SHREEPATI INFRA REALTY LTD, MUMBAI V. ITO 5(3)(2), MUMBAI

ITA 6364/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88226 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 14-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KAUR
• Keywords: Business income; Depreciation; Question of law; Scheme of amalgamation; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 56(2); 260A; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 6364/MUM/2014 (ASSESSMENT YEARS: 2010-11) M/S SHREEPATI INFRA REALTY LTD, 4 TH FLOOR, SHREEPATI ARCADE, A K MARG, NANA CHOWK, MUMBAI -400 036 .: PAN: AAMCS 5631 E VS THE INCOME TAX OFFICER-5(3)(2), AAYAKAR BHAVAN, MUMBAI -400 020 (APPELLANT) !' (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE SMT LATA PARULEKAR RESPONDENT BY : MS PARMINDER KAUR #$ % &' /DATE OF HEARING : 22-12-2014 ()* % &' / DATE OF PRONOUNCEMENT : 06-02-2015 ORDER , , , , ! !! ! PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE CIT(A) 9, MUMBAI, DATED 09.09.2014, WHEREIN, T HE FOLLOWING GROUNDS HAVE BEEN RAISED: AND SUBMITTED FOR OUR CONSIDERATION: GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE AO'S ACTION OF DISALLOWING REVENUE EXPENDITURE OF RS.28,89,560/- CONSIDERING THE SAME AS PRE COMMENCEMENT EXPENDITURE. THE APPELLANT PRAYS THAT DISALLOWANCE OF REVENUE EXPENDITURE OF RS 28,89,560 /- MAY PLEASE BE DELETED. GROUND NO. 2: WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A ) ERRED IN CONCURRING WITH THE LD. A.O. BY NOT ALLOWI NG 20% OF THE EXPENDITURE OF RS.28,89,560/- UNDER SECTION 35D OF THE ACT. THE APPELLANT PRAYS THAT IN CASE THE TO TAL EXPENDITURE IS NOT ALLOWED TO BE WRITTEN OFF IN THE YEAR M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 2 UNDER CONSIDERATION, THE SAME SHOULD BE ALLOWED TO BE WRITTEN OFF IN FIVE EQUAL ANNUAL INSTALLMENTS I.E. @ 20% P.A. UNDER SECTION 35D OF THE ACT. GROUND NO.3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE LD. AO'S TREATMENT OF GENERAL RESERVE ON AMALGAMATION O F RS.31,61,92,500/- AS SHARE PREMIUM. THE APPELLANT PRAYS THAT THE A.O. MAY BE DIRECTED TO TREAT THE AM OUNT OF RS.31,61,92,500/- AS GENERAL RESERVE AS PER THE DIRECTION OF THE HON'BLE BOMBAY HIGH COURT. GROUND NO.4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(AROSS1Y ERRED IN HOLDING THAT THE GENERAL RESERVE OF RS.31,61,92,500/- IS THE APPELLA NT'S INCOME AND TAXABLE AS 'INCOME FROM OTHER SOURCES' UNDER SECTION 56(1) OF THE ACT. THE APPELLANT PRAYS THAT IT HAS NEITHER COLLECTED SHARE PREMIUM FROM ITS SHAREHOLDERS NOR THE GENERAL RESERVE SO CREATED AS RESULT OF THE AMALGAMATION WAS IN ANY MANNER INCOME OF THE APPELLANT AND ACCORDINGLY NOT TAXABLE UNDER INCOME TAX ACT, 1961. THUS, THE ADDITION MADE U/S 56 OF THE IN COME TAX ACT, OF RS. 31,61,92,500/- MAY PLEASE BE DELETE D. THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AME ND OR DELETE THE GROUNDS OF APPEAL. 2. THE FACTS ARE THAT THE ASSESSEE COMPANY WAS INCORPO RATED ON 15.10.2008, I.E. IN ASSESSMENT YEAR 1009-10. THE ASSESSE E FILED ITS RETURN OF LOSS OF RS. 29,28,751/-. IN THE ACCOUNTS OF THE ASSESSEE COMPANY, THE AO NOTICED THAT IT HAD DEBITED E XPENSE OF RS. 28,89,560/-. THE AO, IN THE ASSESSMENT PROCEEDINGS CALLE D FOR AN EXPLANATION WITH REGARD TO THIS EXPENSE AND IT WAS EXPLAINED TO HIM THAT AFTER THE INCORPORATION, THE ASSESSE E COMPANY STARTED EXPLORING BUSINESS AVENUES, WHICH CONSISTED START UP ACTIVITIES, SUCH AS LEGAL EXPENSES, PAYMENTS TO R OC ETC. THE ASSESSEE, THOUGH CLAIMED THE EXPENSE TO BE REVENU E IN NATURE, PRAYED THAT IF THE EXPENSE IS NOT TO BE ALLOWED, T HEN THE EXPENSES BE TREATED AS PRELIMINARY EXPENSE TO BE DEFERR ED U/S 35D @ 20%. 3. THE AO, AFTER CONSIDERING THE EXPLANATION OF THE ASSESS EE, OBSERVED THAT SINCE NO BUSINESS HAD NOT BEEN BOOKED IN THE FINANCIAL YEAR, THE EXPENSE, INCURRED BY THE ASSESSEE IN PE RIOD, PRIOR TO COMMENCEMENT SHALL NOT BE ALLOWED AS REVENUE, BU T THE M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 3 SAME COULD BE TREATED AS A CAPITAL EXPENDITURE AND THE REFORE, HE ADDED BACK RS. 28,89,560/-. THE AO ALSO DENIED THE ALTERNA TIVE CLAIM OF THE ASSESSEE FOR ALLOWING THE EXPENSE U/S 35D. 4. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE APPROAC HED THE CIT(A), BEFORE WHOM IT REITERATED ITS SUBMISSIONS MADE BEFORE THE AO. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, SUSTAINED THE ORDER OF THE AO IN THIS ISSUE AND SUSTAINED THE ADDITION MADE AT RS. 28,89,560/-. 6. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS NOW BEFORE THE ITAT. 7. BEFORE US, THE AR SUBMITTED THAT THE COMPANY WAS INCORPORATED IN FINANCIAL YEAR 2008-09 AND THE ASSESSEE T OOK STEPS TO INITIATE ITS BUSINESS. 8. THE AR POINTED OUT THAT IN THE CASE OF CIT VS DHOOM KETU BUILDERS & DEVELOPMENT (P) LTD., REPORTED IN 216 TAXMAN 76, IT HAS BEEN HELD, 8. ON A CAREFUL CONSIDERATION OF THE ISSUE IN THE L IGHT OF THE FACTS AND THE RIVAL CONTENTIONS, IT SEEMS TO US THAT THE DECISION OF THE TRIBUNAL IS BASED ON THE RELEVA NT TESTS THAT HAVE BEEN HANDED DOWN JUDICIALLY FOR THE PURPO SE ASCERTAINING AS TO WHEN A BUSINESS CAN BE SAID TO H AVE BEEN SET- UP. THE QUESTION AS TO WHEN A BUSINESS CA N BE SAID TO HAVE BEEN SET-UP IS A QUESTION OF FACT TO B E ASCERTAINED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND CONSIDERING THE NATURE AND TYPE OF THE PARTICUL AR BUSINESS AND NO UNIVERSAL TEST OR FORMULA APPLICABL E TO ALL TYPES OF BUSINESSES CAN BE LAID DOWN. IN RECOGN ITION OF THIS POSITION THE INDORE BENCH OF THE MADHYA PRA DESH HIGH COURT IN PRECISION ELECTRICALS AND ELECTRONICS (P) LTD. VS COMMISSIONER OF INCOME-TAX (1989) 176 ITR 4 53 HAS HELD THAT THE QUESTION AS TO WHEN THE BUSINESS OF THE ASSESSEE HAD COMMENCED IS A QUESTION OF FACT AN D IF THE TRIBUNAL AS, AFTER APPRECIATING THE ENTIRE MATE RIAL ON RECORD, FOUND THAT THE BUSINESS OF THE ASSESSEE WAS SET- UP ON A PARTICULAR DATE, IT WOULD BE A FINDING OF F ACT FROM WHICH NO QUESTION OF LAW CAN BE SAID TO ARISE. THE ATTEMPT, THEREFORE, SHOULD BE TO SEE AS TO WHETHER THE TRIBUNAL HAD TAKEN NOTE OF THE APPROPRIATE M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 4 CIRCUMSTANCES AND APPLIED THE PROPER TESTS IN ARRIV ING AT THE CONCLUSION WHICH IT DID. THE LOCUS CLASSICUS ON THE QUESTION AS TO WHEN A BUSINESS CAN BE SAID TO HAVE BEEN SET-UP IS THE JUDGMENT OF THE BOMBAY HIGH COURT SPEAKING THROUGH CHIEF JUSTICE CHAGLA, IN WESTERN I NDIA VEGETABLE PRODUCTS LTD. V. CIT (1954) 26 ITR 151. T HE FOLLOWING PITHY OBSERVATIONS ARE WORTH QUOTING - 'IT SEEMS TO US, THAT THE EXPRESSION SETTING UP M EANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, TO PLACE ON FOOT OR TO ESTABLISH, AND IN CONTRADICTION TO COMMENCE. THE DISTINCTION IS THIS THAT WHEN A BUS INESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS TH EN IT CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MAY BE AN INTERREGNUM, THERE MAY BE AN INTERV AL BETWEEN A BUSINESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL EXPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND BEFORE THE COMMENCEM ENT OF THE BUSINESS, ALL EXPENSES DURING THE INTERREGNU M, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SEC. 10(2). 