Analysis Of Two Important Judgements (Jan – March 2014)
CA Anant N. Pai
No practitioner can afford to be unaware of the latest judgements & whether experts view the judgement as being right or wrong. Towards that end, the author has agreed to take time out of his busy schedule to make an analysis of landmark judgements every quarter. In this part, the author has identified two landmark judgements analyzed them with a critical eye and identified their strengths & shortcomings
1. S. 56(2)(vii) does not apply to bonus & rights shares offered on a proportionate basis even if the offer price is less than the FMV of the shares.
Sudhir Menon HUF vs. ACIT – Mumbai ITAT – “A” Bench – ITA no. 4887/Mum/2013 dated 12-3-2014 for Assessment Year 2010-11. (www.itatonline.org).
1.1. The synopsis of the decision is reproduced as under:-
“Section 56(2)(vii)(c) (ii) provides that where an individual or a HUF receives any property for a consideration which is less than the FMV of the property, the difference shall be assessed as income of the recipient. Section 56(2) (vii) does not apply to the issue of bonus shares because there is a mere capitalization of profit by the issuing-company and there is neither any increase nor decrease in the wealth of the shareholder as his percentage holding remains constant. The same argument applies pari material to the issue of additional shares to the extent it is proportional to the existing share-holding because to the extent the value of the property in the additional shares is derived from that of the existing shareholding, on the basis of which the same are allotted, no additional property can be said to have been received by the shareholder. The fall in the value of the existing holding has to be taken into account. As long as there is no disproportionate allotment, i.e., shares are allotted pro-rata to the shareholders, based on their existing holdings, there is no scope for any property being received by them on the said allotment of shares; there being only an apportionment of the value of their existing holding over a larger number of shares. There is, accordingly, no question of Section 56(2) (vii) (c) getting attracted in such a case. A higher than proportionate or a non-uniform allotment though would attract the rigor of the provision to the extent of the disproportionate allotment and by suitably factoring in the decline in the value of the existing holding.”
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