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2020 (12) TMI 1078 - HC - Income TaxIncome from other sources as per Section 56(2)(vii) - whether the fair market value of bonus shares computed as per Rule 11U and Rule 11UA of the Income Tax Rules can be considered as income from other sources as per Section 56(2)(vii) ? - HELD THAT:- The issue of bonus shares by capitalization of reserves is merely a reallocation of the companies funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. The total funds available with the company remains the same and issue of bonus shares does not result in any change in respect of capital structure of the company. Thus, there is no addition or alteration to the profit making apparatus and the total funds available with the company remain the same. In substance, when a shareholder gets a bonus shares, the value of the original share held by him goes down and the market value as well as intrinsic value of two shares put together will be the same or nearly the same as per the value of original share before the issue of bonus shares. Thus, any profit derived by the assessee on account of receipt of bonus shares is adjusted by depreciation in the value of equity shares held by him. In the instant case, there is no material on record to infer that bonus shares have been transferred with an intention to evade tax, which is the object of the provision in question. Commissioner of Income Tax (Appeals) as well as the tribunal have rightly held that when there is an issue of bonus shares, the money remains with the company and nothing comes to the shareholders as there is no transfer of the property and the provisions of Section under Section 56(2)(vii)(c) of the Act are not attracted to the fact situation of the case. - Decided in against revenue.
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