9. THE TRIBUNAL HAS OBSERVED THAT HAVING REGARD TO THE BUSINESS OF THE ASSESSEE, WHICH IS THE DEVELOPMENT OF REAL ESTATES, THE PARTICIPATION IN THE TENDER REPRE SENTS COMMENCEMENT OF ONE ACTIVITY WHICH WOULD ENABLE THE ASSESSEE TO ACQUIRE THE LAND FOR DEVELOPMENT. IF TH E ASSESSEE IS IN A POSITION TO COMMENCE BUSINESS, THA T MEANS THE BUSINESS HAS BEEN SET-UP. THE ACTS OF APPLYING FOR PARTICIPATION IN THE TENDER, THE BORRO WING OF MONIES FOR INTEREST FROM THE HOLDING COMPANY, THE DEPOSIT OF THE BORROWED MONIES ON THE SAME DAY WITH NGEF LTD. AS EARNEST MONEY WERE ALL ACTS WHICH CLEA RLY ESTABLISH THAT THE BUSINESS HAD BEEN SET-UP. THE COMMENCEMENT OF REAL ESTATE BUSINESS WOULD NORMALLY START WITH THE ACQUISITION OF LAND OR IMMOVEABLE PR OPERTY. WHEN AN ASSESSEE WHOSE BUSINESS IT IS TO DEVELOP RE AL ESTATES, IS IN A POSITION TO PERFORM CERTAIN ACTS T OWARDS THE ACQUISITION OF LAND, THAT WOULD CLEARLY SHOW TH AT IT IS READY TO COMMENCE BUSINESS AND, AS A COROLLARY, THA T IT HAS ALREADY BEEN SET-UP. THE ACTUAL ACQUISITION OF LAND IS THE RESULT OF SUCH EFFORTS PUT IN BY THE ASSESSE E; ONCE THE LAND IS ACQUIRED THE ASSESSEE MAY BE SAID TO HA VE ACTUALLY COMMENCED ITS BUSINESS WHICH IS THAT OF DEVELOPMENT OF REAL ESTATE. THE ACTUAL ACQUISITION OF THE LAND MAY BE A FIRST STEP IN THE COMMENCEMENT OF THE BUSINESS, BUT SECTION 3 OF THE ACT DOES NOT SPEAK O F COMMENCEMENT OF THE BUSINESS, IT SPEAKS ONLY OF SET TING- UP OF THE BUSINESS. WHEN THE ASSESSEE IN THE PRESEN T CASE WAS IN A POSITION TO APPLY FOR THE TENDER, BOR ROWED MONEY FOR INTEREST ALBEIT FROM ITS HOLDING COMPANY AND DEPOSITED THE SAME WITH NGEF LTD. ON THE SAME DAY, IT SHOWS THAT THE ASSESSEES BUSINESS HAD BEEN SET-UP AND IT WAS READY TO COMMENCE BUSINESS. THE LEARNED SENIOR STANDING COUNSEL FOR THE REVENUE WOULD, HOWE VER, STATE THAT TILL THE LAND IS ACQUIRED, THE BUSINESS IS NOT SET- UP. THE DIFFICULTY IN ACCEPTING THE ARGUMENT I S THAT AN ASSESSEE MAY NOT BE SUCCESSFUL IN ACQUIRING LAND FOR LONG PERIOD OF TIME THOUGH HE IS READY TO COMMENCE HIS BUSINESS IN REAL ESTATE, AND THAT WOULD RESULT IN T HE M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 5 EXPENSES INCURRED BY HIM THROUGHOUT THAT PERIOD NOT BEING COMPUTED AS A LOSS UNDER THE HEAD 'BUSINESS' ON THE GROUND THAT HE IS YET TO SET-UP HIS BUSINESS. T HAT WOULD BE AN UNACCEPTABLE POSITION. THE OTHER ARGUME NT OF THE LEARNED STANDING COUNSEL FOR THE REVENUE THA T THE TAX AUDITORS OF THE ASSESSEE HAVE THEMSELVES POINTE D OUT THAT THE ASSESSEE IS YET TO COMMENCE ITS BUSINESS I S ALSO IRRELEVANT BECAUSE OF THE DISTINCTION BETWEEN THE COMMENCEMENT OF THE BUSINESS AND SETTING-UP OF THE SAME. 10. WE DO NOT FEEL CONSTRAINED TO REFER TO THE AUTH ORITIES CITED BY BOTH THE SIDES ON THE QUESTION OF SETTING- UP OF A BUSINESS EXCEPT THE JUDGMENT OF THE BOMBAY HIGH COU RT (SUPRA) BECAUSE AS WE HAVE ALREADY OBSERVED, THE QUESTION IS ESSENTIALLY ONE OF FACT DEPENDING UPON THE NATURE OF THE BUSINESS AND NONE OF THE AUTHORITIES CITED BY BOTH THE SIDES WAS DIRECTLY ON THE QUESTION AS T O WHEN A REAL ESTATE BUSINESS CAN BE SAID TO HAVE BEE N SET-UP. UNDER SECTION 260A OF THE ACT, AN APPEAL LI ES TO THE HIGH COURT ONLY ON A SUBSTANTIAL QUESTION OF LA W. THE FINDING OF THE TRIBUNAL IN THE PRESENT CASE IS A FI NDING OF FACT AND IT CANNOT BE SAID THAT THE FINDING WAS WIT HOUT ANY BASIS OR MATERIAL. MOREOVER, THE TRIBUNAL DID T AKE NOTE OF THE DISTINCTION BETWEEN THE COMMENCEMENT OF A BUSINESS AND SETTING-UP OF A BUSINESS AND APPLIED T HE TEST LAID DOWN BY THE BOMBAY HIGH COURT (SUPRA) WHI CH DECISION HAS BEEN NOTICED BY US TO HAVE FORMED THE BEDROCK OF ALMOST ALL THE AUTHORITIES CITED BEFORE US. 9. THIS DECISION, IT MAY BE NOTED HAS IN FACT, FOLLOWED THE DECISION OF HONBLE BOMBAY HIGH COURT, AS REFERRED TO IN TH E BODY OF THE DECISION. 10. THE AR ALSO PLACED RELIANCE ON THE DECISION OF THE CIT VS SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD., REPORTED IN 91 ITR 170 (GUJ), WHEREIN IT WAS HELD, BUSINESS CONNOTES A CONTINUOUS COURSE OF ACTIVIT IES. ALL THE ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS NEED NOT BE STARTED SIMULTANEOUSLY IN ORDER THAT THE BUS INESS MAY COMMENCE. THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WH ICH MUCH NECESSARILY PRECEDED ALL OTHER ACTIVITIES IS S TARTED. A COMPANY WAS FORMED IN 1956 FOR THE MANUFACTURE AN D SALE OF CEMENT. AS PART OF ITS BUSINESS THE ASSESSE E OBTAINED A MINING LEASE FOR QUARRYING LIMESTONE AND STARTED THE MINING OPERATIONS IN 1958. IT CLAIMED T HE EXPENDITURE INCURRED FOR THE PURPOSE OF EXTRACTING LIMESTONE AS ALSO DEPRECIATION AND DEVELOPMENT REBA TE FOR THE MACHINERY INSTALLED FOR THAT PURPOSE FOR TH E ASSESSMENT YEARS 1960-61 AND 1961-62 HELD, THAT THE ACTIVITIES WHICH CONSTITUTED THE BUS INESS OF THE ASSESSEE WERE DIVISIBLE INTO THREE CATEGORIE S, THE FIRST CATEGORY CONSISTED OF THE ACTIVITY OF EXTRACT ION OF M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 6 LIMESTONE BY QUARRYING THE LEASED AREA OF LAND. THI S ACTIVITY WAS NECESSARY FOR THE PURPOSE OF ACQUIRING THE RAW MATERIAL TO BE UTILIZED IN THE MANUFACTURE OF C EMENT. THE SECOND ACTIVITY, COMPRISED THE ACTIVITY OF MANUFACTURE OF CEMENT BY USER OF THE PLANT AND MACHINERY SET UP FOR THAT PURPOSE; AND THE THIRD CATEGORY CONSISTED OF SELLING MANUFACTURED CEMENT. THESE THREE ACTIVITIES COMBINED TOGETHER CONSTITUTE D THE BUSINESS