. The purchase of equipment from MIPP appears on the Assets side of the balance sheet and source for which appears on the liability side of the balance sheet as secured loans as admitted by the assessee itself. For the AY 2013-14, the assessee's cost of such import was Rs. 1471.30 crores; the ALP of the above transaction was arrived at Rs. 727.27 crores and downward adjustment isRs.744.03 crores. For the AY 2014-15, such import cost was Rs. 1350.64 crores; the. TPO arrived at its ALP at Rs. 518,58,26,6....
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.... supplies made by the non-residents, which is evidenced by the downward TP adjustment carried out by the TPO for the A.Y.2013-14 for Rs. 407.26 crores, which was later enhanced by the Ld.CIT(A) to Rs. 744.03 Crores. The Ld.DR stated that the Ld.CIT(A) has not appreciated the fact that the assessee had taken out of its own unaccounted money in the form of purchase cost, by inflating the purchases from Non-residents and the same excess money was brought back to the assessee's account in the form of Share premium, which is nothing but round tripping of the assessee's own unaccounted funds in the guise of share premium. 6.1 Further, Ld.DR submitted that the Ld. CIT(A) erred in considering the transaction between the assessee and the non-residents as genuine investments in shares with a premium, covered by the Bombay High Court decision in the case of M/s. Vodafone India Services Private limited (2014) 50 taxmann.com 300 (Bombay), and the Board's circular No.2 of 2015 dated 29.6.2015, without appreciating the fact that the said share premium transactions are not genuine transactions and was only a colourable devise in order to accommodate the assessee's own un accounted funds, thro....
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....tment stands vitiated and for this reason alone the appeals deserve to be dismissed. 3. The assessment made under Section 153C must be based on incriminating material found during the search and not subsequent material such as the transfer pricing report. Two crucial facts must be noted: 1. The assessment for Assessment Years 2013-14 and 2014-15 were originally concluded under Section 143(3) on 31.3.2017 and 21.12.2016 respectively. As such the assessments under Section 153C are unabated assessments. 2. The date of the search is 23.11.2015. The dates of the Transfer Pricing Orders for Assessment Years 2013-14 and 2014-15 are 01.02.2017 and 20.12.2018 respectively, well after the search. 8.1 In such cases, it is now settled law by authoritative pronouncements of the hon'ble Supreme Court that any assessments under Sections 153A/153C in respect of unabated assessments must be based on incriminating materials obtained during search proceeding and not based on post-search materials. In PCIT v Abhisar Buildwell P Ltd [2023] 149 taxmann.com 399 (SC), it was held as follows: "In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of ....
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....ill not constitute unexplained income of the company. The Assessee had not commenced business or commercial operations and the payments to MIPP were made through banking channels. These remittances were funded by secured loans obtained from banks and financial institutions. As such these would not be said to constitute undisclosed income. The only legal consequence of the TP Order would be a downward adjustment in the cost of the equipment for purposes of depreciation. The application of these profits, if any, cannot be assessed again in the hands of the Assessee. To illustrate, let is assume that an assessee-company makes a revenue payment to a related person such as a director's relative or interested concern and the Assessing Officer believes that the payment is excessive. Such excessive amount can be disallowed under Section 40A(2)(b) in a manner analogous to a TP downward adjustment. This disallowance would be appropriate and legal. Let us further assume that such related person applies such receipt for investment as share capital or as a loan to the assessee or another company related to the assessee- would such investments or loan constitute income of the assessee or the r....
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....rospectus of Reliance Power that the promoters were issued shares at par whereas in the IPO shares were issued at a premium. Likewise, in the case of KSK Power Ventures Ltd, the promoters were issued shares at par whereas the investors were issued shares at Rs 250. It was in this commercial and financial context that the Assessee was therefore able to obtain the investment from the foreign investors at the price of Rs 250 per share. Mudajaya is a listed company in existence for decades before RK Power or RKM were incorporated. A Shareholders Agreement dated 8th February 2007 and a Supplemental Shareholders Agreement dated 20th February 2009, incorporating this share price was executed by the Assessee and Mudajaya. This was approved by the shareholders at the EGM of Mudajaya Group Berhad, 100% holding Company of Mudajaya Corporation Berhad CB on 15th June 2007 and 28th April 2009. Their Investment Banker, OSK Investment Bank, Berhad, had given an independent opinion dated 17th May 2007 and 8th April 2009 on the fairness of the subscription price of the equity shares. This information is in the public domain. Mudajaya thus agreed to pay a price of Rs 250 per share because of the com....
