Section 68 – Share premium is a capital receipt and
not income in ordinary sense. Even if it is held that excess premium is
charged, it does not become income as it is a capital receipt. In case
of share capital, if identity is proved, no addition can be made u/s.
68.
Facts: During the previous year, the assessee
company issued equity shares of face value of Rs. 10 each at a premium
of Rs. 190 per share. The face value of shares issued was Rs. 81,25,000
and the amount received as share premium was Rs. 6,69,75,000. The book
value of the shares at the time of issue of fresh capital was Rs. 10.
The AO asked the assessee to furnish the supporting details of
subscribers and to justify the share premium charged.
The
assessee stated that the premium was charged based on future prospects
of the assessee company. From the submissions made, the AO noticed that
the applicants were all group companies operating from the same address
where the assessee was operating its business. The share application
forms were all signed by the same person. The persons from whom premium
were charged were newly established companies and their source of funds
was from share capital. The funds raised by the assessee company were
invested in shares of M/s .Omni Infrastructure Pvt. Ltd., which was also
a group company. These shares were subscribed at a premium of Rs.
12,490 per share. The AO made an addition of Rs. 7,53,00,000 u/s. 68 of
the Act.
Aggrieved, the assessee preferred an appeal to the
CIT(A) who observed that the AO has not given any reason as to why the
investment with a premium is not genuine when the assessee has produced
all the details of investors in the form of share application form, bank
account details, copies of return of income and balance sheet. He
allowed this ground of appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The
Tribunal noted that the assessee had filed all the requisite
details/documents which are required to explain credits in the books of
accounts by the provisions of section 68 of the Act. It stated that the
assessee has successfully established the identity of the company which
has purchased the shares at a premium. The assessee has also filed bank
account details to explain the source of the shareholders and the
genuineness of the transaction was also established by filing copies of
share application forms and Form No.2 filed with the Registrar of
Companies.
No doubt a non-est company or a zero balance sheet
company asking for a premium of Rs. 190 per share defies all commercial
prudence but at the same time it cannot be ignored that it is a fact
that it is a prerogative of the Board of Directors of the company to
decide the premium amount and it is the wisdom of the share holders
whether they want to subscribe to such heavy premium. The Revenue
authorities cannot question the charging of such huge premium without
any bar from any legislated law of the land.
The Tribunal
observed that the amendment to section 56(2) by insertion of clause
(viib) is applicable w.e.f. A.Y. 2013-14. In the year under
consideration, the transaction has to be considered in the light of
provisions of section 68 of the Act. It held that the assesse has
discharged the initial burden of proof. Even if it is held that excess
premium has been charged, it does not become income as it is a capital
receipt. The receipt is not in the revenue field. What is to be probed
by the AO is whether the identity of the assessee is proved or not. In
the case of share capital, if the identity is proved, no addition can be
made u/s. 68 of the Act. The tribunal dismissed this ground of appeal
filed by the revenue.