OF THE ASSESSEE. THE ACTIVITY OF QUARRYING THE LEASED AREA OF LAND AND EXTRACTING LIMESTONE FROM I T WAS AS MUCH AN ACTIVITY IN THE COURSE OF CARRYING ON TH E BUSINESS AS THE OTHER TWO ACTIVITIES OF MANUFACTURE OF CEMENT AND SALE OF MANUFACTURED CEMENT. THIS ACTIVI TY CAME FIRST IN POINT OF TIME AND LAID THE FOUNDATION FOR THE SECOND ACTIVITY AND THE SECOND ACTIVITY WHEN COMPLE TED LAID THE FOUNDATION FOR THE THIRD ACTIVITY. HENCE, THE ASSESSEE COMMENCED ITS BUSINESS WHEN IT STARTED THE ACTIVITY OF EXTRACTION OF LIMESTONE. SINCE EXTRACTI ON OF LIMESTONE COMMENCED IN 1958, THE ASSESSEE WAS CARRYING ON BUSINESS DURING THE RELEVANT YEARS OF ACCOUNT. THE EXPENDITURE INCURRED BY THE ASSESSEE I N CARRYING ON THE ACTIVITY OF EXTRACTION OF LIMESTONE AS ALSO DEPRECIATION ALLOWANCE AND DEVELOPMENT REBATE IN RESPECT OF MACHINERY EMPLOYED IN EXTRACTING LIMESTO NE WERE DEDUCTIBLE IN COMPUTING THE TRADING PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1960-61 AND 1961- 62. 11. THE AR ALSO RELIED ON THE DECISION OF SWIRE HOLDING (P) L TD. VS ITO REPORTED IN 6 SOT 621 (BANG), WHEREIN THE COORDINA TE BENCH OF THE ITAT HELD, THE FACT THAT THE ASSESSEES MAIN BUSINESS WAS REA L ESTATE BUSINESS, AND THAT THE ASSESSEE HAD ADVANCED MONEY TO VARIOUS LAND OWNERS FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTIES, WAS NOT IN DISPUTE. THEREFORE, THE MOMENT THE COMPANY WAS INCORPORATED AND THE AMOUNTS WERE ADVANCED FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTY , THE BUSINESS OF THE ASSESSEE SHOULD HAVE BEEN TREATED A S HAVING COMMENCED. INTEREST EARNED THEREBY COULD NOT BE TREATED AS INCOME FROM BUSINESS AND NECESSARY BENEF ITS OR DEDUCTIONS CLAIMED HAD TO BE TREATED AS INCOME F ROM BUSINESS AND NECESSARY BENEFITS OR DEDUCTIONS CLAIM ED HAD TO BE ALLOWED IN ACCORDANCE WITH LAW. 12. THE AR, TAKING SUPPORT OF THE ABOVE DECISIONS, PLEADE D THAT THE ASSESSEE HAS RIGHTLY CLAIMED THE EXPENSE OF R S. 28,89,560/-. THE AR ALTERNATIVELY PLEADED FOR ALLOWANCE OF EXPENSE U/S 35D TO BE DEFERRED IN FIVE YEARS. M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 7 13. THE DR SUPPORTED THE ORDERS OF THE REVENUE AUTHO RITIES AND PLEADED THAT THE EXPENSE WAS RIGHTLY DISALLOWED. 14. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS OF THE REVENUE AUTHORITIES AND THE CASE LAWS CIT ED BEFORE US. 15. IT IS AN UN-DENIED FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED IN 2008 AND IN THE INTERIM PERIOD THE BUSINES S WAS DORMANT BUT THE ASSESSEE HAD ADVANCED ITS FUNDS TO AC QUIRED CERTAIN REAL ESTATE FOR DEVELOPMENT. TO COME TO A CONCLUS ION THAT EXPENSE SHALL BE ALLOWED ONLY WHEN THERE IS CORRESPONDING INCOME, IS ONLY A WISHFUL THINKING BY THE REVENUE AUTHORITIES . THE REVENUE AUTHORITIES COULD NOT AT ANY STAGE DERAIL TH E ASSESSEES ARGUMENT THAT THE BUSINESS HAD BEEN SET-U P. THE PHRASE SET-UP HAS BEEN DISTINGUISHED FROM THE PHRASE START UP BY VARIOUS FORA IN VARIOUS JUDICIAL DECISIONS, INCLUDING THE ONE S WHICH HAVE BEEN CITED BY THE AR ( SUPRA ). 16. WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE DECISIONS, ARE OF THE CONSIDERED OPINION, THAT THE AMOU NT OF RS. 28,89,560/- DESERVES TO BE ALLOWED AS REVENUE EXPENS E, AS THE ASSESSEE HAD ALREADY UNDERTAKEN THE COURSE OF BUSINESS. 17. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND D IRECT THE AO TO ALLOW THE EXPENSE OF RS. 28,89,560/- AS CLAIMED IN THE BOOKS OF ACCOUNT. 18. GROUND NO. 1 IS THEREFORE ALLOWED. 19. GROUND NO. 2 IS ALTERNATIVE WITHOUT PREJUDICE TO GROU ND NO. . 20. SINCE WE HAVE ALLOWED GROUND NO. 1, GROUND NO. 2 BECOMES INFRUCTUOUS, HENCE IT IS REJECTED. M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 8 21. GROUND NO. 3 PERTAINS TO HOLDING GENERAL RESERVE OF R S. 31,61,92,500/- AS SHARE PREMIUM AMOUNT BY THE REVENUE AUTHORITIES. 22. THE FACTS PERTAINING TO THE ISSUE ARE, THAT THE ASSESSEE COMPANY DECLARED AN AMOUNT OF RS. 32,40,89,219/- AS GEN ERAL RESERVES ON AMALGAMATION. AS SEEN FROM NOTE NO. 3 OF SCH EDULE 9, IT IS MENTIONED THAT SCHEME OF AMALGAMATION HAS BEEN APPROVED BY HON'BLE HIGH COURT OF JUDICATURE AT BOMBAY VIDE ITS ORDER DATED 25.06.2010 AND THE SCHEME BECAME EFFECTIV E ON 25.07.2010 AND THE APPOINTED DATE OF SCHEME BEING 01.11.20 09 (MENTIONED AS 01.11.2010 IN THE NOTES). PURSUANT TO THE SCHEME, THE ASSETS, LIABILITIES, RIGHTS AND OBLIGATIONS OF THE ERSTWHILE M/S AIMS MERCHANT PVT. LTD. (AMPL), M/S RELIANT VINIYOG PVT. LTD. (RVPL) AND M/S VIRGO TEXTILES PVT. LTD. (VTP L) HAD BEEN VESTED WITH THE ASSESSEE COMPANY FROM 01.11. 2 009 (MENTIONED AS 01.11.2010 IN THE NOTES) AT THEIR BOOK VALUE. 20,505 EQUITY SHARES OF FACE VALUE RS. 10/- EACH RELATING TO THE EQUITY SHARE CAPITAL OF AMPL, RVPL AND VTPL WERE TO BE IS SUED AS FULLY PAID UP TO THE SHAREHOLDERS OF AMALGAMATING COMPA NIES, WITHOUT ANY PAYMENT RECEIVED IN CASH AND THE FACE VALUE OF SUCH SHARES HAS BEEN SHOWN AS EQUITY SHARES SUSPENSE. FURT HER, IT IS ALSO MENTIONED THAT EXCESS OF BOOK VALUE OF NET ASSETS T AKEN OVER BY THE COMPANY OVER THE AID UP VALUE OF EQUITY SHA RES TO BE ISSUED AMOUNTS TO RS. 32,40,89,219/- AND THE SAME HAS BE EN CREDITED TO THE GENERA! RESERVES ACCOUNT AS PRESCRIBED IN THE SCHEME. IT WAS FURTHER STATED THAT, HAD THE SCHEME NO T PRESCRIBED THIS ACCOUNTING TREATMENT, THE SAID AMOUNT WO ULD HAVE BEEN CREDITED TO CAPITAL RESERVE. 23. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR THE NECESSARY DETAILS CONCERNING THE TREATMEN T AND M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 9 ADDITIONS TO GENERAL RESERVE, SHOWN IN THE FIRST YEAR OF ASSESSMENT. THE ASSESSEE COMPANY WAS ALSO ASKED TO SH OW CAUSE AS TO WHY THE SAME SHOULD NOT BE BROUGHT TO TA X SINCE THE COMPANY HAS TRANSFERRED THE AMOUNTS TO GENERAL RESERV E, (DISTRIBUTABLE PROFITS AMONG SHAREHOLDERS), AND NOT TO THE SECURITIES PREMIUM ACCOUNT WHICH IS SUBJECT TO THE RESTR ICTIONS IMPOSED BY SECTION 78 OF THE COMPANIES ACT, 1956. IN RESP ONSE TO THE SAME, THE ASSESSEE STATED THAT DURING THE YEAR THEY HAVE NOT RECEIVED ANY AMOUNT OF SECURITIES PREMIUM AND THE GE NERAL RESERVES SHOWN IS A SECURITIES PREMIUM PURSUANT TO THE AMALGAMATION SCHEME APPROVED BY THE HONBLE BOMBAY HIGH COURT AND AS PER THE COURTS DIRECTIONS. THEY HAVE ALSO FILED A COPY OF THE ORDER OF THE BOMBAY HIGH COURT DATED 25.06 .2010 GRANTING SANCTION U/S 391 TO 394 OF THE COMPANIES ACT FO R THE SCHEME OF AMALGAMATION OF AMPL, RVPL AND VTPL WITH THE ASSESSEE. IT WAS DECLARED IN PART IV OF THE SCHEME OF AMALGAMATION THAT THE EXCESS OR DEFICIT OF AMOUNT OF SHAR E CAPITAL OF THE TRANSFEROR COMPANIES AS ON THE APPOINTED D ATE OVER THE PAID UP VALUE OF SHARES SHALL BE CREDITED BY THE TRANSFEREE COMPANY TO ITS GENERAL RESERVE ACCOUNT OR S HALL BE DEBITED TO THE GOODWILL ACCOUNT. 