TMI Blog2016 (11) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of a profession. In this regard we fail to understand as to how section 28(iv) is applicable on the facts of the present case where share application, application money has been received. Section 28(iv) covers the value of any benefit or perquisite and not sums received on capital account which is the case in the present context. Hence in our considered opinion the AO could not resort to this provision as the receipt was of capital nature. Appeals filed by the Revenue stand dismissed - ITA No. 403/Nag/2016, 413/Nag/2016, 414/Nag/2016 , 422/Nag/2016 , 423/Nag/2016, 431/Nag/2016 - - - Dated:- 25-11-2016 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI JUDICIAL MEMBER. Appellant by : Shri Narendra Kane. Respondent by : Shri Hitesh Shah. O R D E R. PER BENCH: These are appeals by the Revenue directed against the separate orders of learned CIT(Appeals) against separate assessees. Since the issues are common and appeals were heard together, these are being disposed by this common order for the sake of convenience. Common grounds of appeal read as under : 1. On the facts and in the circumstances of the case, the Ld. CIT(A) err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken on the basis of potential of assessee company. Considering that there was no business activities carried out by the assessee company The fare offer of sale of shares was not made to the share holders or other entities. There is nothing identical ground establish to receive huge premium by the assessee. Further, it is reported after due enquiries by Investigation Wing, Nagpur that investor entities, companies who had invested a share application money bin the assessee company are from the same PPSL group. The directors of these companies were the persons of meagre means. The companies of this group had transacted these amounts in layers and stages which is established by Investigation Report. The statement were recorded on oath by Investigation Wing of these persons involved. Therefore, the transaction of share application money, share capital introduction, share premium stands artificially designed. Hence, the huge premium charged per share is not justifiable and there is a case to be made out that the share premium received is part of the consideration received towards the sale of shares. Alternatively amount of share premium received needs to be treated as profit enjoyed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of Directors authorizing the said investment, copy of bank statements, the appellant has also submitted that parties who had invested in shares of appellant company at a premium have confirmed the transaction of shares during the course of assessment proceedings. Accordingly, the appellant has submitted that the assessee company has established identity nd creditworthiness of the entities as well as proved the bonafides and genuineness of transactions beyond doubt. This submission of the appellant was sent to the A.O. for comments and the A.O. in remand proceedings has not disputed this assertion of the appellant. Accordingly, considering the ratio of the case decided vide order No.CIT(a)-ii/153/13- 14, dated 1.10.2014 and ratio laid down in the case of Green Infra Ltd. by Mumbai Bench of ITAT, it is clear that the amount of share premium cannot be treated as income either u/s 68 or u/s 56 in the case of the appellant. I also find that an amendment has been brought in the Incometax Act and Sec. 56(2)(viib) and has been inserted by the Finance Act 2012 w.e.f. 1.4.2013. The current assessment will not be effected by this provision. 6.3 However, in the present case the A.O. brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the above order, the Revenue is in appeal before us. 9. We have heard both the counsel and perused the records. Learned D.R. relied upon the orders of the AO. 10. Per contra learned counsel of the assessee supported the order of learned CIT(Appeals). He submitted that in this case there is no dispute regarding the identity and genuineness of the transaction. The share applicants are identified. No case has been made out that they are non existent. In such circumstances the learned counsel pleaded that there is no basis for making the addition regarding share capital and share premium in the hands of the company when the share holders and share applicants are identified. For this proposition learned counsel placed reliance on the decision of Hon ble Apex Court in the case of M/s Lovely Exports 216 CTR 195 and the decision of Hon ble Punjab Haryana High Court in the case of CIT vs. K.C.Pipes Pvt. Ltd. 386 ITR 532. Further learned counsel submitted that there is no basis whatsoever that the share premium receipt can be treated as benefit u/s 28(iv) of the I.T. Act. For this proposition learned counsel placed reliance on catena of decisions including that of Hon ble Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the basis of potential of assessee company. The AO has drawn adverse inference further on the ground that fare offer of shares was not made to the shareholders or other entities. In the remand report also the AO has only emphasised that there was no justification of charging huge share premium. Hence the AO has observed that the nature of transaction was artificial and hence the premium received by the assessee was held profit within the meaning of section 28(iv). 12. In our considered opinion the above basis of addition brought on record by the AO has no cogency. It is settled law that once the identity of shareholders are established, the addition, if any, on account of share application/share premium, share capital has to be considered in the hands of the shareholders. It is trite law that the company is an artificial juridical person. It can own property in its name. It can sue and can be sued. This proposition is duly fortified by the decision of Hon ble Apex Court in the case of Lovely Export 216 CTR 195. Further in a recent judgment, the Hon ble Punjab Haryana High Court in the case of CIT vs. K.C.Pipes Pvt. Ltd. 386 ITR 532 has held that the assessee cannot be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ; 44[(d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ;] (iii) income derived by a trade, professional or similar45 association from specific services45 performed for its members ; 46[(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ;] 47[(iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ;] 48[(iiic) any duty of customs or excise re-paid or re-payable as drawback to any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii) service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging;] 55[(vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.-For the purposes of this clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of section 10;] 56[(vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are specifically included in the definition of income such as under section 2(24)(vi), and unless it is in nature of income, it cannot be considered for taxation under section 28(iv). 15. From the above it is clear that to find out whether or not the benefit even if that be so is on capital account or Revenue s account, it is necessary to understand the nature of transaction which resulted in what the AO assessed as benefit to the assessee. 16. In the present cases share applicants have applied for share capital at a premium. It is well settled accounting principle that share capital, share application money and share premium fall under capital nature of transaction. 17. The Companies Act which governs the principles and manner of preparations of accounts of Companies also provides under section 211 vide Schedule VI that share capital, share premium, share application money pending allotment be separately shown as capital item in the balance sheet. In such circumstances there is no dispute that share capital, share application money including share premium fall under capital head and thus are to be treated as capital receipt and not as revenue receipt. 18. Once it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held as under : The word income for the purpose of the Income-tax Act, 1961 has a well understood meaning as defined in section 2(24) of the Act. Even though the definition in section 2(24) of the Act is an inclusive definition, income will not in its normal meaning including capital receipts unless it is so specified, as in section 2(24)(vi) of the Act. Amounts received on issue of share capital including the premium are undoubtedly on capital account. Absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as income. 20. From the above it is evident that the share capital and share application money with premium received by the assessee company is an amount received on capital account. From the above case laws it is quite evident that sums received on capital account cannot be treated as income. Once it is held that the share capital and share application money with premium are received on capital account, such receipts cannot be added as income from business and profession u/s 28 of the I.T or for that matter u/s 28(iv) of the I.T. Act. In this regard even at the risk of repetition we find that secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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