Case Law Details
ITO Vs M/s Heckyl Technologies Pvt.Ltd. (ITAT Mumbai)
Firstly, the AO has clearly mentioned at paragraph no. 5 on page no’s, 6 and 7 of his order that he had made two references to the tax authorities in Mauritius and the UK. These references had been made under section 90 of the Act and had been accordingly made through the Competent Authority. The AO has also mentioned the dates of the said references (viz. 19th November 2014 to Mauritius and 22nd July 2015 to UK). It resulted in the extension of the date of limitation to 18th November 2015, by which date the AO had passed the order under appeal. It is however clear that there is no mention of either the details of the exact reference made to either country or the receipt of any information consequent thereto or the results of the Investigation of the AO subsequent to the obtaining of the said information. In fact, It is clear from the order under appeal that the appellant has not been confronted with any information obtained under section 90 of the Act. In these circumstances, I find considerable merit in the argument of the ARs that nothing had been found against the appellant as a result of the exercise of the powers available to the AO under section 90 of the Act.
Secondly, the AO has mentioned that while funds had been received from SFM on 22nd December 2011 by the appellant, the date of allotment of CCPS as given to the RBI was 28th December 2012, the allotment itself having been done earlier on 22nd November 2011. It is not clear as to how the AO has reached this conclusion, there being no material available to substantiate this finding. Even if it were to be true, there is no scope for contemplating an addition either under section 56 or under section 68 of the Act on the basis of such discrepancies. The AO has himself mentioned at paragraph no. 7.3 on page no. 9 of his order that the reason for distorting the date of allotment given to the RBI was to escape the penal provisions of FEMA. Be that as it may, he has not made out any case of any consequences under the Act on account of the alleged fudging of dates. The only material statute insofar as this appeal is concerned would be the Act and not FEMA.
Thirdly, the AO has sought to advance an argument at paragraph no. 3 on page no. 9 of his order with regard to the receipt of the said funding of the appellant from entities which are neither venture capita! companies nor venture capital funds. Briefly, his argument is that SFM is neither a venture capital company nor a venture capital fund in terms of provisions of section 10(23FB) of the Act. As such, in terms of provisions of section 56(2)(viib) of the Act, any consideration for issue of shares exceeding the face value of such shares has to be charged to tax under the said provision, unless the consideration has been received from a venture capital company or a venture capital fund. The ARs’argument is that while SFI is a registered venture capital fund (as seen from the certificate of registration granted by SEBI forming part of the paper-book, it having been filed before the AO as well), SFM is neither a venture capital fund nor a venture capital company. As such, the share premium paid by SFM has to be charged to tax under section 56(2)(viib) of the Act, it at all. As pointed out before me by the ARs, the said provision of section 56(2)(viib) of the Act has been inserted by the Finance Act 2012 with effect from 1st April 2013. As such, it would be / applicable only from AY 2013-14 onwards, while the assessment year under consideration is seen to be AY 2012-13. Clearly, the AO has no basis for invoking the provisions of section 56(2)(viib) of the Act read in the under consideration.
Fourthly, the AO has explained the basis for his invoking of the provisions of section 68 of Act at paragraph no. 11 on page nos. 10 and 11 of the order under appeal. He has brushed aside the judgments cited by the appellant in favour of its claim that provisions of section 68 of the Act would not be applicable to it. However, none of these have been reproduced by him. On the other hand, the question faced by the AO has been identified in the following fashion, “Here, the issue involved is, why should the profit arising out of the issue of shares not be taxed?” In my considered opinion, this exercise would require explicit legislative sanction or for that matter specific judicial precedent. Unfortunately, the AO has been able to demonstrate neither. He has on the other hand discussed various case-laws for almost ten pages of his order. The prominent ones amongst them have been already been reproduced in paragraph no. 3.1 earlier in this order. The AO has termed the appellant’s action as ‘subterfuge’. He has then cited the ratio of, the Hon’ble Supreme Court in the case of McDowell (158 ITR 148) to demonstrate that what the appellant has done is to use a colourable device. He has then cited the decision of Azadi Bachao Andolan & Others v. Union of india (256 ITR 563). He has then proceeded to cite the decision of the Hon’ble Delhi High Court in the case of Hillcrest Reality SON BHD v. Ram Parshotam Mittal (supra) which had dealt with the issue of the utilisation of money raised by way of share premium for purposes other than those specified in section 78(2) of Companies Act, 1956. He has then travelled to the decisions of the Hon ‘ble Supreme Court in the case of Bharat Fire & General Insurance Ltd. v. CIT (supra) and CIT v. Ram Bahadur Thakur (supra), the latter being the actually a decision of the Hon’ble Kerala High Court. But it is not clear as to how all these decisions would be relevant in the context of the matter under consideration. The AO has then proceeded to examine the principles of statutory interpretation as iaid down in the case of Bengal Immunity Company v. State of Bihar (supra). He has further cited the decision of CIT v. Hindustan Bulk Carriers (supra) wherein the Hon’ble Supreme Court had commented that it should not be lightly assumed that “Parliament had given with one hand what it took away with other”. Once more it is not clear as to what would be the purpose behind such discussions, since the final conclusion of the AO viz. the charging to tax of the entire amount of share premium received by the appellant as income from other sources under section 56(1) of the Act does not at all flow from them.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