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....r from their own viewpoint but that of a prudent businessman. Thus, it has been repeatedly held by the Supreme Court in a number of cases that it was not open to the Assessing Officer to substitute his judgement over that of the businessmen. 8.6 To sum up: the share premia was agreed based on prevailing market conditions and it is not open to the Assessing Officer to step into the shoes of the Assessee or the foreign investor and decide the price at which shares are to be issued. Since the issue of shares to Mudajaya was a transaction with an "associated enterprise" as defined in Section 92A (1) of the Act, the Assessee had obtained and furnished a report of a Chartered Accountant that the price at which the shares were issued was at arm's length. The issue of shares has been reported in Form 3CEB as part of compliance with Transfer Pricing regulations. For Asst Year 2012-13, a reference was made to the Transfer Pricing Officer. The TP Order dated 08.09.2015 passed by the Joint Commissioner of Income Tax, refers to the transactions with Mudajaya Corporation for issue of shares and confirms as follows: "the transactions referred to are taken to be at arms' length and therefore n....
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....Act, 1956 provides as follows: 78. Application of premiums received on issue of shares. (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called" the share premium account"; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid- up share capital of the company. (2) The share premium account may, notwithstanding anything in sub- section (1), be applied by the company- (a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid, or discount allowed on, any issue of shares or debentures of the company; or (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. The effect of this provision is that when shares are issued at premium, the aggregate amount of....
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....as communicated to RBI in forms FC GPR; and (f) RBI has acknowledged all the allotments. Thus, the Assessee had complied in full with the FDI Regulations. When FDI Regulations require the issue of shares at a price higher than the value determined by the DCF method, the statement of the Assessing Officer that the premium received is inflated is misconceived. The Mumbai Bench of the Income Tax Appellate Tribunal held in the case of DCIT v Finproject India P Ltd. (2018) 93 Taxmann.com 461 as follows: "The assessee while issuing shares to non-resident investors create an foreign obligation for India in favour of third country and as per RBI/FEMA requirements, the assessee are required to issue shares using valuation methods which are approved method (DCF is approved method of valuation) and the consideration for issuance of shares has to be necessarily equal to or above fair value arrived at by such approved method because otherwise the assessee will create foreign obligations for India in favour of third country at a consideration price received which is below fair value of shares computed by an approved method of valuation which will be loss to India as it will create higher fo....
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....ability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all". 8.9.2 Similarly, the Bombay High Court in Cadell Weaving Mill Co. v CIT [2011] 249 ITR 265/116 Taxman 77 held that: It is well-settled that all receipts are not taxable under the Act. Section 2(24) defines income. It is no doubt an inclusive definition. However, a capital receipt is not income under section 2(24) unless it is chargeable to tax as capital gains under section 45. It is for this reason that under section 2(24)(vi) the Legislature has expressly stated, inter alia, that income shall include any capital gains chargeable under section 45". The Assessing Officer was conscious that the identity and the solvency of Mudajaya and Enerk had been well established. Mudajaya was a listed company in business for decades and listed on the Malaysian stock exchange even before the Assessee was incorporated. Mudajaya had a substantial net worth and the investment in the Assessee had been funded out of its own funds and not out of borrowed funds. Enerk was a joint venture partner of ....
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....9 taxmann.com 50 (Mumbai - Trib.)held that share premia cannot be assessed under Section 56(1) as can be seen from the following extract: "The receipt of share premium per se cannot be treated as income or the revenue receipt. In order to bring a particular receipt to be taxable within the ambit of section 56(1), the receipt should be in the nature of income as defined in section 2(24). The share premium received by the company admittedly forms part of share capital and shareholders' funds of the assessee - company. When receipt of share capital partakes the character of a capital receipt, the receipt of share premium also partakes the character of capital receipt only. Hence, at the threshold itself, the receipt in the form of share premium cannot be brought to tax as the revenue receipt and consequently treat the same as income under section 56(1). [Para 4.6]" 8.9.6 The Bombay High Court in Vodafone India Services Private Limited v Additional CIT [2014] 50 taxmann.com 300 (Bombay)held: "But we have examined the issue afresh. The word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Se....