23. IN PURSUANCE OF EXTRACTING FACTS, THE AO CONDUCTED DETAILED INVESTIGATION ON THE EXISTENCE OF THE THREE AMALGA MATING COMPANIES INTO THE ASSESSEE COMPANY AND SOUGHT DETAILED EXPLANATION FROM THE ASSESSEE, WHICH IS AS UNDER: 4.7 HENCE, BY THIS OFFICE NOTICE DATED 04.03.2013, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE AMOUNT OF 'PREMIUM' APPEARING IN THE BALANCE SHEET AS GENERAL RESERVES SHOULD NOT BE TAXED AS INCOME FOR THE YEAR UNDER CONSIDERATION AS INCOME FROM OTHER SOURC ES WITHIN THE MEANING OF SECTION 56(1) OF THE INCOME-T AX ACT, 1961. THE RELEVANT PORTION OF THE NOTICE IS REPRODU CED AS UNDER: FROM THE SUBMISSIONS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT IS SEEN THAT DURING THE Y EAR UNDER CONSIDERATION SHARES OF M/S RELIANT MERCANTIL E PVT. LTD. (RMPL), M/S AIM MERCHANTS PVT. LTD. (AMPL ) M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 10 AND M/S VIRGO TEXTILES PVT. LTD. (VTPL) WERE ACQUIR ED BY MR. RAJENDRA R. CHATURVEDI, MS. VEENA R. CHATURVED I AND MR. TAPES R. CHATURVEDI, EXISTING SHAREHOLDERS OF THE ASSESSEE COMPANY, FOR INADEQUATE CONSIDERATIONS . IMMEDIATELY THEREAFTER THE RESERVES AND SURPLUS AVAILABLE WITH THE COMPANIES IN THE FORM OF SHARE PREMIUM WERE DIVERTED TO THE ACCOUNT OF THE ASSESSE E COMPANY AS LOAN & ADVANCES. AMALGAMATION OF THESE COMPANIES WITH THE ASSESSEE COMPANY IS NOTHING BUT SMOKE SCREEN TO HIDE THE REAL INTENT OF EVADING TAX ATION. SUBSEQUENT TO AMALGAMATION THESE DIVERTED FUNDS HAS BEEN SHOWN AS GENERAL RESERVE. THE TRANSACTIONS BETWEEN THE EXISTING SHAREHOLDERS OF THE ASSESSEE COMPANY AND ALLEGED SHAREHOLDERS OF RMPL, AMPL & VTPL AND SUBSEQUENT DIVERSION OF SO CALLED SHARE PREMIUM AMOUNT TO THE ASSESSEE COMPANY HAVE NO COMMERCIAL PRUDENCE AND UNUSUAL IN NATURE A ND CHARACTER. FURTHERMORE, THE SHARE PREMIUM COLLECTED IS NOT UTI LIZED FOR THE PURPOSE OF THE OBJECTIVES FOR WHICH THE SAM E WAS COLLECTED AND AS SUCH THE CONDITIONS SPECIFIED UNDE R COMPANIES ACT, 1956 ARE VIOLATED. THEREFORE, THE AM OUNT BROUGHT IN TO THE BOOKS OF THE ASSESSEE IN THE FORM OF SHARE PREMIUM IS NOT A SHARE PREMIUM WITHIN THE MEANING OF THE PROVISIONS OF THE COMPANIES ACT AND HENCE THE SAME NEEDS TO BE TREATED AS SUCH FOR THE PURPOSE OF THE INCOME-TAX ACT, 1961. P VIEW OF THE ABOVE STATED FACTS AND PROVISIONS OF LAW, YOU ARE REQUIRED TO EXPLAIN AS TO WHY THE AMOUNT OF PREMIUM APPEARING IN THE ASSESSEE'S BALANCE SHEET A S GENERAL RESERVE SHOULD NOT BE TAXED AS ASSESSEE'S INCOME FOR THE YEAR UNDER THE HEAD INCOME FROM OTHE R SOURCES WITHIN THE MEANING OF SUB-SECTION (1) OF SE CTION 56 OF THE INCOME-TAX ACT, 1961. 4.8 IN RESPONSE TO THE SAME, THE ASSESSEE COMPANY B Y THEIR AR'S LETTER DATED 14.03.2013 HAS FILED THEIR SUBMISSIONS, WHICH ARE FORMING PART OF THE RECORDS AND ARE NOT BEING REPEATED HERE FOR THE SAKE OF BREVITY . IT IS THE CONTENTION OF THE ASSESSEE THAT THE ACQUISITION OF SHARES OF AMPL RVPL AND VTPL WERE BY THE CHATURVEDI FAMILY AND AFTER THE SAID ACQUISITION: THE FUNDS AV AILABLE WITH THESE COMPANIES BY WAY OF INVESTMENT IN SHARES WERE LIQUIDATED AND TRANSFERRED TO THE ASSESSEE COMPANY AS INTER CORPORATE DEPOSIT. THEY HAVE FURTH ER STATED THAT THESE FUNDS WERE NOT GENERATED BY THE AMALGAMATING COMPANIES AND AS PER THE SCHEME OF AMALGAMATION AS APPROVED BY THE BOMBAY HIGH COURT, THE EXCESS AMOUNT OF ASSETS WAS TRANSFERRED TO THE RESERVES AND SURPLUS. THEY HAVE FURTHER STATED THAT THE TRANSACTION OF PURCHASE OF SHARES OF AMPL, RVPL AND VTPL BY CHATURVEDI FAMILY AND EXTENSION OF LOAN FRO M AMPL, RVPL AND VTPL TO THE ASSESSEE COMPANY ARE TWO DIFFERENT TRANSACTIONS. THE ASSESSEE HAS ALSO STATE D THAT THEY HAVE NOT COLLECTED ANY SHARE PREMIUM FROM THEI R SHAREHOLDERS, THERE ARE NO RESTRICTIONS UNDER SECTI ON 78 OF THE COMPANIES ACT, AND THE AMALGAMATION IS ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT AND AS 14. IN RESPONSE TO THE TAXING OF 'PREMIUM' APPEARIN G IN M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 11 THE GENERAL RESERVE AS INCOME UNDER SECTION 56(1) O F THE INCOME-TAX ACT, 1961, THE CONTENTION OF THE ASSESSE E IS THAT IT IS NOT AN 'INCOME OF ANY KIND' AS MENTIONED IN THE SECTION, AND EVEN IF IT CAN BE TREATED AS INCOME, I T WILL BE OF CAPITAL IN NATURE IN VIEW OF THE 'EXPERT OPINION ' PUBLISHED IN 'CA JOURNAL' READ WITH AS14. 24. AFTER CONSIDERING THE RESPONSE OF THE ASSESSEE, THE AO OBSERVED, I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE AN D AM NOT IN AGREEMENT WITH THE SAME. AT THE OUTSET, I T MAY BE MENTIONED THAT THE HON'BLE SUPREME COURT IN A PLETHORA OF JUDGMENTS HAVE HELD THAT THE ACCOUNTANC Y PRINCIPLES CANNOT OVERRIDE THE PROVISIONS OF THE IN COME- TAX ACT. HENCE, THE ARGUMENTS OF THE ASSESSEE RELYI NG ON 'EXPERT OPINION' APPEARING IN CA JOURNAL READ WIT H ACCOUNTING STANDARDS CANNOT BE OF ANY HELP TO THE ASSESSEE. AS STATED EARLIER, THE SHARES OF AMPL, RV PL AND VTPL ISSUED TO VARIOUS CONCERNS AT A PREMIUM OF Z 390/-, WHICH WAS LATER ON TRANSFERRED TO TWO COMPAN IES, WERE IN TURN TRANSFERRED TO RAJENDRA R. CHATURVEDI AND HIS FAMILY MEMBERS, AT PAR, AND THE AMOUNT APPEARIN G IN THE BALANCE SHEET AS 'SHARE PREMIUM' WAS TRANSFE RRED TO THE ASSESSEE COMPANY AS LOANS. HENCE, THE 'SHARE PREMIUM' RECEIVED BY AMPL, RVPL AND VTPL WERE WITHOUT ADEQUATE CONSIDERATION, AS THE PURPORTED SH ARE PREMIUM WAS ONLY A PAPER TRANSACTION. AND FOR THE SAKE OF DISCUSSION EVEN IF THE SAID MONEY RECEIVED WITHOUT CONSIDERATION IS TREATED AS 'SHARE PREMIUM', STILL IT FAILS THE TEST OF BEING SHARE PR EMIUM. