Karnataka High Court: Tax U/ s. 56(2)(vii)(b) Of Income Tax Act Should Be Based On Fair Market Value Of Shares And Not Premium Amount
The Karnataka High Court was considering an Income Tax Appeal against Tribunal’s order whereby addition made under Section 56(2)(viib) of the Act amounting to Rs.33,71,77,500 towards share premium collected from closely held company were deleted.
The Karnataka High Court has refused to interfere in a Tribunal's decision that construed Section 56(2)(viib) of the Income Tax Act, 1961 based on fair market value of the share of the company.
The Court was considering an Income Tax Appeal against Tribunal’s order whereby addition made under Section 56(2)(viib) of the Act amounting to Rs.33,71,77,500 towards share premium collected from closely held company were deleted.
The division bench of Justice Krishna S Dixit and Justice Ramachandra D. Huddar observed, "Having heard learned panel Counsel appearing for the revenue and the learned Senior Advocate representing the Assessee we decline indulgence in the matter inasmuch as the Tribunal has construed the subject provision of the Act keeping in view the fair market value of the shares in question and not the premium amount. Learned Senior Advocate Mr. Shankar is right in telling us that the fair market value of the Shares in question has been arrived at by the Assessee by adopting one of the statutorily designated methods in terms of Rule 11UA(2) of the extant Rules."
The Petitioner was represented by Advocate YV Raviraj while the Respondent was represented by Senior Advocate S. Shankar.
Counsel for the Assessee vehemently submitted that the Tribunal wrongly construed Sec.56(2)(viib) of the Income Tax Act, 1961 and thereby committed error of deleting addition made in an amount of Rs.33,71,77,500/- in respect of securities premia credited on share issue in question.
The Court, however, found the findings of the Tribunal to be valid and observed, ".....the Substantial Questions of Law raised in the appeal are answered against the Revenue and eventually in favour of Assessee."
The Appeal was accordingly dismissed.
Cause Title: The PR Commissioner Of Income Tax Central vs. Waterline Hotels Pvt. Ltd. (2025:KHC:9397-DB)
Appearances:
Petitioner- Advocate YV Raviraj , Advocate M Dilip
Respondent- Senior Advocate S. Shankar, Advocate Madhusudhan U A