| The Tax Publishers2023 TaxPub(DT) 122 (Del-Trib) INCOME TAX ACT, 1961
Section 28(iv)
Where in terms of an agreement between RHL and assessee equity shares in the forms of sweat equity shares were allotted to assessee without any amount being paid as consideration by assessee, in lieu of the assessee being an 'expert' having vast experience in a particular field, and supplying professional contribution, dedication and value addition to RHL. There was nothing to indicate that RHL actually compensated the assessee in money terms. There was no indication of the actual services provided by assessee and the quantification thereof. The entry in the books of RHL was actually reversed in a subsequent year. Taking a practical view, it was clear that no real benefit accrued or arose in the hands of assessee, and hence there was no taxability under section 28(iv).
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Business income - Sweat equity shares - Taxability under section 28(iv) -
RHL issued 1,00,000 equity shares to assessee in the form of sweat equity shares. The equity shares bore a face value of Rs.10 each . These shares were valued however at Rs. 200 per share by RHL. The balance amount of Rs. 190 per share was considered as 'share premium'. Accordingly, in the accounts of RHL, the premium amount was shown as 'Share Equity Premium'. A corresponding amount of asset in the balance sheet was shown as 'Intellectual Property Rights' as asset of company. AO noted that RHL had entered into agreement that with assessed for issue of these shares. The agreement clearly stated that these shares were allotted to assessee without any amount being paid as consideration by assessee, in lieu of the assessee being an 'expert' having vast experience in a particular field, and supplying professional contribution, dedication and value addition to RHL. As per the agreement, for availing entitlement of sweat equity shares, professional shareholders would remain in the continuous association with the company for at least a minimum period of 10 years from the date of allotment of sweat equity. AO taxed difference between market value of shares and the cost in hands of the assessee, i.e., (Nil) as professional income of assessee under section 28(iv). On appeal, CIT(A) deleted the addition holding that no real income. Held: The share premium was nothing but an entry in the books of RHL; there was nothing to indicate that RHL actually compensated the assessee in money terms. Indeed, the book value was around only Rs.9.98 as against face value of Rs.10. There was no indication of the actual services provided by assessee and the quantification thereof. The entry in the books of RHL was actually reversed in a subsequent year. Taking a practical view, it was clear that no real benefit accrued or arose in the hands of assessee, and hence there was no taxability under section 28(iv).
Relied:Helios Food Improvers Pvt. Ltd. v. Dy. CIT (2007) 14 SOT 546 (Mum-Trib) : 2007 TaxPub(DT) 1717 (Mum-Trib).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
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