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Credit Suisse Business Analysis (India) Pvt. Ltd. Versus ACIT, Circle-15 (1) (2) , Mumbai

Share premium received - treating the receipt as a business receipt and thereby confirming the addition of share premium u/s. 56(1) of the Act to its total income - Held that:- While dealing with the assessment or appeals, under the provisions of the Income tax Act, the basic principle every officer of the department has to remember that he is the representing the Sovereign and his duty is to collect Due taxes only. For determining the Due taxes they should avoid bringing farfetched fancies and .....

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he AO nor the FAA has proved that the share premium money was utilised by it for running its day today business. The assessee had proved that the opening and the closing balance of the share premium money account was same for the year under consideration. We find that the factual position assailed by the assessee was not proved incorrect by both the authorities. If there was no difference in the balances how the conclusion was drawn that the share premium money was utilised for business purposes .....

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ly nor factually. - Decided in favour of assessee. - ITA/993/Mum/2015 - Dated:- 5-8-2016 - Shri Rajendra, Accountant Member and C. N. Prasad, Judicial Member Revenue by : Shri Manjunath Swamy-DR Assessee by : Shri F. V. Irani ORDER Per Rajendra, AM Challenging the order, dtd. 19. 1. 2015, of CIT(A)-24, Mumbai the assessee has filed the present appeal. Assessee-company, engaged in the business of providing various business support and information technology enabled services to its group companies .....

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g to ₹ 56. 10 crores as a business receipt and thereby confirming the addition of share premium u/s. 56(1) of the Act to its total income. During the assessment proceedings, the AO found that the assessee had issued 40 lakhs equity share of face value of ₹ 10/- each out of which 10 lakh shares had been issued at par, that the premium received by the assessee was credited to Securities Premium under the head reserves and surplus in the balance sheet. He called for the details of premi .....

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ntention behind the transaction would be the guiding factor to decide as to whether the judicial process could approve the transaction. He also analyse the provisions of section 78 of the Companies Act(CA)and examined as to whether the premium collected by the assessee had been utilised as per the conditions laid down in the said section. He held that the assessee had used the share premium collected for the day-to-day business activities, that it was a clear violation of section 78 of the Compa .....

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head income from other sources, that the provisions of section 56 (2) did not bark taxing any item under section 56 (1). He finally concluded that the assessee had received ₹ 56. 10 corrodes in the guise of share premium and that the same had to be taxed under the head income from other sources. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, it was argued that the assessee had issued cumulative redeemable prefer .....

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esulted in a reduced number of shares held by the shareholder and did not change the characterisation of the receipt from capital to revenue, the capital contribution in terms of the amount remained the same, that the shareholder s right to receive company s assets on liquidation remained same, that the consideration for the company was to issue shares that represented hundred percent of its capital which did not vary with a higher or lower number of the shares issued. It was further contended t .....

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tion of share premium for day-today activities and thus had violated the provisions of section 78 of the CA, that the AO had confused the application of cash on the Assets side of the Balance sheet for business purposes as effective use of share premium, that the assessee had clarified to the AO, during the assessment proceedings, that share premium at the beginning of the year was the same as the end of the year, that share premium had not been utilised at all, that the AO had relied upon the c .....

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#8377; 187/- per share, that no evidence was adduced either before AO or before him to demonstrate that shares could fetch premium of ₹ 187/- per share. Referring to judgment of Vodafone (supra), the FAA held that judgment was rendered in the context of determination of ALP by the TPO, that the issue of equity shares was treated as International Taxation Transaction, that the Hon ble Court had examined the applicability of Chapter-X of the Act and had concluded that provisions of the said .....

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provisions of section 78(2) of CA, he held that the assessee had not complied with the statutory requirements of the said Act, that the assessee did not bring any evidence on record to show that premium had been utilised as per section 100 to 102 of the CA, that it had utilised the premium collected for its business activities, that share premium had lost its character and took the colour of trading receipt. He relied upon the case of Sundaram Iyengar and Sons Ltd. (222ITR344) of the Hob ble Sup .....

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order of Hon ble High Court of Bombay in the case of Vodafone (supra). He further argued that facts of the case of Sundaram Iyengar and Sons Ltd. were not applicable to the case under consideration, that assessee had not utilised the share premium for its business. He referred to the case of Hillcrest Reality SDN. BHD (IA No. 9920 of 2009 in CS(OS) 1832/2008, dt. 18. 8. 2009) of the Hon ble Delhi High Court. He also referred to the section 78 and 100 of the CA. The DR supported the order of the .....

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roach of the FAA is fundamentally wrong. The taxability of an amount has to be decided within the four corners of the Income Tax. Section 4 of the Act is the charging section and section 2 defines the word income. Even the inclusive definition of income does not stipulate that non compliance of any provision of other Act would result in turning a capital receipt a revenue receipt. An infringement of a particular Act is dealt by that Act, unless and until it deals with other Act/(s). For example .....

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r determining the Due taxes they should avoid bringing farfetched fancies and ideas. In the case under consideration they have done the same. Without understanding the basic philosophy of income they have referred to the provisions of CA, so that the amount in question can be taxed at any cost. It is not a fair or judicious approach to deal with the Subjects of the State. Even if the assessee had violated the provisions of CA, it will be penalised by the provisions of that Act. But, it would nev .....

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