Case Law Details
Keep Learning Resources Pvt Ltd Vs ITO (ITAT Mumbai)
Introduction: In a recent ruling by the Income Tax Appellate Tribunal (ITAT) Mumbai, the case of Keep Learning Resources Pvt Ltd vs. ITO for Assessment Year 2014-15 was examined. The central issue revolved around the applicability of Section 56(2)(viib) of the Income Tax Act to excess share premium resulting from the conversion of loans into equity shares. This article provides an overview of the case, its detailed analysis, and the conclusion reached by the ITAT.
Detailed Analysis:
1. Background: Keep Learning Resources Pvt Ltd (the “assessee”) had received share premiums ranging from Rs. 774/- to Rs. 1083/- per share during the relevant assessment year. The company submitted a valuation report, determining the share value at Rs. 660/- per share. However, the Assessing Officer disagreed with this valuation and applied Section 56(2)(viib) of the Income Tax Act to assess the excess share premium of Rs. 1,41,11,192/-.
2. Ex-Parte Proceedings: The case proceeded ex-parte as the assessee did not appear for the hearing despite prior adjournments and directions from the tribunal.
3. Assessing Officer’s View: The Assessing Officer’s contention was that any share premium received beyond the assessed share value of Rs. 660/- per share was subject to taxation under Section 56(2)(viib) of the Act.
4. Assessee’s Argument: The assessee argued that it had previously borrowed money from certain individuals, and a portion of those loans had been converted into equity shares. The company asserted that such loan-to-equity conversions should not fall under the purview of Section 56(2)(viib) and that the share premium was mutually agreed upon between the assessee and the lenders.
5. CIT(A)’s Decision: The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the Assessing Officer’s view, citing the Kolkata Bench of the ITAT’s decision in the case of Milk Mantra Dairy Private Limited vs. DCIT (140 com 168). This precedent held that even the conversion of cumulative convertible debentures into equity shares did not exempt the application of Section 56(2)(viib) of the Act.
6. ITAT Mumbai’s Decision: The ITAT Mumbai upheld the CIT(A)’s decision and ruled that the conversion of a loan amount into equity shares, even with share premium, did not exempt the assessee from the provisions of Section 56(2)(viib) of the Income Tax Act. No contradictory decisions or distinguishing factors were presented to challenge this conclusion.
Conclusion: The ITAT Mumbai’s decision in the case of Keep Learning Resources Pvt Ltd vs. ITO reinforces that the provisions of Section 56(2)(viib) of the Income Tax Act apply to situations where share premiums exceed the assessed share value, regardless of the source or nature of the transaction. This ruling clarifies that loan-to-equity conversions, even if mutually agreed upon and involving share premium, do not exempt the assessee from the tax implications of Section 56(2)(viib). It emphasizes the need for careful compliance with income tax provisions to avoid unintended tax liabilities.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed this appeal challenging the order dated 14.3.2023 passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 2014-15. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of Rs. 1,41,11,192/- made by the under section 56(2)(viib) of the I.T. Act.
2. None appeared on behalf of the assessee. We noticed from the record that the adjournment was granted earlier on three occasions. On the last occasion, i.e., when the appeal was posted on 28.8.2013, the Bench adjourned the matter today with the direction that the assessee should appear today. However, none appeared on behalf of the assessee nor any adjournment petition was moved. Accordingly we proceed to dispose of the appeal ex-parte, without presence of the assessee.
3. We heard learned DR and perused the record. During the year under consideration, the assessee has received share premium during the year under consideration ranging from Rs. 774/- to Rs. 1083/- per share. Before the Assessing Officer the assessee filed a valuation report, wherein the value of shares was arrived at Rs.660/- per share. Accordingly the Assessing Officer took the view that the share premium received over and above share value of Rs.663/- is assessable under section 56(2)(viib) of the Act. Accordingly he assessed the excess share premium amount of Rs.1,41,11,192/- under section 56(2)(viib) of the Act.
4. Before the learned CIT(A), the assessee submitted that it had borrowed money from certain persons in the past and a part of those loans was converted into the equity shares. Accordingly, it was contended that such kind of conversion will not be hit by sec. 56(2)(viib) of the Act. It was submitted that the share premium amount was mutually agreed between the assessee and the lenders. The learned CIT(A) did not agree with the above said contention of the assessee. In this regard the learned CIT(A) took the support from the decision rendered by the Kolkata Bench of the ITAT in the case of Milk Mantra Dairy Private Limited Vs. DCIT (140 com 168), wherein it was held that the provisions of section 56(2)(viib) of the Act will apply, even when cumulative convertible debentures are converted into the equity shares. Accordingly the learned CIT(A) dismissed the appeal of the assessee. Aggrieved, the assessee has filed this appeal before the Tribunal.
5. The undisputed fact remains in this case is that the shares premium collected by the assessee was more than the valuation arrived at by the auditor in the valuation report. The question is whether the conversion of loan taken in the past into equity shares with share premium would be hit by the provisions of sec.56(2)(viib) of the Act. We notice that this question has been examined and adjudicated by the Kolkata Bench of the ITAT in the above said case, wherein it has been held that the conversion of loan amount into the equity shares will not exonerate the assessee from application of provisions of section 56(2)(viib) of the Act. Before us no contrary decision was placed or any distinguishing fact, which would compel us to interfere with the decision rendered by the tax authorities, was furnished. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the assessment of excess share premium amount as income of the assessee under section 56(2)(viib) of the Act. Accordingly we uphold the order passed by the learned CIT(A).
6. In the result, appeal filed by the assessee is dismissed.
Order pronounced in on 31.8.2023.
