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2019 (6) TMI 340 - AT - Income TaxTaxability of share premium - company falls under the category of the company in which public are substantially interested - AO invoked Section 56(1) to bring this transaction as income from other sources - this transaction is capital investment and not an income within the meaning of Section 14 - HELD THAT:- This head of income consists of two parts i.e. section 56(1) and section 56(2). The first part i.e. sub-section (1) deals with income of every kind, which does not fall in any of the head of income A – E and also which is not to be excluded from the total income under this Act. The important thing is, it should fall within the definition of income u/s 2(24). At the same time, sub-section (2) of section 56, deals with specific income which is not income as per section 2(24) but specifically brought under the definition of income by the Legislature. Therefore, the income which cannot be brought to tax u/s 56(2), under specific head, AO cannot bring to tax even u/s 56(1) Assessee has received share premium and AO has mandate to invoke only Section 56(2)(viib) and no other section. This transaction will never fall in any of the heads of income as per Section 14. Therefore, in our considered view, AO is not correct in bringing this capital investment as income of the assessee after satisfying himself that assessee’s case does not fall u/s. 56(2)(viib). Therefore, the addition made by AO is deleted. Disallowance u/s 14A - valuation difference of mutual fund - real dividend income - HELD THAT:- We notice that assessee made investment in mutual funds and the value as on Balance Sheet date stood at ₹ 25,10,99,520/-. The difference between actual investment and value as on Balance Sheet was declared as dividend income. This is not actual receipt of dividend during this year, it is only difference in valuation of investment. The position will keep changing every year. The same will be recognized in the Profit and Loss A/c. The investment value may increase compared to previous year status or decrease depending upon the performance of the fund. The actual increase in value will be determined only when it is transferred or matured. This income recognised by assessee is not real dividend income and the real dividend income alone is exempt from tax net, not the notional recognition of the income at the Balance Sheet date. The value difference at the time of disposal will be chargeable to tax as Long Term Capital Gain not as dividend income. Therefore, in our view, this recognition of difference in value of investment is not the dividend income and hence, Assessing Officer cannot invoke Section 14A in this transaction. - Decided in favour of assessee.
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