Invoking Section 56(2)(viib) to share premium received in limited scrutiny was not beyond jurisdiction of AO

Invoking Section 56(2)(viib) to share premium received in limited scrutiny was not beyond the jurisdiction of the AO as the issue of share premium being correctly offered to tax was linked to the said section-HC

ABCAUS Case Law Citation
ABCAUS 2348 ( 2018) 05 HC

The Petitioner was a company incorporated under the Companies Act. During the relevant year, the petitioner had received share premium @ Rs. 291/- per share on allotment of shares of face value of Rs. 100/- each.

The return filed by the petitioner was taken up for limited scrutiny and the petitioner was issued notice under Section 143(2) of the Act. The petitioner was informed that the issue identified for scrutiny was whether the funds received by the petitioner in the form of share premium are from disclosed sources and whether the same have been correctly offered for tax.

In response the notice, the petitioner submitted that the share premium was from disclosed sources and that the same had been correctly offered for tax. Later, the petitioner was issued another notice by the Assessing Officer (AO) stating that the fair market value (FMV) of the share can only be Rs. 100/- and therefore, the share premium received was liable to be assessed as income from other sources as per deeming fiction provided u/s 56(2)(viib) of the Act.

Later, after affording the petitioner an opportunity of hearing, the assessment of the petitioner was revised by treating the share premium amount as income from other sources u/s 56(2)(viib).

The petitioner challenged the assessment order by filing the instant writ petition in the High Court under Article 226 of the Constitution on the ground that the assessment order issued was without jurisdiction.

It was contended that the case of the petitioner was one taken for a limited scrutiny on the issue as to whether the funds received in the form of share premium by the petitioner are from disclosed sources and whether the same have been correctly offered for tax. The assessing officer, in the circumstances, could not have examined any other issue in the matter of completing the assessment without the approval of the Principal Commissioner of Income Tax. It was pointed out that the assessment now made under Section 56(2)(viib) of the Act was beyond the scope of the issue identified for scrutiny in terms of notice issued u/s 143(2) and against the directions issued by the Central Board of Direct Taxes (CBDT) circulars and hence without jurisdiction as the said circulars are binding on the assessing officers.

The Hon’ble High Court observed that clause (viib) of sub-section (2) of Section 56 provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is liable to be assessed as income from other sources.

The Hon’ble High Court opined that the issue whether the funds received by a company in the form of share premium have been correctly offered for tax has to be determined and assessed in accordance with the provision of section 56(2)(viib) of the Act.

It was noted that the issue identified for the limited scrutiny had two parts,

(i) whether the funds received in the form of share premium are from disclosed sources and

(ii) whether the same have been correctly offered for tax.

The Hon’ble High Court opined that the issue as to whether the funds received by the assessee in the form of share premium had been correctly offered for tax, was to be examined with reference to Section 56(2)(viib) of the Act and if it was found that the share premium had not been correctly offered for tax as provided therein, the assessee had to be assessed in accordance with the said provision.

Accordingly the contention that the AO exceeded jurisdiction was rejected and the writ petition was dismissed.

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