TaxTMI 
TaxTMI 
2026 (8) TMI 1274
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.... year 2019-20. 3. Vide the impugned order, the authority concerned demanded a tax liability to the tune of Rs.44,07,04,380/- under Section 148A of the Income Tax Act, 1961 (for short, the 'Act') for the share premiums received by the petitioner from the issue of shares to Escientia Life Science (for short, 'ELS'). 4. The facts of the case are that the petitioner is a private limited company engaged in the business of research, development and manufacturing partner to the pharmaceutical and biotechnology innovators. During the assessment year 2019-20, the petitioner issued Rs.6,38,702/- fresh equity shares to its shareholder ELS, a company registered in Mauritius. Accordingly, the petitioner filed its returns of allotment in Form PAS-3, under Section 39 and Section 42 of the Companies Act, 2013 with the Ministry of Corporate Affairs, reporting the details of the equity shares issued and allotted by the petitioner as well as the share allotment details in the Financial Statements of the petitioner. For the assessment year 2019-20, the petitioner filed its return of income under Section 139(1) of the Act, declaring a total loss of Rs.25,09,88,052/- under the normal provisions of....
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....tance had been issued without prior approval of the specified authority and consequently that the notice under Section 148A(b) relying upon the enquiry conducted thereunder, was invalid. On the basis of the above submissions, the petitioner submitted that the proposed reassessment proceedings to be dropped. 6. Despite the above submissions of the petitioner, respondent No.1 proceeded to pass an order dated 12.04.2023 under Section 148A(d) of the Act, holding it to be a fit case for issuance of notice under section 148 of the Act. However, the respondent No.1 proceeded to justify the initiation of the proceedings on a completely new ground that the petitioner had not demonstrated the 'genuineness of the transactions' and on the same day, a notice under Section 148 of the Act was also issued by respondent No.1 proposing to assess / reassess the petitioner for the assessment year 2019-20 and directed the petitioner to furnish its return of income. 7. Learned Senior Counsel for the petitioner argued that the impugned proceedings initiated are liable to be set aside inasmuch as the alleged 'information' on the basis of which the proceedings are initiated viz., that the petitioner ....
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....been made taxable by a legal fiction under section 56(2)(viib) of the Act and the same is enumerated as income in section 2(24)(xvi) of the Act. However, what is brought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case, what is being sought to be taxed is capital not received from a non-resident, i.e., premium allegedly not received on application of the arm's length price. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as income. This is settled by the decision of this court in Cadell Weaving Mill Co. P. Ltd. v. CIT (2001) 249 ITR 265 (Bom) was upheld by the apex court in CIT v. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC). This court has in Cadell Weaving Mill Co. (supra), inter alia, observed as under: "It is well-settled that all receipts are not taxable under the Income tax 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 re....
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....India Services (P.) Ltd. (supra), wherein it directed that the ratio decidendi of the aforesaid judgment be adhered to by the field officers in all cases where the issue of 'premium on share issue was on account of a capital account transaction' is involved and the same may also be brought to the notice of Income Tax Appellate Tribunals, Dispute Resolution Panels and Commissioner of Income Tax (Appeals) by approval of the Chairperson of Central Board of Direct Taxes. 10. Learned Senior Counsel for the petitioner also relied on the case of Shendra Advisory Services (P) Ltd. vs. CIT [(2025) 482 ITR 385 ] wherein it was similarly held that monies received on issue of shares at a premium would be on capital account and would not give rise to any income which also followed in line with the CBDT instruction No.2/2015, dated 29.01.2015, and the decision in the case of Vodafone India Services (P.) Ltd. (supra). The relevant paragraphs of the said judgment also for ready reference are reproduced hereunder: "12. The charge of tax under the Act is on income. The receipt of share premium on the issue of fresh shares is on capital account and constitutes a capital receipt, whi....
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....nt paragraphs of the judgment are reproduced below for ready reference. "2. Even otherwise, we find no good reason to interfere with the impugned order passed by the High Court [Shendra Advisory Services Pvt. Ltd. v. Dy. CIT(2025) 482 ITR 385 (Bom); 2024 SCC OnLine Bom 556.]. 3. The special leave petition is, accordingly, dismissed on the ground of delay as well as the merits." 11. On the contrary, the sole argument of the learned Senior Standing Counsel for Income Tax Department was that the respondent No.1 passed the impugned order on the basis of the petitioner having sold its shares to ELS and received the amount of Rs.44,07,04,380/- in return of sale, and deemed the above transaction as a transfer of shares by sale, and proceeded on the footing that the above transaction had escaped assessment and thereafter, passed the order of assessment under Section 148 of the Act. 12. Having heard the contentions put forth on either side and on perusal of records, the issue which falls for consideration in the instant case is "whether the monies received from premium of share issued on account of a capital account can be deemed to be income or not?" 13. It would....
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....eived from a non-resident, i.e., premium allegedly not received on application of the arm's length price. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as income. This is settled by the decision of this court in Cadell Weaving Mill Co. P. Ltd. v. CIT (2001) 249 ITR 265 (Bom) was upheld by the apex court in CIT v. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC). This court has in Cadell Weaving Mill Co. (supra), inter alia, observed as under: "It is well-settled that all receipts are not taxable under the Income tax 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) that the Legislature has expressly stated, inter alia, that income shall include any capital gains chargeable under section 45. Under section 2(24)(vi), the Legislature has not included all capital gains as income. It is only capital gains chargeable under section 45 which has been treated as income under section 2....
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....ave and except to the limited extent carved out under Section 56(2)(viib), which applies only to the premium received from a resident and not from a non-resident such as ELS. No other provision of the Act has been shown to us, nor was anything relied upon by the Revenue, which brings the transaction in question within the ambit of taxable income. 15. What compounds the matter further is that the entire teeth of the impugned proceedings rests on a factual premise that is demonstrably incorrect, namely, that the petitioner had sold its shares to ELS. The record, including the Form PAS-3 returns filed with the Registrar of Companies, the audited financials, and the valuation report, all of which were placed before respondent No.1 unambiguously establish that the transaction was a fresh allotment of shares and not a transfer or sale. Despite this material being on record, respondent No.1 proceeded, first on the mistaken premise of a 'share purchase agreement' and upon being corrected, shifted ground to allege a want of demonstrated 'genuineness of the transaction', a ground never put to the petitioner at the show-cause stage and raised for the first time in the order under Section 1....