Sec. 56(2)(viib) applicable only when issue & receipt of share consideration is in same AY: ITAT

Case Details: DCIT v. Rankin Infrastructure (P.) Ltd. - [2022] 142 taxmann.com 37 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Amarjit Singh, Judicial Member & S. Rifaur Rahman, Accountant Member
  • T. Shankar for the Appellant.
  • Rajiv Khandelwal for the Respondent.

Facts of the Case

Assessee-company had issued optionally fully convertible debentures (OFCDs) in the assessment year 2013-14. During the year, the assessee converted said OFCDs into non-cumulative preference shares at same price of OFCD.

The Assessing Officer (AO) invoked the provision of section 56(2)(viib) and made additions in respect of consideration received on said conversion to assessee’s income. However, on appeal, the Commissioner (Appeals) was of the view that provision of section 56(2)(viib) would be attracted in year of receipt of consideration and not in year of allotment. Thus, he deleted additions made by the Assessing Officer. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the assessee had issued optionally fully convertible debentures (OFCDs) and allotted OFCDs on 4-4-2011, 21-7-2011, and 21-3-2012. During this assessment year, the assessee had only converted OFCDs into non-cumulative preference shares at the same price of OFCD.

Therefore, since the assessee had converted the OFCDs into non-cumulative preference share during this assessment year, AO invoked the provisions of section 56(2)(viib) by interpreting that, section 56(2)(viib) does not contemplate receipts of funds but it deals only with issues of shares.

Section 56(2)(viib) is clear that the 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, the words used are received.

The “receives” means not the only issue of shares but also receipts of share consideration during the same assessment year. One cannot interpret the law merely based on the issue of shares or from receipt of consideration, it has to be issue of shares and receipt of consideration during the same assessment year.

It was needless to say that issue of shares includes an allotment of shares. Thus, the Commissioner (Appeals) had discussed the issue elaborately in his order and there was no reason to interfere with the findings of the CIT(A).