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....ad resorted to tax the receipt of share premium u/s 56(1) of the Act. Hence, the amended definition of section 2 Sub section 24 cannot be made applicable in the instant case. We also find that the amended definition of section (2) sub section 24 (xvi) even w.e.f A.Y. 2013- 14 would not be applicable in the instant case because the provisions of section 2(56)(viib) of the Act are not applicable for issue of share to non-residents." 8.9.9 The Hyderabad bench of the ITAT in Apollo Sugar Clinics Ltd v DCIT [2019] 105 taxmann.com 254 (Hyderabad - Trib.) held: "11.1 The Assessing Officer instead of invoking Section 56(2)(viib), he went ahead by disallowing the excess of the premium received by assessee by invoking the provisions of Section 56(1) of the Act. In order to invoke Section 56(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....
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....4] 50 TAXMANN.COM 300 (BOMBAY) INSTRUCTION NO.2/2015 [F.NO.500/15/2014-APA-I], DATED 29- 1-2015 In reference to the above cited subject, I am directed to draw your attention to the decision of the HighCourt of Bombay in the case of Vodafone India Services Pvt. Ltd. for A.Y. 2009-10 (WP No. 871/2014),wherein the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. 2. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the ITAT, DRPs and CsIT (Appeals). 3. This issues with the approval of Chairperson, CBDT." (emphasis supplied) A press note dated 28th January 2015 was also issued accepting the order of this Court in Vodafone India Services (P.) Ltd. (supra), which reads as under : "Acceptance of the Order of the High Court of B....
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....nce of shares is on capital account and gives rise to no income." Therefore, Section 56(1) is a residual section to assess incomes and cannot be used to assess share premia which is a capital receipt. 8.10 In light of the above submissions, the ld.AR prayed for dismissing the appeal of the revenue and confirm the orders of the ld.CIT(A). 9. We have heard the rival contentions, perused the materials available on record, gone through the orders of the authorities along with the plethora of judicial pronouncements of various hon'ble courts. The facts with regard to impugned order are not in dispute and hence for the sake of brevity the facts are not repeated. Search and seizure operations under Section 132 of the Act were carried out in the premises of the assessee in Tamilnadu and Chhattisgarh on 23.11.2015, 09.12.2015 and concluded on 13.01.2016. During the search, certain documents were seized from the premises of the assessee. The reassessment for AY 2010-11 and the assessment for AY 2012-13 to AY 2014-15 were concluded after the search and the details of receipt of share capital from MJC and Enerk was accepted without any adjustment. 9.1 The Transfer Pricing order u/s. 92CA(3....
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....ue receipts which are not taxable under any other provisions of the Act. b) The findings of the TPO are in different context of benchmarking the import transaction of equipment and the same cannot be applied simply here. The AO has not given any specific reasons as to how he treated the share premium as unexplained income to come under purview of Section 56(1) of the Act. The AO has not disputed the fact that share premium has been received by the assessee from Mudajaya and Enerk, which are non-residents. Therefore, this is clearly a capital receipt c) In the case of Vodafone India Services Private Limited v Additional CIT [2014] 50 taxmann.com 300 (Bombay), it has been clearly held that share premium is a capital account transaction and it does not give rise to income. This decision has been accepted by the department and no further appeal filed before Hon'ble Supreme Court. CBDT has also given an Instruction No. 2 of 2015 dated 29 January 2015, refraining the officers of the department from treating the share premium as income. In view of the above, addition u/s. 56(1) is not possible on the impugned share premium capital transactions. 9.4 We note that the entire basis o....
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....completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961". 9.6 Further, in respect of assessments under Section 153C the same principle was reiterated by the hon'ble Supreme Court in DCIT v U.K. Paints Ltd [2023] 150 taxmann.com 108 (SC). Even earlier the hon'ble Delhi High Court had held in PCIT v Vikas Telecom Ltd [2022] 135 taxmann.com 362 (Delhi) had held that post-search enquiries cannot be the basis of assessments under Section 153A/153C. Therefore, the reliance placed by the AO on the TP orders passed after the search cannot be countenanced. 9.7 We also accept the assesse's submissions that an Assessing Officer should not step into the shoes of a businessman to decide what should be the right price for issue of shares. This principle has been stated in several cases by the Hon'ble Supreme Court of India, and cited by the AR. It has been repeatedly held by the Supreme Court in a number of cases that it was not open to the Assessing Officer to substitute his judgement over that of the businessmen. Moreover, in this case, the....