TaxTMI 
TaxTMI 
2024 (6) TMI 327
X X X X Extracts X X X X
X X X X Extracts X X X X
....unds raised by the Revenue read as under: 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld.CIT(A) erred in deleting the addition of Rs. 254,55,24,025/ made towards shares, being bonus shares received without consideration, against the fair market value of shares as "Income from other sources" by invoking provision u/s. 56(2)(viia) 2.1 The Ld.CIT(A) failed to appreciate the intent behind the insertion of clause (vii) in Sec.56(2), as an anti abuse provision to prevent the practice of transferring shares of a specified company for no or inadequate consideration. If the assessee being a company in which the public are not substantially interested received property, be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication would be as under. The assessee being resident corporate assessee is stated to be engaged in the business of facility management and making investment. Though the assessee was assessed u/s 143(3), the case was reopened upon formation of belief of escapement of income and notice u/s 148 was issued on 23.03.2021. The assessee did not file any return of income in response to the same. Assessment Proceedings 2.1 The case was reopened on the observation that the assessee was holding 41,31,989 number of shares of group entity by the name M/s Updater Services Pvt. Ltd. (USPL). M/s USPL bought back 20,75,000 shares from the assessee @Rs.275/- per share. Later on 92,56,451 shares were received by the assessee in the ratio of 45 shares for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....geable to tax. Therefore applying the value of Rs. 275/- per share to number of bonus shares as received by the assessee, Ld. AO held that the amount of Rs. 254.55 Crores would be taxable in the hands of the assessee as dividend. The value of Rs. 275/- was justified in the background of the fact that during AY 2015-16, one of the shareholder M/s ICICI Ventures had transferred 41,31,989 shares of USPL to the assessee at Rs. 273.48 per share. M/s USPL bought back the shares under a scheme as sanctioned by Hon'ble High Court of Madras in CP No.122 of 2016. The Ld. AO also noted the provisions of Sec. 56(2)(viia) which provide that if any company has received any property during the year beings shares of company, not being a company in which th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such shares was to be taken as 'nil'. If the receipt of bonus shares was construed as dividend and subjected to tax, then the income so taxed was required to be treated as the cost of acquisition at the time of sale of the said bonus shares. Therefore, the issue of bonus shares to equity shareholders would not represent dividend income in the hands of the shareholders. 3.2 In the case of CIT vs. Dalmia Investment Co. Ltd. (52 ITR 567), it was held by Hon'ble Apex Court that the issue of bonus shares by the company to its equity shareholders do not amount to payment of dividend since the conversion of reserves into capital by issue of bonus shares do not involve release of profits to the shareholders and the said profits remain employed in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to equity shares in not covered as dividend u/s 2(22)(b). The revenue could not dispute the fact that the assessee was holding equity shares and not the preference shares. Since the bonus to equity shareholders is not covered within the ambit of Sec. 2(22)(b), the same has rightly been held by Ld. CIT(A) to be not applicable to the facts of the case. In such a situation, the same could not be brought to tax u/s 56(2). 5. We are of the opinion that Ld. CIT(A) has correctly relied on the cited decisions of Hon'ble Apex Court in CIT vs. Dalmia Investment Co. Ltd. (52 ITR 567) holding that issuance of bonus shares to equity shareholders do not amount to payment of dividend since the conversion of reserves into capital by issue of bonus shares....