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2018 (8) TMI 1193 - AT - Income TaxNature of income received in the name of share premiums - lifting of corporate veil - AO taxed the same business income - CIT(A) taxed the same as income from other sources - These shares were issued with huge share premium and share premiums were determined without any basis - Held that:- The arrangement and circumstances leading to issue and allotment of shares may draw some doubts that certain benefits may have passed on to the directors. But the question is whether the directors/shareholders have really benefited with this arrangement and the assessee company was used as arrangement to pass on the benefit. AO has invoked section 28(iv) to convert the capital receipt as revenue. This section refers to any benefit/perquisite arising from business or exercise of a profession. This capital receipt is not generated in the business whereas ld. CIT(A) confirmed the capital receipt as income from other sources without establishing that this is income of the assessee when the assessee has not even commenced the business. The alleged receipt is the benefit intended to pass on to the director/shareholdes of the company. We noticed that this capital investment was received by the assessee as 0% convertible preferential shares. No doubt there is no immediate outflow to the company in terms of dividend but it is convertible in the near future as equity share capital. The AO/CIT(A) have restricted themselves by stopping the investigation based on circumstantial evidence and applying test of human probabilities. In order to lift the corporate veil for the purpose of determining whether any benefit is passed on to the shareholders/directors, they have to bring on record proper evidence/cogent material. We direct the AO to redo the assessment keeping in mind that no doubt the assessee has received this capital receipt and what circumstances which lead to investment is not important but whether the assessee company was used as a vehicle to pass on the benefit to shareholders/directors. Decided in favor of assessee for statistical purposes.
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