CIT Vs Tangi Facility Solutions Pvt Ltd (Madras High Court)
The Revenue filed an appeal before the Madras High Court against the order of the Income Tax Appellate Tribunal (ITAT) dated 03.06.2024 in ITA No.735/Chny/2023 concerning Tangi Facility Solutions Pvt Ltd. The primary issue was whether the bonus shares received by the assessee amounted to taxable income under Sections 2(22)(b) and 56(2)(viia) of the Income Tax Act.
The Revenue raised multiple substantial questions of law, arguing that the Tribunal erred in holding that the provisions of Section 2(22)(b) did not apply since the assessee’s only business was investing in shares of UDS Pvt Ltd and earning dividend or profit from their sale. It was also contended that the Tribunal incorrectly ruled out the applicability of Section 56(2)(viia) despite the assessee acquiring shares without consideration, whose fair market value was ₹2,54,55,24,025/-.
Further, the Revenue relied on CBDT Circular No. 3/2019 dated 21.01.2019, which clarified that excluding fresh or bonus share issuances from Section 56(2)(viia) would contradict the legislative intent and lead to tax avoidance. The Revenue questioned whether the Tribunal was justified in following judicial precedents such as PCIT v. Dr. Ranjan Pai, CIT v. Dalmia Investment Co. Ltd. (52 ITR 567), and Hunsur Plywoods Ltd. v. CIT (229 ITR 112), asserting that those cases were distinguishable and not applicable to the present facts.
