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2019 (3) TMI 272 - AT - Income TaxTaxation of excess share premium received as income from other sources u/s 56(2)(viib) - basis of valuation - difference in the rights of a holder of an equity share and preference share - Rule 11UA (1) sub clause (c) of sub rule (c) applicability - estimation for future cash flow - HELD THAT:- From offer letter, the holder of a preference share is provided with voting righjt also and therefore, can it be said that the nature of the share issued in the present case is actually that of an equity share and not preference shares but this evidence is brought on record as an additional evidence and there is no comment of any of the authorities below on it. This aspect of the matter should be decided first as to which Rule/Sub Rule/ sub clause is applicable in the facts of the present case and thereafter, the matter should be decided as per the applicable Rule/Sub Rule/ sub clause. All the terms of the issue of preference shares have to be looked into for this purpose to find out whether the present receipt of share premium is for issue of preference shares or for issue of equity shares because even if it is found that because of limited voting right only, the said shares are not equal to equity shares, then also, this is important to note that ultimately, these preference shares are to be converted into equity shares after a fixed time at a fixed rate and hence, this is important to find out as to whether the premium received is for equity shares to be issued later or for preference shares issued now since ultimately, these preference shares are compulsorily to be converted in to equity shares. If it is found that the premium received is mainly for conversion of preference shares into equity shares at an agreed price after an agreed time than there may be a case of non applicability of sub clause (c) of sub rule (c ) of Rule 11UA (1). These details are not available in the paper book and even if some things are available, the same are in the form of additional evidence without any comment of the lower authorities and explanation of the assessee and hence restore the matter to the CIT (A) for a fresh decision on this issue after deciding this aspect first that in the facts of the present case, which Rule/Sub Rule/ sub clause of Rule 11UA is applicable in the light of above discussion. Estimation is to be made of future cash flow and hence, the assessee has to establish that estimation made by the management and given to the Chartered Accountant for certifying DCF is estimated by the management on a scientific basis and therefore, the said estimate is made with reasonable certainty. If such estimation with reasonable certainty is not found possible than this method cannot be adopted on the basis of those data which are not estimated with reasonable certainty. In that situation, other methods have to be adopted. - Decided in favour of assessee for statistical purposes.
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