2013 (12) TMI 949 - AT - Income Tax

Treatment of share premium - additions u/s 68 - Issue of shares sham transaction – Held that – No doubt a non-est company or a zero balance company asking for a share premium of ₹ 490/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land.

The subscribers to the share capital are all companies - The confirmations of the transactions have been received by the AO by issuing notice u/s. 133(6) - Identity of shareholders has been established beyond all reasonable doubts - The Revenue authorities have not questioned the identity of the share holders - The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of accounts of the assessee duly reflected in the financial statement of the assessee - Not even a single evidence could be found which could lead to the entire transaction as sham - The share holding pattern also cannot be said to generate any transaction which could be said to be sham - The share holders in all the related transaction under issue are directly or indirectly related to the Government of India - The Revenue authorities have erred in treating the share premium as income of the assessee u/s. 56(1) – The application of funds would be in the subsidiary companies – Decided in favour of assessee.

Commencement of business – Held that:- The assessee company received certificate of commencement of business on 29.04.2008 – The main objects of the company shows that one of the main object of the company is that of financing, investing, sourcing, operating, green or clean technology products and services that optimize the use of natural resource or reduce the negative environmental impact - the assessee company has in fact set up three subsidiary private limited companies - One of this subsidiary private limited company has stated generating electricity as per the certificates given by the Tamilnadu State Electricity Board - All the legitimate expenses including depreciation are allowable – Decided in favour of assessee.

Interest on fixed deposit – Held that:- The frequency and holding period of purchase of fixed deposits by the assessee shows that the intention of assessee is to earn interest income – Following CIT v. Indo Swiss Jewels Ltd. [2005 (9) TMI 47 - BOMBAY High Court] - The interest income is to be taxed under the head business income - Decided in favour of assessee.