INCOME TAX ACT, 1961

Section 56(1)

Income from o ther sources - Taxability - Premium receivedon allotment of shares -

Assessee had issued 7,00,000 shares at a price of Rs. 125.361351 having face value of Rs. 10 and premium of Rs. 115 per share. AO taxed receipt of share premium under section 56(1) under the head 'Income from other sources' on the ground that year under consideration being the first year of business operations, assessee-company, was not justified in issuance of shares at a premium of Rs. 115 per share. Further, assessee had acquired certain intangible assets at the time of acquisition of business and those intangible assets were impaired in the same year and that this fact itself proved mala fide intention of assessee for allotment of shares at a premium. Held: In order to bring a particular receipt to be taxable within the ambit of section 56(1), the receipt should be in the nature of income as defined in section 2(24). Share premium received by assessee admittedly formed part of share capital and shareholders funds of assessee company and When receipt of share capital partook the character of a capital receipt, the receipt of share premium also partook the character of capital receipt only. Hence, at the threshold itself, the receipt in the form of share premium could not be brought to tax as revenue receipt to treat the same as income under section 56(1). Further, receipt of share capital and share premium is normal in case of a limited company at any stretch of imagination could not be equated with gift. Moreover, in view of the fact that though assessee had acquired certain intangible assets while acquiring business, and though the said intangible assets had been written off during the year due to impairment, assessee company had not claimed the same as deduction. It could not be said that there was mala fide on assessee's part to issue shares at premium. Therefore, no addition was called for.

Held:Credit Suisse Business Analysis (India) (P) Ltd. v. Asstt. CI T. Circle-15(1)(2), Mumbai r epr o ted in (2016) 72taxmann.Com 131 (Mum) : 2016 TaxPub(DT) 3560 (Mum-Trib), Green Infra Ltd. v. IT O reported in (2014) 38 Taxmann.com 253 (Mum) : 2014 TaxPub(DT) 0101 (Mum-Trib)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

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