ITAT remands convertible preference shares valuation for taxation u/s. 56(2)(viib) by determining ‘true’ nature of shares
Bangalore ITAT restores matter on taxability u/s. 56(2)(viib) for excess share premium received by assessee co. upon issue of Compulsory Convertible Preference Shares (CCPS) during AY 2015-16, directs CIT(A), “to find out as to whether the premium received is for equity shares to be issued later or for preference shares issued now”;
Takes note of assessee’s contention that the valuation is to be done as preference shares and not equity shares and therefore, Rule 11UA (1)(c)(c) was applicable;
However, ITAT notes from the offer letter that the holder of a preference share is provided with voting rights like equity shares , further notes that preference shares are convertible to equity shares after fixed time at fixed rate; Restores matter to CIT(A) to look into all the terms of the issue of preference shares and examine whether the nature of the share issued is actually that of an equity share and not preference shares and accordingly decide as to which Sub Rule/ sub clause of Rule 11UA will be applicable; ITAT rules that, “If it is found that the premium received is mainly for conversion of preference shares into equity shares at an agreed price after an agreed time than there may be a case of non applicability of sub clause (c) of sub rule (c ) of Rule 11UA (1).”:ITAT
The ruling was delivered by ITAT bench of Shri A. K. Garodia and Shri Laliet Kumar.
CA. Sharath Rao argued on behalf of the assessee while the Revenue was represented by Mr. C. H. Sundar Rao.