The Visakhapatnam bench of Income Tax Appellate Tribunal (ITAT) held that section 56(2) (viia) did not attract on mere conversion of share application money by allotting shares at subsequent date without change of share pattern.
Assessee ATR Warehousing Private Limited deriving income from business and capital gains. The main source of business income was license fee collected from the tenants for the warehousing godowns at various places.After filing the return of the income which was selected for scrutiny but then assessment got abated as search and seizure operations under section 132 of the Income Tax Act 1961. In the course of said proceedings several documents and loose sheets were found and seized. Thereafter assessing officer made addition upon the amount which was collected for 1, 93,655 shares and taxed as income from other sources under section 56(2)(viib) of the Income Tax Act 1961.against the order of the assessing officer assessee filed appeal before the ITAT.
56(2)(viib) of the Income Tax Act 1961 provides that when a company to any resident person by way of making consideration issue shares and that exceed the face Value of such share and the consideration amount exceed the fair market value shall be deemed to be the income of the company that income chargeable to tax under the head of income from other sources .
GVN Hari, Counsel for the assessee contended that assessee Was a holder of 99.68% of the equity shares with M/s. Usha Tubes and Pipes Ltd .Therefore assessee being a holding company of M/s. UTPL and hence the shares were allotted at par value. But the Assessing officer did not consider the relationship between the Assessee Company and M/s. UTPL which is a holding and subsidiary company relationship.
MN Murthy Naik Counsel for the revenue relied upon the decision of the assessing officer.
After considering the contentions of the both parties the division bench of ITAT comprising Duvvuru Rl Reddy (Judicial Member) and S Balakrishnan, (Accountant Member) allow the appeal filed by the assessee and held that Merely by converting the share application money by allotting shares at a subsequent date cannot attract the provisions of section 56(2)(viia) of the Income Tax Act 1961 as there is no change in the shareholding pattern subsequent to the allotment of shares by the subsidiary company.
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