M/s. Varsity Education Management Pvt. Ltd. Vs DCIT (ITAT Mumbai)
In the instant case, there is no dispute to the fact that the assessee has received the sum of Rs. 1030/- per share as Share Premium. It is the case of the assessing officer is that he will accept the share premium only to the extent of Rs.672/- per share worked out as per Valuation certificate. Accordingly the AO has considered the amount of Rs.358/- per share as unjustified premium and assessed the same as income of the assessee u/s 68 of the Act. The question that requires to be considered is whether the alleged excess premium of Rs.358/- per share is in the “nature of income or not”, within the meaning of sec.68 of the Act.
There is merit in the contention of the Ld A.R that the share premium amount worked out in the Valuation Certificate is the minimum amount that can be collected by the assessee and hence there is no bar on collecting higher amount as share premium. The Ld CIT(A) has rightly observed that there are several factors that are taken into consideration while issuing the equity shares to shareholders/investors, such as Venture capital funds and Private Equity funds. The Ld CIT(A) has also noticed that the actual financial results achieved by the assessee has exceeded the financial projections. Accordingly he has held that the premium of Rs. 1030/- was determined between the parties on the basis of commercial considerations and agreed to by them, which cannot be questioned by the tax authorities. It is well settled proposition of law that the AO was not entitled to sit on the arm chair of a businessman and regulate the manner of conducting business. Hence, in our view, the AO was not justified in holding that he will accept the share premium amount only to the extent of Rs,672/- only. Hence the AO was not justified in partially not accepting the share premium and accordingly he could not have doubted the genuineness of transactions on this reason.
FULL TEXT OF THE ITAT JUDGMENT
The assessee has filed this appeal challenging the order dated 29-09- 2016 passed by Ld CIT(A)-3, Mumbai and it relates to the assessment year 2012-13. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of Rs.60.24 crores relating to excess share premium made by AO u/s 68 of the Act. The grounds of appeal urged by the revenue read as under:-
(i) On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in deleting addition made to total income of Rs. 60,24,03,736/- on account of share premium when receipts of premium over and above the DCF valuation report submitted by the assessee was devoid of justification of its nature as required by the provisions of section 68 of the Act.
(ii) On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in deleting the addition made to total income amounting to Rs. 60,24,03,734/-
(iii) On the facts and in the circumstances of the case and in law, without prejudice to ground No. 1and 2 above, the Id. CIT(A) ought to have held that share premium is a revenue receipt taxable under the Act being accretion to assets without corresponding increase in liability and the corresponding reserves generated can be distributed as dividend in the form of bonus/shares”.
2. The facts as narrated by AO are extracted below:-
“Facts of the case:- The assessee company was incorporated on 28.12.2010 the name Anumati Properties Private Limited. The assessee company was acquired by current Management on 14.3.2011 and its name was changed to Varsity Education Management Pvt Ltd w.e.f. 27.3.2011. The assessee is engaged in the business of providing services like content development, facilities management, transportation management, text books and uniforms, mess and canteen services of students of K- 10 schools (Kinder garden to Class 10) and Junior Colleges situated in Karnataka and Andhra Pradesh. The assessee company had two subsidiary companies, the details of which are as under:-
(i) Junior Varsity Education Management Pvt Ltd (Formerly known as Diamond Dreamz IT Solutions Pvt Ltd) which was incorporated on 7.4.20 10. The company is engaged in the business of providing products & services like curricular, co-curricular or extra-curricular activities in relation to technology, education, content, training, consulting, transport facilities, facility management, brand building and marketing, provision of assets and other services to various educational institutions across the state of Andhra Pradesh.
(ii) K-12 Education Management Pvt Ltd: The company was incorporated on 16.9.2009 and engaged in the business of providing services like curriculum development, teacher recruitment, training, facilities management, transportation, accounting and information Technology, marketing testing services , text books, uniforms, mews and canteen etc to students up to 10thclass in the trust schools situated in Karnataka & Andhra Pradesh.”
3. The assessee company was acquired by current management on 14.3.2011. The share holders of the company as on 31.3.2012 are following persons, who were allotted shares at Par value on 24.03.20 1 1:-