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS ASKED TO SUBMIT THE DETAILS OF UTILIZATION OF SHARE PREMIUM. THE ASSESSEE COMPANY HAS NOT SUBMITTED THE SAME. HOWEVER, ON PERUSAL OF THE RECORDS, IT IS SEEN THAT THE MAJORITY OF THE AMOUNT IS UTILIZED FOR PAYMENTS TO SISTER CONCERNS, WHICH IS A CLEAR VIOLATION OF SECTION 78 OF THE COMPANIES ACT, 1956. THE CONTENTION OF THE ASSESSEE THAT THERE ARE NO RESTRICTIONS IMPOSED BY SECTION 78 OF THE COMPANIES ACT, 1956 ARE INCORRECT. AS PER SECTION 78 OF THE COMPAN IES ACT WHEN A COMPANY A ISSUES SECURITIES AT A PREMIUM , THE AGGREGATE AMOUNT OR VALUE OF THE PREMIUM OF THO SE SECURITIES SHALL BE TRANSFERRED TO THE SECURITIES P REMIUM ACCOUNT AND THE PROVISIONS RELATING TO THE REDUCTIO N OF SHARE CAPITAL SHALL APPLY AS IF THE AMOUNT APPEARIN G IN THE SECURITIES PREMIUM ACCOUNT WERE PAID UP SHARE CAPITAL OF THE COMPANY. THE SECURITIES PREMIUM ACCO UNT CAN BE UTILIZED BY THE COMPANY FOR - (A) IN PAYING UP UNISSUED SECURITIES OF THE COMPANY TO BE ISSUED TO MEMBERS OF THE COMPANY AS FULLY PAID BONUS SECURITIES. (B) IN WRITING OFF THE PRELIMINARY EXPENSES OF THE COMPANY; (C) IN WRITING OFF THE EXPENSES OF, OR THE COMMISSION P AID M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 12 OR DISCOUNT ALLOWED ON, ANY ISSUE OF SECURITIES OR DEBENTURES OF THE COMPANY; OR (D) IN PROVIDING FOR THE PREMIUM PAYABLE ON THE REDEMPTION OF ANY REDEEMABLE PREFERENCE SHARE OR OF ANY DEBENTURES OF THE COMPANY. HENCE, THERE ARE RESTRICTIONS IMPOSED BY SECTION 78 OF THE COMPANIES ACT BY WHICH AMOUNT APPEARING IN SECURITIES PREMIUM ACCOUNT ARE DIFFERENT FROM THE AMOUNT APPEARING IN GENERAL RESERVE. THE HON'BLE DE LHI HIGH COURT IN THE CASE OF HILLCREST REALITY SDN.BHD . V. RAM PARSHOTAM MITTAL, [2010] 156 COMP CASES [2010] 96 CLA 40 (DEL) HAS HELD THAT A COMPANY INCORPORATE D IN INDIA WANTED TO USE THE MONEY RAISED BY PREMIUM FOR UPGRADING ITS BUSINESS (PURCHASE OF EQUIPMENT, RENOVATION ETC.) THE OBJECTION WAS THAT THE MONEY R AISED BY PREMIUM IN SHARE ISSUE CANNOT BE USED FOR A PURP OSE OTHER THAN ANY OF THE PURPOSES SPECIFIED IN SECTION 78(2) UNLESS THE COMPANY GOES THROUGH THE ROUTE OF REDUCT ION OF CAPITAL U/S 100 OF THE COMPANIES ACT. DELHI HIGH COURT ACCEPTED THE OBJECTION AND SAID THAT THE PROV ISIONS OF AND PROCEDURE PRESCRIBED UNDER SECTIONS 100 TO 1 02 OF THE COMPANIES ACT, FOR REDUCTION OF SHARE CAPITAL W OULD APPLY, WHEREVER A COMPANY PROPOSES TO UTILIZE AMOUN TS FROM THE SECURITIES PREMIUM ACCOUNT, FOR ANY PURPOS E OTHER THAN WHAT IS PROVIDED FOR UNDER SECTION 78. AS SUCH, THE MONEY EVEN IF RECEIVED AS 'SHARE PREMI UM' WILL LOSE ITS CHARACTER AND WILL BECOME THE TRADING RECEIPTS, AS LAID DOWN BY THE HONOURABLE SUPREME CO URT IN THE CASE OF BHARAT FIRE & GENERAL INSURANCE LTD. V. COMMISSIONER OF INCOME-TAX (1964) 53 ITR 108 (SC). IN THIS CONNECTION, RELIANCE IS PLACED ON THE FULL BEN CH DECISION OF THE KERALA HIGH COURT IN THE CASE RAM BAHADUR THAKUR LTD., 261 ITR 390. RELIANCE IS ALSO PLACED ON THE HONOURABLE SUPREME COURT DECISION IN THE CASE OF V V R N M SUBBAYYA CHETTIAR VS. COMMISSIONE R OF INCOME TAX 19 ITR 168 (SC) WHEREIN IT HAS BEEN H ELD THAT 'IN THE ABSENCE OF THE MATERIAL EVIDENCE TO WH ICH THIS REFERENCE HAS BEEN MADE, THE FINDING OF THE AS ST. COMMISSIONER THAT THE ONUS OF PROVING SUCH FACTS AS WOULD BRING HIS CASE WITHIN THE EXCEPTION HAD NOT B EEN DISCHARGED BY THE ASSESSEE AND THE NORMAL PRESUMPTI ON MUST BE GIVEN EFFECT TO, APPEARS TO BE A LEGITIMATE CONCLUSION. THE HONOURABLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LACHHMAN DASS OSWAL (1980) 16 CTR (P&H) 48 (1980) 126 ITR 446 (P&H) HAS HELD THE CASE AGAINST THE ASSESSEE AFTER QUOTING FROM THE HONOURABLE SUPREME COURT JUDGMENT IN THE CASE OF KA LE KHAN MOHAMMAD HANIF VS. CIT (1963) 50 ITR 1 (SC) 'THE ONUS OF PROVING THE SOURCE OF A SUM OF MONEY F OUND TO HAVE BEEN RECEIVED BY THE ASSESSEE IS ON HIM. IF HE DISPUTES LIABILITY FOR TAX, IT IS FOR HIM TO SHOW E ITHER THAT THE RECEIPTS WAS NOT INCOME OR THAT IF IT WAS, IT W AS EXEMPT FROM TAXATION UNDER THE PROVISIONS OF THE AC T. IN THE ABSENCE OF SUCH PROOF, THE ITO IS ENTITLED TO T REAT IT AS TAXABLE INCOME.' THESE ARE SETTLED PRINCIPLES OF LA W AND NOT BE ALTERED AT THE INSTANCE OF THE ASSESSEE. HOWEVER, IN THE INSTANT CASE, THE 'SHARE PREMIUM' RECEIVED WAS EVER TREATED AS A SHARE PREMIUM. AFTER M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 13 RECEIPT OF THE SAME, IT WAS TRANSFERRED TO THE ASSE SSEE COMPANY BY RESORTING TO AN 'AMALGAMATION' WITH THE CLEAR INTENTION OF TRANSFER OF FUNDS TO THE ASSESSE E COMPANY WITHOUT SUBJECTING THE SAME TO TAX. IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT ALL THESE TRANSACTIONS HAVE TAKEN PLACE IN THE YEAR UNDER CONSIDERATION WHICH ALSO GOES TO PROVE THE REAL INT ENTION BEHIND ENTERING INTO SUCH A CONVOLUTED ROUTE. HENCE , THE 'SHARE PREMIUM' RECEIVED BY AMPL, RVPL AND VTPL AND FINALLY ROUTED TO THE ASSESSEE COMPANY ON 'AMALGAMATION' IS NOTHING BUT INCOME OF THE ASSESSE E COMPANY WITHIN THE MEANING OF SECTION 56(1) OF THE INCOME-TAX ACT, 1961. SECTION 2(24) OF THE INCOME-TAX ACT, 1961 DEFINES I NCOME, WHICH IS AN INCLUSIVE DEFINITION. INCOME CAN BE IN ANY FORM AND IT INCLUDES THE ITEMS SPECIFIED IN THE SAI D SECTION. SECTION 56(1) OF THE INCOME-TAX ACT, 1961 AGAIN IS AN OMNIBUS SECTION. SECTION 56(1) READS AS UNDER : INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FR OM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCE S, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEAD SPECIFIED IN SECTION 14, ITEMS A TO E. THIS JUNCTURE, ASSESSEE MIGHT TAKE THE PLEA OF INTRODUCTION OF CLAUSE (VIIB) IN SUBSECTION (2) OF 56 BY THE FINANCE ACT, 2012 W,E.F. 01.04.2013 AND MAY DRAW TH E ATTENTION TO THE PROSPECTIVE APPLICATION OF THE SAI D INTRODUCTION. HOWEVER, THIS PLEA, IF ANY, OF THE AS SESSEE WILL NOT HELP THEM FOR THE SIMPLE REASON THAT SECTI ON 56(2) BEGINS WITH 'IN PARTICULAR AND WITHOUT PREJUD ICE TO THE GENERALITY OF THE PROVISIONS OF SUBSECTION (1), THE FOLLOWING INCOMES, SHALL BE CHARGEABLE TO INCOME-TA X'. NOW LET US EXAMINE THE PRINCIPLES OF STATUTORY INTERPRETATION. WHILE INTERPRETING A STATUTE THE PR INCIPLES OF HARMONIOUS CONSTRUCTION HAVE TO BE APPLIED VIS- -VIS THE PRINCIPLES OF PURPOSIVE CONSTRUCTION. THE PRINC IPLES OF PURPOSIVE CONSTRUCTION OR THE MISCHIEF RULE WILL AP PLY, WHILE INTERPRETING A NEWLY INSERTED PROVISION, IF T HERE WAS A MISCHIEF IN THE EARLIER PROVISION, FOR THAT W HAT WE HAVE TO SEE IS THE RULE LAID DOWN IN THE HEYDON'S C ASE (1584) 3 CO. REP. 7A. P. 71B: 76 ER 637. THE RULE