Case Law Details
ITO Vs New Era Advisors P. Ltd. (ITAT Mumbai)
Conclusion: Even if amount received in form of huge share premium was not utilized for the purpose of section 78(2) of the Companies Act, 1956, the same would not have any relevance for the purpose of Income Tax Act, 1961. Further, while the utilization of premium may be deemed to be reduction of capital, it did not imply that there was distribution of assets to the shareholders. The action of AO to apply section 2(22)(a) was therefore not upheld.
Held: Assessee company had collected huge premium in sum of Rs.10,66,23,000/- on allotment of shares face value of Rs.10 each at a premium of Rs.990/- per share. AO observed that the share premium collected was not utilized for the purpose of the objectives for which the same was collected and as such conditions specified in Section 78(2) of the Companies Act, 1956 had been violated. Accordingly, he concluded that the amount brought into the books of accounts of assessee in the form of share premium was not a share premium within the meaning of the provisions of Section 56 and hence the same need to be treated as income for the purpose of income tax act. AO also held that assessee failed to pay the dividend distribution tax u/s 115O. Accordingly, dividend distribution tax u/s 115O of the Act was imposed on an amount of Rs.10,66,23,000/-. The interest was also charged u/s 115P. It was held that this section refers to the accumulated profits which in the present case stood at only Rs.662,969/- as on 31.3.2010. Thus the amount of Rs.10,66,23,000/- was not the accumulated profits. Further, while the utilization of premium may be deemed to be reduction of capital, it did not imply that there was distribution of assets to the shareholders. The action of AO to apply section 2(22)(a) was therefore not upheld. There was no violation of provisions of Section 78(2) of the Companies Act, 1956 by assessee in the instant case and even if it be so, the same would not have any relevance for the purpose of Income Tax Act, 1961. Hence once there was no violation of provisions of Section 78(2) of the Companies Act, 1956, AO ground automatically vanished.
FULL TEXT OF THE ITAT JUDGEMENT
The revenue as well as assessee has filed the above mentioned appeals against the order passed by the Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2010-11.
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