Case Law Details
Sunrise Academy of Medical Specialities (India) (P.) Ltd Vs ITO (Kerala High Court) (DB)
Any premium received by a Company on sale of shares, in excess of its face value; if the Company is not one in which the public has substantial interest, would be treated as income from other sources, as seen from Section 56(2) (viib) of the Act, which we do not think can be controlled by the provisions of Section 68 of the Act. Section 68 on the other hand, as substituted with the provisos, treats any credit in the books of accounts, even by way of allotment of shares; for which no satisfactory explanation is offered, to be liable to income-tax. Clause (viib) of Section 56(2) is triggered at the stage of computation of income itself when the share application money received, from a resident, by a Company, in which the public are not substantially interested; is above the face value. Then the aggregate consideration received for the shares as exceeds the fair market value will be included as income from other sources. However, when the resident investor is not able to explain the nature and source for the credit seen in the books of accounts of the Company or the explanation offered is not satisfactory then the entire credit would be charged to income tax for that previous year. That is the entire amounts credited in the books of accounts, styled as, for allotment of shares or application money, including the fair market value determined will be charged to tax. However if an explanation is offered and if it is satisfactory in the case of a Company in which the public are not substantially interested, then the charge to tax will only be to that portion exceeding the fair market value determined; which anyway has to occur under Section 56(2)(viib).
If Section 68 is applicable, and the proviso is not satisfied, then the entire amounts credited to the books would be treated as income. If satisfactory explanation is offered as to the source, then the premium paid as revealed from the books will be brought to tax as income from other sources. The contentions raised are to be negatived.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The appellant impugn the judgment of the learned Single Judge in a writ petition, which was filed without availing the appellate remedy as available in the statute. Suffice it to notice on facts that the appellant, a private limited Company, incorporated under the Companies Act, and in which the public are not substantially interested, issued shares at a premium above the face value. The appellant did not offer any amount so received as income for the purpose of taxation under the Income-tax Act. A notice under Section 143(2) was issued and the appellant is said to have disclosed the genuineness of the persons, who purchased the said shares on a premium. The Assessing Officer then attempted to tax the amounts so received under Section 56(2)(viib) of the Income Tax Act, 1961 [for brevity, the Act].
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