W AS EXPLAINED IN THE CASE OF BENGAL IMMUNITY COMPANY VS . STATE OF BIHAR AIR 1995 SC 661, P 674 BY S.R. DAS, CJI THAT FOR THE SURE AND TRUE INTERPRETATION OF ALL ST ATUES IN GENERAL FOUR THINGS ARE TO BE DISCERNED AND CONSIDE RED: (I) WHAT WAS THE COMMON LAW BEFORE THE MAKING OF THE ACT? (II) WHAT THE COMMON LAW DID NOT PROVIDE? (III) WHAT REMEDY THE PARLIAMENT HATH RESOLVED AND APPOINTED TO CURE THE DISEASE OF THE COMMONWEALTH? AND (IV) THE TRUE REASON OF THE REMEDY. IN THE INSTANT CASE, IF WE SEE THE PROVISIONS OF SE CTION 56, THERE WAS NO MISCHIEF IN THE PROVISIONS OF SECTION 56(1), BECAUSE OF WHICH THE NEW PROVISIONS OF SUBSECTION ( VIIB) WAS INSERTED BY FINANCE ACT, 2012. EVEN IN THE EXPLANATORY NOTES TO THE FINANCE ACT, 2012, IT IS MENTIONED THAT 'SECTION 56(2) PROVIDES FOR THE SPEC IFIC M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 14 CATEGORY OF INCOMES THAT SHALL BE CHARGEABLE TO INC OME- TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IT IS PROPOSED TO INSERT A NEW CLAUSE IN SECTION 56(2).' IT IS NOWHERE MENTIONED / DISCERNED IN / FROM THE SAID EXPLANATORY NOTES THAT THE NEW CLAUSE HAS BEEN INSERTED TO REMEDY THE EXISTING MISCHIEF. HENCE, IN SUCH A CASE, THE PRINCIPLES OF HARMONIOUS CONSTRUCTION WILL APPLY. A STATUTE MUST BE READ AS A WHOLE AND ONE PROVISION OF THE ACT SHOULD BE CONSTR UED WITH REFERENCE TO OTHER PROVISIONS IN THE SAME ACT SO AS TO MAKE A CONSISTENT ENACTMENT OF THE WHOLE STATUTE . SUCH A CONSTRUCTION HAS THE MERIT OF AVOIDING ANY INCONSISTENCY OR REPUGNANCY EITHER WITHIN A SECTION OR BETWEEN A SECTION AND OTHER PARTS OF THE STATUTE. I T IS THE DUTY OF THE COURTS TO AVOID A HEAD ON CLASH BETWEEN TWO SECTION OF THE SAME ACT AND, 'WHENEVER IT IS POSSIB LE TO DO SO, TO CONSTRUE PROVISIONS WHICH APPEAR TO CONFL ICT SO THAT THEY HARMONISE. IT SHOULD NOT BE LIGHTLY ASSUM ED THAT 'PARLIAMENT HAD GIVEN WITH ONE HAND WHAT IT TO OK AWAY WITH OTHER' (COMMISSIONER OF INCOME-TAX V. HINDUSTAN BULK CARRIERS (2003) 179 CTR (SC) 362). T HE PROVISIONS OF ONE SECTION OF A STATUTE CANNOT BE US ED TO DEFEAT THOSE OF ANOTHER 'UNLESS IT IS IMPOSSIBLE TO EFFECT RECONCILIATION BETWEEN THEM' (MOHAMMED SHER KHAN V. RAJA SETH SWAMI DAYAL AIR 1922 PC 17, P 19). THE SAME RULE APPLIES IN REGARD TO SUB-SECTIONS OF A SE CTION. IN THE WORDS OF GAJENDRAGADKAR, J.: 'THE SUB-SECTIO NS MUST BE READ AS PARTS OF INTEGRAL WHOLE AND AS BEIN G INTERDEPENDENT, AN ATTEMPT SHOULD BE MADE IN CONSTRUING THEM TO RECONCILE THEM IF IT IS REASONAB LY POSSIBLE TO DO SO, AND TO AVOID REPUGNANCY' (MADANL AL FAKIRCHAND DADHEDIYA V. SHREE CHANGDEO SUGAR MILLS LTD. AIR 1962 SC 1543, P. 1551) AS STATED BY VENKATRAMA AIYAR, J 'THE RULE OF CONSTRUCTION IS WE LL SETTLED THAT WHEN THERE ARE IN AN ENACTMENT TWO PROVISIONS WHICH CANNOT BE RECONCILED WITH EACH OTH ER, THEY SHOULD BE SO INTERPRETED THAT, IF POSSIBLE, EF FECT SHOULD BE GIVEN TO BOTH. THIS IS WHAT IS KNOWN AS T HE RULE OF HARMONIOUS CONSTRUCTION' (VENKATARAMANA DEVARU V. STATE OF MYSORE AIR 1958 SC 255, P. 268). THAT EFFECT SHOULD BE GIVEN TO BOTH, IS THE VERY ES SENCE OF THE RULE. THUS A CONSTRUCTION REDUCES ONE OF THE PROVISIONS TO A 'USELESS LUMBER' OR 'DEAD LETTER' I S NOT HARMONIOUS CONSTRUCTION (CALCUTTA GAS CO. (PROPRIET ARY) LTD. V. STATE OF W.B. AIR 1962 SC 1044, P. 1051, COMMISSIONER OF INCOME-TAX V. HINDUSTAN BULK CARRIE RS, SUPRA). TO HARMONISE IS NOT TO DESTROY. A FAMILIAR APPROACH IN ALL SUCH CASES IS TO FIND OUT WHICH OF THE TWO APPARENTLY CONFLICTING PROVISIONS IS MORE GENERAL A ND WHICH IS MORE SPECIFIC AND TO CONSTRUE THE MORE GEN ERAL ONE AS TO EXCLUDE THE MORE SPECIFIC (SOUTH INDIA CORPORATION (P) LTD. V. SECRETARY, BOARD OF REVENUE , TRIVANDRUM AIR 1964 SC 207, P. 215). THE QUESTION A S TO THE RELATIVE NATURE OF THE PROVISIONS GENERAL OR SPECIAL HAS TO BE DETERMINED WITH REFERENCE TO THE AREA AND EXTENT OF THEIR APPLICATION EITHER GENERALLY OR SPE CIFICALLY IN PARTICULAR SITUATIONS (COLLECTOR OF CENTRAL EXCI SE JAIPUR V. RAGHUVAR (INDIA) LTD. AIR 2000 SC 2027). THE M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 15 PRINCIPLE BEHIND THESE INTERPRETATIONS ARE EXPRESSE D IN THE MAXIMS GENERALIA SPECIALIBUS NON DEROGANT AND GENERALIBUS SPECIALIA DEROGANT WHICH MEANS THAT GENERAL THINGS DO POT DEROGATE FROM SPECIAL THINGS AND SPECIAL THINGS DEROGATE FROM GENERAL THINGS. THUS, IT IS CLEAR THAT THE PROVISIONS OF 56(2) DO NOT LIMIT THE APPLICATION OF SECTION 56(1) AND SUBSECTION (1) & ( 2) OF SECTION 56 ARE ONLY COMPLIMENTARY IN NATURE. IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT BY THE HONOURABLE COURTS AND IN VIEW OF THE DETAILED REASO NING GIVEN IN PARAGRAPHS 4.1 TO 4.12, AMOUNT OF RS. 31,61,92,500 RECEIVED BY THE ASSESSEE COMPANY IN TH E GUISE OF 'SHARE PREMIUM' IS TREATED AS INCOME FROM OTHER SOURCES U/S 56(1) OF THE INCOME-TAX ACT, 1961 AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 25. THE AO, THEREFORE, TREATED THE AMOUNT SHOWN AS GEN ERAL RESERVE AS SHARE PREMIUM, HOLDING THE SAME TO BE INCOME FROM OTHER SOURCES U/S 56(1) AND ADDED IT TO THE INCOME OF TH E ASSESSEE. 26. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE REITERATED THE FACTS AND ARGUMENTS MADE BEFORE THE AO . 27. THE ASSESSEE ALSO PROVIDED THE PRE AMALGAMATION PO SITION OF THE ASSESSEE COMPANY, WHICH SHOWED ZERO BALANCE, AS P ER SCHEDULE 1 TO THE BALANCE SHEET AND SUBMITTED THAT AMALGAMATION RESERVE WAS A RESULT OF THE DIRECTIONS OF THE COURT AND IN ANY CASE, IS A CAPITAL RECEIPT, THEREFORE, OUTSIDE T HE PURVIEW OF TAX. 28. THE CIT(A) AFTER CONSIDERING THE COMPLETE DETAILS AND ARGUMENTS, SUSTAINED THE ORDER OF THE AO. 29. