No Sec. 263 Revision for Sec. 56(2)(viib) on Holding-subsidiary Transactions: ITAT

Case Details: BLP Vayu (Project-1) Pvt. Ltd. v. PCIT - [2023] 151 taxmann.com 47 (Delhi-Trib.)[31-05-2023]

Judiciary and Counsel Details

• • Challa Nagendra Prasad, Judicial Member & Pradip Kumar Kedia, Accountant Member
  • Rajiv Jain, CA for the Appellant.
  • Kanv Bali, Sr. DR. for the Respondent.

Facts of the Case

Assessee-company is engaged in the business of generating and dealing in electricity. During the year under consideration, the assessee issued shares to its holding company and received a huge share premium. Assessee’s case was selected for scrutiny assessment. After examining the Fair Market Value (FMV) of the shares and the genuineness of the transaction, the income of the assessee returned was accepted by the Assessing Officer (AO) without any modifications.

Subsequently, exercising the revisional powers as per section 263, the Principal CIT (PCIT) issued a show cause notice contending that the assessment was prejudicial to the interest of revenue as AO failed to examine the genuineness of the transaction, creditworthiness of the persons from whom share premium was received been received has rendered.

Aggrieved-assessee preferred an appeal to the Delhi Tribunal.

ITAT Held

The Tribunal held that it was an undisputed fact that the shares had been allotted at a premium to its 100% holding company. The objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by issuing company in the garb of capital receipts.

In the instant case, not only is the FMV supported by independent valuer report, but the allotment has been made to the existing shareholder holding 100% equity. Thus, there is no change in the interest or control over the money by such issuance of shares. The object of deeming an unjustified premium charged on the issue of shares as taxable income under Section 56(2)(viib) is wholly inapplicable for transactions between the holding and its subsidiary company where no income can be said to accrue to the ultimate beneficiary, i.e., holding company.

Therefore, there is no benefit derived by the assessee by issue of shares at certain premium, notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self.

The chargeability of deemed income arising from transactions between holding and subsidiary or vice versa militates against the solemn object of Section 56(2)(viib). In this backdrop, the extent of inquiry on the purported credibility of the premium charged does not really matter as no prejudice can possibly result from the outcome of such inquiry.

Thus, the condition for the applicability of Section 263 for inquiry into the transactions between interwoven holding and the subsidiary company was of no consequence.