Case Law Details
DCIT Vs Archean Chemical Industries Pvt.Ltd. (ITAT Chennai)
13. The provisions of section 56(2)(viib) has been inserted to the statute by the Finance Act, 2012 w.e.f. 01.04.2013 and as per said provisions, where a company, not being a company in which public are substantially interested, receives in any previous year, from any person being a resident, any consideration for issue of shares that exceeds face value of such shares, aggregate consideration received for such shares as exceeds fair market value of shares shall be treated as income from other sources. For the purpose of this section, fair market value of shares shall be value as may be determined in accordance with such method, as may be prescribed under Rule 11U and 11UA or as may be substantiated by the company to the satisfaction of the Assessing Officer based on value on the date of issue of shares of its assets, including intangible assets, being goodwill, know-how, patent, copy rights etc., whichever is higher. Therefore, to resolve the issue in hand, one has to understand provisions of section 56(2)(viib) of the Act, and period for which such provision is applicable. There is no dispute with regard to assessment year for which provisions of section 56(2)(viib) is applicable. The said provision has been made applicable from assessment year (AY) 2013-14 onwards. Further, in order to apply said provisions to a person who receives security premium, there must be two events simultaneously happen i.e., (i) the assessee must receive in any previous year consideration for issue of shares & (ii) consideration received for issue such shares exceeds face value of such shares. Therefore, in order to apply provisions of section 56(2)(viib) of the Act, for any previous year, there must be allotment of equity shares and such allotment should be over and above face value of such shares. In this case, allotment took place on 21.03.2011 relevant to assessment year 2011-12. The assessee had allotted equity shares and filed return of allotment with Registrar of Companies. However, as per terms of agreement between the assessee and its shareholders, shareholders should pay 70% of issue price on allotment and balance 30% of issue price on call. The said arrangement between the assessee and its shareholders is in accordance with the Companies Act, 1956, as per which the assessee can collect part of consideration towards allotment of shares and balance can be collected on call. Therefore, in our considered view, when the assessee has allotted equity shares in the financial year 2010-11, allotment referred to under the Companies Act is complied with, because the assessee has filed necessary return of allotment with Registrar of Companies. Subsequent event of receipt of part consideration subsequent to date of allotment does not in any way change date of allotment. In other words, balance consideration payable by shareholders on allotment of equity shares becomes debt which can be collected at any time, as per terms of agreement between the parties, but for the purpose of reckoning date of allotment, it is important to consider date of allotment as considered by the parties, in terms of provisions of the Companies Act, 1956, by filing return of allotment in Form No.2 with the Registrar of Companies. In this case, as per details filed by the assessee, including return of allotment in Form no.2, allotment is completed in the financial year 2010-11, when the provisions of section 56(2)(viib) of the Act, was not in the statute book. Therefore, we are of the considered view that the Assessing Officer cannot invoke provisions of section 56(2)(viib) of the Act, for the impugned assessment year when allotment has been completed in the financial year 2010-11 itself, because receipt of balance consideration towards allotment of shares cannot be equated with allotment of equity shares. Hence, we are of the considered view that the Assessing Officer has erred in invoking the provisions of section 56(2)(viib) of the Act and taxed securities premium under the head ‘income from other sources’ for the assessment year in question.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These two appeals filed by the Revenue are directed against separate, but identical orders of the learned Commissioner of Income Tax (Appeals)-1 / 16, Chennai, dated 29.03.2019 & 31.01.2020 and pertain to assessment year 2014-15 & 2013-14 respectively. Since, facts are identical and issues are common, for the sake of convenience, these two appeals are heard together and are being disposed off, by this consolidated order.
2. At the outset, we find that there is a delay of 2 days & 127 days in filing both these appeals by the Revenue in ITA Nos.1998/Chny/2019 & 723/Chny/2020 respectively. During the course of hearing, when defect was brought to the notice of learned DR present for the Revenue submitted that in respect of ITA No.1998/Chny/2019, there was 2 days meager delay on account of non-availability of records and in respect of ITA No.723/Chny/2020 there was 127 days delay in filing of appeal, mainly due to lockdown imposed by the Govt. on account of spread of Covid-19 infections and in view of Hon’ble Supreme Court suo motu Writ Petition No.3 of 2020, if the period of delay is covered within the period specified in the order of the Apex Court , then same needs to be condoned in view of specific problem faced by the public on account of Covid-19 pandemic.
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