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS NOW BEFORE THE ITAT. 30. BEFORE US THE AR SUBMITTED THAT THE REVENUE AUTHO RITIES HAVE WRONGLY TREATED THE ASSESSEE. THE FACT THAT THE AMALGAMATION TOOK PLACE PRIOR TO THE COMPLETION OF ASSESSM ENT. ALL DETAILS AS WELL AS FINAL ORDER OF HONBLE BOMBAY HIGH CO URT M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 16 WAS AVAILABLE WITH THE REVENUE AUTHORITIES IS NOT DISPUTED. IT IS EVIDENT THAT BOTH THE REVENUE AUTHORITIES HAVE INCORPOR ATED THE DETAILS OF COURT ORDER IN THIS OWN ORDERS. THE ORDER OF TH E HONBLE BOMBAY HIGH COURT IN PART IV AT PAGE 15 (295 OF APB) SAYS, A) THE TRANSFEREE COMPANY SHALL RECORD ALL ASSETS, LIABILITIES AND RESERVES RECORDED IN THE BOOKS OF TRANSFEROR COMPANY, WHICH ARE TRANSFERRED TO AND VESTED IN THE TRANSFEREE COMPANY PURSUANT TO THE SCHEME AT THEIR BOOK VALUES AS ON THE APPOINTED DAT E. B) THE TRANSFEREE COMPANY SHALL CREDIT THE SHARE CAPITAL ACCOUNT IN ITS BOOKS OF ACCOUNT WITH THE AGGREGATE FACE VALUE OF THE NEW EQUITY SHARES ISSUE D TO THE SHAREHOLDERS OF THE TRANSFEROR COMPANIES PURSUA NT TO CLAUSE 10.1 OF THIS SCHEME. C) THE EXCESS OR DEFICIT OF AMOUNT OF SHARE CAPITAL OF THE TRANSFEROR COMPANIES AS ON THE APPOINTED DATE OVER: (I) THE PAID-UP VALUE OF THE SHARES TO BE ISSUED AN D ALLOTTED TO THE SHAREHOLDERS OF THE TRANSFEROR COMPANY PURSUANT TO THIS SCHEME; (II) COSTS, CHARGES AND EXPENSES IN CONNECTION WITH THE SCHEME; SHALL BE CREDITED BY THE TRANSFEREE COMPANY TO ITS GENERAL RESERVE ACCOUNT OR SHALL BE DEBITED TO THE GOODWILL ACCOUNT' IN THE BOOKS AS THE CASE MAY BE. D) IN CASE OF ANY DIFFERENCES IN THE ACCOUNTING POL ICY BETWEEN THE TRANSFEROR COMPANIES AND THE TRANSFEREE COMPANY, THE IMPACT OF THE SAME TILL THE DATE OF AMALGAMATION WILL BE QUANTIFIED AND ADJUSTED IN THE 'GENERAL RESERVE ACCOUNT. 31. THE AR THUS SUBMITTED THAT IT CAN BE SEEN THAT TH E DIRECTIONS OF THE HONBLE COURT ARE PRECISE AND CLEAR. THE AR SUBMITTED THAT THE REVENUE AUTHORITIES HAVE GONE OUTSID E THE SCOPE AS PERMITTED BY THE SCHEME OF AMALGAMATIONS APPRO VED BY THE HONBLE BOMBAY HIGH COURT. 32. THE AR, FURTHER SUBMITTED THAT THE PROVISIONS OF SECT ION 56(1) AS APPLIED BY THE REVENUE AUTHORITIES CAN ONLY BE A TTRACTED IF THE RECEIPT HAS THE CHARACTER OF INCOME TO THE ASSES SEE AND SECONDLY THE PROVISIONS ITSELF WILL BECOME OPERATIVE W.E.F. 201 2 ONWARDS AND THEREFORE, THE CURRENT YEAR DOES NOT FALL IN THE YEAR OF MISCHIEF. M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 17 33. THE AR FURTHER SUBMITTED THAT THE REVENUE AUTHO RITIES HAVE BROUGHT TO TAX THE AMOUNT THE AMOUNT HOLDING IT TO BE SHARE PREMIUM, BUT SHARE PREMIUM ITSELF IS AN ITEM OF CAP ITAL FIELD AND NOT A REVENUE NATURE AND THEREFORE OUTSIDE THE SCOPE OF T AX. 34. BESIDES THE ABOVE, IF AT ALL IT IS INCOME THEN THIS INCOME PERTAINED TO 2006-07 AND 2007-08 AND PERTAINED TO A MALGAMATING COMPANIES & NOT TO THE ASSESSEE COMPANY, WITH WHOM THE THREE COMPANIES HAVE AMALGAMATED. IN ANY CASE, IN THOSE Y EARS, THE ASSESSEE COMPANY WAS NOWHERE IN EXISTENCE. 35. FINALLY, THE AR SUBMITTED THAT AS PER CHART FUR NISHED WITH THE REVENUE AUTHORITIES THE SHARES WERE PURCHASED BY FA MILY MEMBERS, THEN IN THAT CASE ANY INCOME ACCRUING CAN ONLY BE T AXED IN THEIR INDIVIDUAL HANDS AND NOT IN THE HANDS OF THE ASSESS EE COMPANY. THE AR THEREFORE SUBMITTED THAT THE AMOUNT IN QUESTION WAS NOT IN THE NATURE OF INCOME IN THE HANDS OF THE ASSESSEE AND T HE REVENUE AUTHORITIES BE DIRECTED TO DELETE THE ADDITION MADE AT RS. 31,61,92,500/-. 36. ON THE OTHER HAND, THE DR VERY STRONGLY SUPPORT ED THE ORDERS OF THE REVENUE AUTHORITIES AND PLEADED THAT THE AMOUNT WAS RIGHTLY BROUGHT TO TAX. 37. WE HAVE HEARD THE ARGUMENTS FROM EITHER SIDE AND HA VE PURSUED THE ORDERS OF THE REVENUE AUTHORITIES AND THE PAPER INCLUDED IN THE APB AND CASE LAWS CITED. AT THE OUTSET WE HAVE TO FIRST EXAMINE WHETHER SHARE PREMIUM IS AN AMOUNT WHICH COULD BE BROUGHT TO TAX AS CANVASSED BY THE REVENUE AUTHORITIES OR INDEPENDENTLY, IT IS AN ITEM IN THE CAPITAL FIELD, WHICH OTHERWISE WOULD NOT BE TAXABLE. RELYING ON THE DECISION OF VODAFONE INDIA SERVICES PVT. LTD. VS UOI IN WP NO. 871 OF 2014, HONBLE BOMBAY HIGH COURT DELVED ON THE ISSUE WHETHER S HARE PREMIUM COULD BE TERMED AS INCOME, THE HONBLE BOMBAY HIG H COURT HELD, M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 18 BUT WE HAVE EXAMINED THE ISSUE AFRESH. THE WORD INCOME FOR THE PURPOSE OF THE ACT HAS A WELL UNDERS TOOD MEANING AS DEFINED IN SECTION 2(24) OF THE ACT. THI S EVEN WHEN THE DEFINITION IN SECTION 2(24) OF THE ACT IS AN INCLUSIVE DEFINITION. IT CANNOT BE DISPUTED THAT IN COME WILL NOT IN ITS NORMAL MEANING INCLUDE CAPITAL RECE IPTS UNLESS IT IS SO SPECIFIED, AS IN SECTION 2(24) (VI) OF THE ACT. IN SUCH A CASE, CAPITAL GAINS CHARGEABLE TO TAX UND ER SECTION 45 OF THE ACT ARE, DEFINED TO BE INCOME. TH E AMOUNTS RECEIVED ON ISSUE OF SHARE CAPITAL INCLUDIN G THE PREMIUM IS UNDOUBTEDLY ON CAPITAL ACCOUNT. SHARE PREMIUM HAVE BEEN MADE TAXABLE BY A LEGAL FICTION UNDER SECTION 56(2)(VIIB) OF THE ACT AND THE SAME I S ENUMERATED AS INCOME IN SECTION 2(24)(XVI) OF THE A CT. HOWEVER, WHAT IS BOUGHT INTO THE AMBIT OF INCOME IS THE PREMIUM RECEIVED FROM A RESIDENT IN EXCESS OF THE F AIR MARKET VALUE OF THE SHARES. IN THIS CASE WHAT IS BE ING SOUGHT TO BE TAXED IS CAPITAL NOT RECEIVED FROM A N ON- RESIDENT I.E. PREMIUM ALLEGEDLY NOT RECEIVED ON APPLICATION OF ALP. THEREFORE, ABSENT EXPRESS LEGIS LATION, NO AMOUNT RECEIVED, ACCRUED OR ARISING ON CAPITAL ACCOUNT TRANSACTION CAN BE SUBJECTED TO TAX AS INCO ME. THIS IS SETTLED BY THE DECISION OF THIS COURT IN CA DELL WEAVING MILL CO. VS. CIT 249 ITR 265 WAS UPHELD BY THE APEX COURT IN CIT VS. D.P. SANDU BROS. CHEMBER (P) LTD. 273 ITR 1. THIS COURT HAS IN CADELL WEAVING MILLS C O. (SUPRA) INTER ALIA, OBSERVED AS UNDER:- IT IS WELL SETTLED THAT ALL RECEIPTS ARE NOT TAXAB LE UNDER THE INCOME TAX ACT. SECTION 2(24) DEFINES INCOME. IT IS NO DOUBT AN INCLUSIVE DEFINITION. HOWEVER, A CAPITA L RECEIPT IS NOT INCOME UNDER SECTION2(24) UNLESS IT IS CHARGEABLE TO TAX AS CAPITAL GAINS UNDER SECTION 45 . IT IS FOR THIS REASON THAT UNDER SECTION 2(24)(VI) THAT T HE LEGISLATURE HAS EXPRESSLY STATED, INTER ALIA, THAT INCOME SHALL INCLUDE ANY CAPITAL GAINS CHARGEABLE UNDER SE CTION 45. UNDER SECTION 2(24)(VI), THE LEGISLATURE HAS NO T INCLUDED ALL CAPITAL GAINS AS INCOME. IT IS ONLY CA PITAL GAINS CHARGEABLE UNDER SECTION 45 WHICH HAS BEEN TREATED AS INCOME UNDER SECTION 2(24). IF THE ARGUM ENT OF THE DEPARTMENT IS ACCEPTED THEN ALL CAPITAL GAINS WHETHER CHARGEABLE UNDER SECTION 45 OF NOT, WOULD C OME WITHIN THE DEFINITION OF THE WORD INCOME UNDER SECTION2(24). FURTHER, UNDER SECTION 2(24)(VI) THE LEGISLATURE HAS NOT STATED THAT ANY CAPITAL GAINS WILL BE COVERED UNDER THE WORD INCOME. ON THE CONTRARY, THE LEGISLATURE HAS ADVISEDLY STATED THAT ONLY CAPITAL GAINS WHICH ARE CHARGEABLE UNDER SECTION 45 OF