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.
2. 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.
3. The revenue has raised the following grounds: –
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has dismissed all the grounds of appeal raised by the appellant and further granted relief of Rs.2,46,43,987/- added u/s 115-0 of the I.T. Act, without appreciating the fact that the appellant had not raised the said ground before the Ld. CIT(A).
2. The appellant prays that the order of CIT(A) on the above directions be set aside and that of the assessing officer be restored.
3. The appellant craves leave to amend or alter any of the aforesaid grounds or add a new ground of appeal, which may be necessary at any time before or at the time of hearing of appeal.”
4. The assessee has raised the following grounds: –
“1. The Id Appellate Authority (AA) Commissioner of Income Tax (A)-21. Mumbai, has dismissed Appeal No. CIT (A)-21//IT-100/2012-13. without offering sufficient opportunities of being heard and the impugned order was passed ex parte.
2. The AA has erred in taxing the assessee company u/s 56 (1) of the Income Tax Act. 1961 under the head at “Income from Other Sources” the Share Premium amount of Rs.10.66,23.000 received by the assessee Company.
3. The AO has also erred in upholding the interpretation of section 78 (2) of the Companies Act 1956 made by the AO wherein the AC has held the company responsible for violation of section 78 (2), while the fact remains that the assessee company has not violated section 78 (2) of the companies Act 1956 in the utilization at Share Premium received.
4. The appellant craves to leave, add, alter, amend or modify any or all of the above grounds of appeal on or before the dale of hearing.”
5. The brief facts of the case are that the assessee filed its return of income on 04.10.2010 declaring total income to the tune of Rs.4,00,190/- for the A.Y. 2009-10. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny, therefore, notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee was engaged in the business of Trading & Investing in shares and securities. The assessee company was incorporated on 04.02.2000. The assessee company nowhere generated business income as per the main object of the company as notified in the Memorandum and Articles of Association of the company in the year under consideration. The receipt shown in the profit and loss account includes commission received in sum of Rs.9,39,741/- and profit on sale of investments of Rs.7,36,978/-. Against these receipts, the assessee claimed various expenses under the heads administrative and other expenses and depreciation amounting to Rs.11,21,530/- and Rs.1,914/- respectively. After claiming the expenses, the net profit was disclosed in sum of Rs.4,00,190/-. On verification, it was found that the assessee introduced the share capital and share premium. The assessee company was incorporated on 04.02.2000 and collected the 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. The share capital and share premium was received by assessee company from various parties as under described at page 2 of the assessment order. The table marked portion is as under.:-
