Provisions of ‘angel tax’ is applicable in year of issue of shares and not year of receipt of premium: ITAT
The year of taxation of share premium is often an issue of controversy and litigation, more particularly, in view of the scope of section 56 widened in the recent years. There is one such case before ITAT, Bangalore which has made few important observation.
The detail of the case is as under:
Medicon Leather (P.) Ltd.
[2022] 135 taxmann.com 165 (Bangalore – Trib.)
The issue was with regard to taxation under section 56 of the Income-tax Act, 1961, read with rule 11UA of the Income-tax Rules, 1962 as “Income from other sources” of the share Premium amount. The relevant Assessment year for the case was AY 2015-16.
The issue before ITAT was whether as per Explanation to section 56(2)(viib), apart from determination of FMV of shares under rule 11UA, intrinsic value is also one of prescribed method as per section 56(2)(viib)(a)(ii), but higher of valuation as per section 56(2)(viib)(a)(i) or (ii) has to be considered by Assessing Officer before applying those provisions?
The ITAT answered it in affirmative as yes.
Another issue was whether where assessee issued/allotted equity shares at a premium, however, did not file any valuation report to substantiate fair market value of shares issued in terms of section 56(2)(viib)(a)(i) and rule 11UA, Assessing Officer could not have accepted intrinsic value without calling for a value in terms of rule 11UA to find out whether class (i) or class (ii) of Explanation (a) to section 56(2)(viib) would be applicable?
The ITAT answered it again in affirmative as yes. ITAT further concluded that section 56(2)(viib) is applicable in year in which shares were issued and not in year of receipt of premium.
In short, the court concluded as under:
- WHere assessee issued/allotted equity shares at a premium, however, did not file any valuation report to substantiate fair market value of shares issued in terms of section 56(2)(viib)(a)(i) and rule 11UA, Assessing Officer could not have accepted intrinsic value without calling for a value in terms of rule 11UA to find out whether class (i) or class (ii) of Explanation (a) to section 56(2)(viib) would be applicable.
- Section 56(2)(viib) is applicable in year of issue of shares and not year of receipt of premium.
