The issue – The principal; rather, the sole issue arising in the instant appeal; the assessee not pressing its ground no.1 assailing the impugned assessment on the question of jurisdiction (which we find to have been, though assumed, not pressed even before the first appellate authority, withdrawing the objection vide letter dated 07.01.2013), is the validity in law of the assessment as income of the difference between the value of the shares allotted to the assessee and the consideration paid by it in respect thereof.
The facts- We may, to begin with, brief the facts, which are simple and undisputed. The assessee, holding 15,000 shares (as on 01.04.2009, the beginning of the relevant previous year) in a company by the name Dorf Ketal Chemicals Pvt. Ltd. (‘DKCPL’ for short), the entire (or almost the whole) capital in which is held by the family members of the assessee’s karta’s family, representing 4.98% of the share capital (3,01,316 shares), was offered 3,13,624 additional shares (which works to about 21 shares for each share held) at the face value rate of Rs. 100/- each, on a proportionate basis. It subscribed to and was accordingly allotted 1,94,000 of those shares, on 28.01.2010, i.e., along with the other shareholders, who were allotted – on the same terms, not only the shares similarly offered to them but also that not subscribed to by the other shareholder/s, as 1,19,624 (313624 – 194000) shares by the assessee. The shares, as stated, were received by the assessee on 10.02.2010. As the book value of the shares of DKCPL as on 3 1.03.2009 was Rs.1,538/- per share, which is to be adopted as a measure of their fair market value (FMV) under the applicable rules (Rule 11U and r. 11UA), the Assessing Officer (A.O.), treating the difference of Rs. 1,438/- per share as the extent of the inadequate consideration, i.e., in terms of section 56(2)(vii)(c) read with the relevant rules, toward the acquisition of additional shares, brought the same to tax there-under. The same being confirmed in appeal, the assessee is in second appeal before us.
Held – Assessee’s case is limited to right shares only, and does not speak of any other capital asset covered by the provision, including shares and securities. We have already explained that to the extent the shares subscribed to are right shares, i.e., allotted pro-rata on the basis of the existing share-holding (as on a cutoff date), the provision, though per se applicable, does not operate adversely. A disproportionate allotment, which cannot, therefore, strictly be regarded as right shares, though could be allotted under a rights issue, would however invite the rigor of the provision, i.e., to that extent. It is to be noted that the fresh shares rank parri passu with the existing holding and, therefore, we see no reason why the provision shall not apply with full force in such cases.