INCOME TAX ACT, 1962

Section 56(2)(viib) Rule 11UA

Income from other sources - Addition under section 56(2)(viib) - Year of taxability - Year of issuance of shares or the year of receipt of consideration

Originally, assessee had issued Optionally Fully Convertible Debentures to Ranon Infrastructure (P) Ltd., and allotted OFCDs on 4-4-2011, 21-7-2011 and 21-3-2012. The above issue prices of the OFCDs included share premium. During concerned assessment year assessee only converted OFCDs into non-cumulative preference shares at the same price of OFCD. Since assessee converted the OFCDs into non-cumulative preference share during this assessment year, AO therefore, invoked section 56(2)(viib) by interpreting that, section 56(2)(viib) did not contemplate receipts of funds but it deal only with issuance of shares. Held: Section 56(2)(viib) is clear, words used in the section are 'where a company, not being a company in which the public are substantially interested, receives in any previous year....'. Therefore, word used is receive's and 'receives' means not only issue of shares but also receipts of share consideration during the same assessment year. One cannot interpret the law merely on the basis of issue of shares or from receipt of consideration, it has to be issue of shares and receipt of consideration during the same assessment year. Issue of shares includes allotment of shares. Thus, section 56(2)(viib) becomes applicable in the year of receipt of consideration and not in the year of issuance of shares. Therefore, AO wrongly applied section 56(2)(viib) to the facts of the case and addition was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 250(4)

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