TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 1564
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....above, the Ld. Commissioner of Income-tax (Appeals), NFAC failed to appreciate that the provisions of Section 56(2)(viia) could not be applied in the case of a direct allotment of Shares by a company and thus the Ld. Commissioner of Income-tax (Appeals), NFAC erred in upholding the addition of Rs. 13,23,01,000. (3) That the Ld. Commissioner of Income-tax (Appeals), NFAC was wrong in confirming the addition of Rs. 5,24,71,800 made by the Assessing Officer by applying the provisions of Section 50D in the matter of Sale of Shares by the appellant. (4) That without prejudice to the contention raised in Ground No. (3) above, the Ld. Commissioner of Income-tax (Appeals), NFAC failed to appreciate that when the actual Sale Consideration had been ascertainable, there could not have been any applicability of Section 50D and thus the Ld. Commissioner of Income-tax (Appeals), NFAC erred in confirming the addition of Rs. 5,24,71,800. (5) That the appellant craves leave to add, modify or withdraw any Ground or Grounds of Appeal before or at the time of Hearing of the Appeal." 3. Brief facts of the case are that the assessee company had filed its....
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.... appeal order; specifically para 8.5.6, and stated that the fresh allotments are also covered. He drew our attention to para 8.5.7 of the order as well as the CBDT circular no. 3/2019 dated 29.01.2019. It was contended by the Ld. DR that the memorandum explaining the provisions stated that section 50D of the Act is an anti-abuse provision. Our attention was also drawn to page 26 para 8.6.8 of the order of the Ld. CIT(A). 7. We have considered the submissions made. The provisions of section 56(2)(viia) of the Act are reproduced as under: "56. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested,- (i) without consideration, the aggregate fair market value of w....
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....n dictionary, the term 'received' has been defined as "to receive means to get by a transfer, as, to receive a gift, to receive a letter, or to receive money and involves an actual receipt". The taxability for the receiver is triggered on receipt basis. In case of shares, transfer would be regarded as complete upon receipt of physical share certificate. Therefore, receipt of shares can be said to be completed only upon receipt of physical share certificate. The appellant submitted that, for something to be given by the giver there should be some existing property in the hands of the giver. In the case of fresh allotment of shares, such shares allotted to share holder cannot be treated as property of the company as such shares would not have appeared on the assets side of its Balance Sheet either as investment or stock in trade. The appellant also relied on the legislative intent behind insertion of the said provision, arguing that the provision is anti-abuse in nature and is not attracted in case of fresh allotment of shares. 8.5.3 The assessment record shows that the AO invoked section 56(2)(viia) after finding that the appellant company received unlisted shares o....
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....y provisions of section 56(2)(viia), the section is applicable to all the assessees who are in receipt of shares for consideration lesser than FMV. The Legislature consciously refrained from using words like "transfer of shares", intending to cover situations where fresh shares are allotted at a value lower than FMV of the shares. Contention of appellant that as per dictionary definition of received, the item received by 'receiver' should necessarily constitute property of giver in incorrect since definition of 'received as per advanced law dictionary provided by the appellant includes 'receipt of letter' and 'letter in the hands of the sender by no stretch of imagination constitutes property. Letter is something which is created / written just before sending it to the receiver by the sender akin to allotment of shares. Therefore, receipt of shares by a person irrespective of mode of receipt and also irrespective of the fact that they constitute pr-existing property in the hands of giver or not, are covered by provisions of section 56(2)(viia). As per provisions of section 56(2)(viia), shares received by the company if constitute property in the hands of rec....
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....d Khoday Distilleries Ltd. (supra) relied upon by the parties themselves before us. As stated explicitly in the former case, a share is a chose in action. A chose in action implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. A share does not exist prior to its allotment, and in that sense comes into existence only on its allotment. Allotment of a share is only the appropriation of the authorized share capital, being un-appropriated, to a particular person. In nutshell, the difference between the issue of a share to a subscriber and a purchase of a share from an existing shareholder is the difference between the creation and transfer of a chose in action (refer pgs. 865, 866). How could, therefore, purchase be equated with allotment? In fact, the purchase or transfer implies existence of a property, while the shares, where out of un-appropriated capital, come into existence only on their allotment. It becomes, thus, in the context of the provision, completely irrelevant and of no consequence that the shares in the issuing company are not its property, and....
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....stent with the unambiguous language and the clear intent of the legislature would be in complete violence thereof. We are in agreement with the decision of the Coordinate Bench of the ITAT, Mumbai and see no reason to interfere with the order of the Ld. CIT (A) who has passed a very reasoned order on the facts of the case and, therefore, his order is confirmed and the Ground nos. 1 and 2 of the appeal are dismissed. 10. Ground nos. 3 & 4 relate to addition of Rs.5,24,71,800/- made by the Ld. AO by applying the provisions of section 50D of the Act and confirmed by the Ld. CIT (A) on account of capital gains arising from the transfer of shares of the group companies to the related parties. The Ld. CIT (A) has decided the issue as under: "8.6 Grounds of Appeal No. 2: 8.6.1 Vide above ground of appeal, the appellant has challenged the addition of Rs. 5,24,71,800/- made by the AO u/s 50D of the Act, on account of capital gains arising from the transfer of shares of group companies to related parties. 8.6.2 During the course of assessment proceedings, AO noticed that appellant company sold shares of two companies for value below fair market value a....
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....ale of shares to related parties, which inherently lack transparency and raise legitimate doubt regarding the genuineness of the reported sale values. 8.6.6 Section 50D of the Act provides that where the consideration received or accruing as a result of the transfer of a capital asset is not ascertainable or cannot be determined, the fair market value on the date of transfer shall be deemed to be the full value of consideration. The provision is designed to address cases where the declared consideration either does not reflect the actual transaction value or is incapable of verification. In the instant case, the lack of any contemporaneous evidence to support the consideration declared, combined with the fact that the shares were sold at prices significantly below FMV to related parties, justifies the AO's conclusion that the actual consideration was not ascertainable in terms of section 50D. 8.6.7 Further, the appellant has claimed substantial short-term capital loss on these transactions, despite being a company with negligible business activity and minimal fixed assets. The pattern of transactions, particularly involving shares of group concerns, indicates ....