Section 56(2)(viib) of Income Tax Act not Applicable to Share Premium Received from a Non-Resident Person: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that Section 56 (2)(viib) of the Income Tax Act 1961 which are crucial in preventing tax evasion and ensuring fair taxes with regard to the issuance of shares by closely-held companies would not be applicable to share premium received from a non-resident person.

In this case, the assessment order was passed under Section 143(3) of the Income Tax Act by the AO on 04.12.2017, wherein, the addition was made. Thereafter, an order under Section 154 of the Income Tax Act was passed on 10.04.2018, wherein, the addition was reduced.

The assessee, APCA Power Private Limited had issued 26742 shares with face value of Rs. 1,000/- at a premium of Rs. 800/- per share to Vivek Chaudhri during the year under consideration. It was also seen from the facts on record and the documents filed by appellant that Vivek Chaudhri was a non-resident during the year in which the shares were issued by the appellant company to Vivek Chaudhri.

The A.O had made the addition in this case under Section 56(2)(viib) of the Income Tax Act with regard to the premium received by the appellant on account of shares issued to Vivek Chaudhri. However, as Vivek Chaudhri was non-resident during the year in which shares were issued, the assessee had contended that the provisions of Section 56(2)(viib) of the Income Tax Act do not apply in the case of non-resident and as such the penalty imposed may be deleted.

Poonam Khemka, on behalf of the assessee submitted that It was evident from the provisions of Section 56(2)(viib) of the Income Tax Act reproduced would not apply to non-residents and no penalty was leviable with regard to the addition made by the A.O on this account.

The two-member Bench of Shamim Yahya, (Accountant Member) and Yogesh Kumar Us, (Judicial Member) observed that as per the provisions of Section 56(2)(viib), of the Income Tax Act the section would not be applicable to the share premium received from a non-resident Person.

The Bench further noted that noted that Vivek Chaudhri had himself submitted before the AO duly noted in a note-sheet that he was a resident through the concerned period and allowed the appeal filed by the revenue and remitted back to the file of the AO to pass order after giving opportunity to the assessee.

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