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2023 (9) TMI 1162 - GUJARAT HIGH COURTAddition u/s. 56(2)(vii)(c) - additional 82,200 shares allotted to assessee due to renouncement of rights by wife & father of the assessee - HELD THAT:- As the provisions of Sec. 56(2) would not be applicable to the issue of new shares which is also submitted by the explanatory notice to the Finance Bill, 2010, wherein, it is clarified that Sec. 56(2)(vii)(c) of the Act ought to be applied only in the case of transfer of shares. It is trite law that allotment of new shares cannot be regarded as transfer of shares. Therefore, in order to apply the provisions of Sec. 56(2)(vii)(c), there must be an existence of property before receiving it. As per advanced Law Lexicon Dictionary, the term “receive” has been defined as “To receive means to get by a transfer, as to receive a gift, to receive a letter or to receive money and involves an actual receipt.” Issue of new shares by company as a right shares is creation of property and merely receiving such shares cannot be considered as a transfer under Sec. 56(2)(vii)(c) and accordingly, such provision would not be applicable on the issuance of shared by the Company in the hands of the allottee. The Apex Court in the case of Khoday Distilleries Ltd. [2008 (11) TMI 16 - SUPREME COURT] after referring to the decision in the case of Shri Gopal Jalan & Co. vs. Calcutta Stock Exchange Association Ltd., [1963 (5) TMI 30 - SUPREME COURT] noted the question arose as to the amendment of the word “allotment” held that the word “allotment” means appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person and till such allotment, the shares do not exist as such”. Therefore, it is only on allotment that the shares come into existence. In every case, the words “allotment of shares” having used to indicate the creation of shares appropriation out of unappropriated share given to a particular person which is also referred to in the notice of clause to the Finance Bill 2010. Therefore, the aim and intention behind amending the provision of Sec. 56 is to prevent the practice of transferring unutilized shares at a price which are allotted for the first time by way of right shares. The amendment is therefore never meant to aim the “fresh issue” or “fresh allotment” of shares by a company. With regard to issue of 82,200 shares, the name of wife and father of the assessee would also not be hit by provision of Sec. 56(2)(viii)(c) as both of them would be covered by definition of relative covered in the exemption of relative, and therefore, the provision of section 56 would not be applicable at all. The findings recorded about valuation of shares to Rs. 205.55 is concerned, there are concurrent findings of fact which do not require any interference as the CIT(A) has rightly computed the FMV on the basis of the balance sheet which was available on record for the previous year and which was approved in AGM.
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