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2018 (12) TMI 981 - AT - Income TaxAddition u/s.56(2)(vii)(c) - income from transaction of shares - Held that:- The transaction of issue of shares was carried out to comply with a covenant in the loan agreement with the bank to fund the acquisition of the business by the subsidiary in USA, therefore, such a bonafide business transaction cannot be taxed under section 56(2)(vii) especially when there is not even a whisper about money laundering by the AO in the assessment order. Further, we observe that the consideration for the shares was received through banking channel. This object behind introduction of section 56(2)(vii) should be borne in mind. The provisions of section 56(2)(vii) cannot be applied to transaction under consideration. The provisions of section 56(2)(vii) are applicable only from 1st October, 2009. In the instant case, the offer was made by the company to the shareholders to subscribe for the shares on 7 September, 2009 pursuant to resolution passed by board of directors on the same date. Further, on 21st September, 2009, the company informed the shareholders about the acceptance of shares offered by the company. Therefore, the offer made by the company was accepted by the shareholders before 1st October, 2009 hence, the contract between the company and the shareholder for issue by the company of shares was completed before 1st October, 2009. The provisions of section 17 do not apply to the shares allotted by the company to the assessee as the shares were not allotted by the company to the assessee in his capacity of being an employee of the company. The shares were offered and allotted to the assessee by the company by virtue of the assessee being a shareholder of the company. Therefore the provisions of section 17 are not applicable. Circular No. 710 dated 24 July, 1995 also supports the assessee's stand that where shares are offered by company to a shareholder, who happens to be an employee of the company (as Mr. Subodh Menon indeed is), at the same price as have been offered to other shareholders or the general public, there will be no perquisite in the shareholder's hands. In the instant case, the shares were offered to the assessee and other shareholders at a uniform rate of ₹ 100 and therefore, the difference between the fair market value and issue price cannot be brought to tax as a perquisite under section 17 of the Act. - decided against revenue
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