THE ACT CO ULD BE TREATED AS INCOME. IN OTHER WORDS, CAPITAL GAINS NOT CHARGEABLE TO TAX UNDER SECTION 45 FALL OUTSIDE THE DEFINITION OF THE WORD INCOME IN SECTION 2(24) OF THE ACT. IT IS TRUE THAT SECTION 2(24) OF THE ACT IS AN INCL USIVE DEFINITION HOWEVER, IN THIS CASE, WE ARE REQUIRED T O ASCERTAIN THE SCOPE OF SECTION 2(24)(VI) AND FOR TH AT PURPOSE WE HAVE TO READ THE SUB SECTION STRICTLY. W E CANNOT WIDEN THE SCOPE OF SUB SECTION BY SAYING THA T THE DEFINITION AS A WHOLE IS INCLUSIVE AND NOT EXHAUSTI VE. IN THE PRESENT CASE, THE WORDS CHARGEABLE UNDER SECTI ON 45 ARE VERY IMPORTANT. THEY ARE NOT BEING READ BY THE M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 19 DEPARTMENT. THESE WORDS CANNOT BE OMITTED. IN FACT, THE PRIOR HISTORY SHOWS THAT CAPITAL GAINS WERE NOT CHARGEABLE BEFORE 1946. THEY WERE NOT CHARGEABLE BETWEEN 1948 AND 1956. THEREFORE, WHENEVER AN AMOUNT WHICH IS OTHERWISE A CAPITAL RECEIPT IS TO B E CHARGED TO TAX, SECTION 2(24) SPECIFICALLY SO PROVI DES. IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE SUBSTANC E IN THE PETITIONER'S CASE THAT NEITHER THE CAPITAL RECE IPTS RECEIVED BY THE PETITIONER ON ISSUE OF EQUITY SHARE S TO ITS HOLDING COMPANY, A NON-RESIDENT ENTITY, NOR THE ALL EGED SHORT-FALL BETWEEN THE SO CALLED FAIR MARKET PRICE OF ITS EQUITY SHARES AND THE ISSUE PRICE OF THE EQUITY SHA RES CAN BE CONSIDERED AS INCOME WITHIN THE MEANING OF T HE EXPRESSION AS DEFINED UNDER THE ACT. 38. IN ANY CASE, SIMPLY GOING WITH THE FACTS OF THE CASE, THE REVENUE AUTHORITIES COULD NOT HAVE BROUGHT TO TAX THE AMOUNT IN QUESTION, BECAUSE, THE INCOME SO DISPUTED NEVER BELONGED TO THE ASSESSEE, AS THE ASSESSEE DID NOT EXIST AT THE TIME, WHE N THE INCOME WAS ACTUALLY GENERATED. IT CHANGED HANDS, IT WENT TO INDIVIDUAL PERSONS, NAMED EARLIER. THE AMOUNT ACTUALLY CAME INTO THE ACCOUNT BOOKS OF THE ASSESSEE AS PER THE ORD ER CONSEQUENTIAL TO THE SCHEME APPROVED BY THE HONBLE BO MBAY HIGH COURT AS REPRODUCED EARLIER. UNDISPUTEDLY IT WAS A C ASE OF AMALGAMATION, WHEREIN, AS SEEN FROM THE ORDER OF HONBLE BOMBAY HIGH COURT, THE AMOUNTS COLLECTED AS SHARE PREMIUM BY THOSE THREE COMPANIES WERE ORDERED TO BE BROUGHT INTO THE BOO KS OF THE ASSESSEE EITHER AS GENERAL RESERVE OR AS GOODWILL. THIS AMOUNT WAS SHOWN BY THE ASSESSEE COMPANY IN THE GENE RAL RESERVE. 39. WE HAVE ALREADY SEEN THAT SHARE PREMIUM WOULD ALSO BE A CAPITAL RECEIPT AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE ( SUPRA ). NOW WE HAVE TO EXAMINE WHETHER AMALGAMATION RESERVE OR GENERAL RESERVE COULD B E BROUGHT TO TAX AS INCOME FROM OTHER SOURCES U/S 56(1). 40. FIRST AND FOREMOST, TO CONSIDER AN ITEM TO BE TAXED U/S 56(1), THE RECEIPT SHOULD BEAR THE CHARACTER OF INCOME. UNLE SS M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 20 THE RECEIPT IS NOT AN INCOME, BACK DOOR ENTRY OF INVOKING SECTION 56(1) CANNOT BE ALLOWED. WE FIND SUPPORT FROM THE ORDER OF GREEN INFRA LTD. VS ITO, REPORTED IN 145 ITD 240 (WHERE ONE OF US WAS A PARTY) , IT WAS OBSERVED, 10.3. A SIMPLE READING OF THIS SECTION SHOW THAT I NCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME SHALL BE CHARGEABLE TO INCOME TAX. THE EMPHA SIS IS ON THAT INCOME OF EVERY KIND, THEREFORE, TO TA X ANY AMOUNT UNDER THIS SECTION, IT MUST HAVE SOME CHARAC TER OF INCOME. IT IS A SETTLED PROPOSITION OF LAW THA T CAPITAL RECEIPTS, UNLESS SPECIFICALLY TAXED UNDER ANY PROVI SIONS OF THE ACT, ARE EXCLUDED FROM INCOME. THE HONBLE SUPREME COURT HAS LAID DOWN THE RATIO THAT SHARE PREMIUM REALIZED FROM THE ISSUE OF SHARES IS OF CAP ITAL IN NATURE AND FORMS PART OF THE SHARE CAPITAL OF THE COMPANY AND THEREFORE CANNOT BE TAXED AS A REVENUE RECEIPT. IT IS ALSO A SETTLED PROPOSITION OF LAW TH AT ANY EXPENDITURE INCURRED FOR THE EXPANSION OF THE CAPIT AL BASE OF A COMPANY IS TO BE TREATED AS A CAPITAL EXPENDITURE AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL CORPOR ATION LTD. VS CIT 225 ITR 792 AND IN THE CASE OF BROOKE B OND INDIA LTD. VS CIT. THUS THE EXPENDITURE AND THE REC EIPTS DIRECTLY RELATING TO THE SHARE CAPITAL OF A COMPANY ARE OF CAPITAL IN NATURE AND THEREFORE CANNOT BE TAXED U/S . 56(1) OF THE ACT. THE ASSESSEE SUCCEEDS AND REVENUE FAILS ON THIS ACCOUNT. 41. WE FIND THAT IN THE CASE OF ITO VS SHREYANS INVESTM ENTS (P) LTD., REPORTED IN 141 ITD 672, WHEREIN IT WAS HELD, SECTION 28 SETS OUT THE INCOMES WHICH ARE CHARGEAB LE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUS INESS AND PROFESSION, AND CLAUSE (IV) THERETO REFERS TO THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERT IBLE INTO MONEY OR NOT, ARISING FROM THE BUSINESS OR EXE RCISE OF A PROFESSION. THE EXPRESSION ARISING FROM THE BUSINESS ESSENTIA LLY IMPLIES THAT THE BENEFIT OR PERQUISITE MUST BE IN T HE NATURE OF A BUSINESS RECEIPT OR REVENUE RECEIPT. NO MATTER HOW WIDE BE THE SCOPE OF SECTION 28(IV), THE DIFFER ENCE BETWEEN A CAPITAL RECEIPT AND REVENUE RECEIPT CANNO T BE OVERLOOKED. ONE MUST BEAR IN MIND THE FACT THAT SECTION 28 ONLY REFERS TO THE INCOME WHICH CAN BE CHARGED TO INCO ME TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION, AND, THEREFORE, WHEN A PARTICULAR ADVANTAGE, PERQUISITE OR RECEIPT IS NOT IN THE NATU RE OF INCOME, THERE CANNOT BE ANY OCCASION TO BRING THE S AME TO TAX UNDER SECTION 28(IV). IT IS SETTLED LAW THAT A CAPITAL RECEIPT, IN PRINCIPLE, IS OUTSIDE THE SCOPE OF INCO ME CHARGEABLE TO TAX. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, THE BURDEN IS ON THE REVENUE TO ESTABLISH THA T THE RECEIPT IS OF THE REVENUE NATURE. M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 21 AS TO WHAT CONSTITUTES CAPITAL RECEIPT, WE FIND GUI DANCE FROM HONBLE MADRAS HIGH COURTS JUDGMENT IN THE CA SE OF CIT VS SESHASAYEE BROTHERS PVT LTD (222 ITR 818)WHEREIN THEIR LORDSHIPS, AFTER ELABORATELY SURV EYING THE LEGAL PRECEDENTS ON THIS ISSUE, CONCLUDED THAT, THUS, A COMBINED READING OF THE ABOVESAID JUDICIAL PRONOUNCEMENTS WOULD GO TO SHOW THAT WHEN A RECEIPT IS REFERABLE TO FIXED CAPITAL, IT IS NOT TAXABLE, AND IT IS TAXABLE AS A REVENUE RECEIPT WHEN IT IS REFERABLE T O CIRCULATING CAPITAL OR STOCK IN TRADE. TO SUM UP, UNLESS IT IS A REVENUE RECEIPT, IT CANNOT BE IN THE NATURE OF INCOME [EXCEPT IN A SITUATIONS IN WHICH CAPITAL RECEIPTS A RE SPECIFICALLY INCLUDED IN THE DEFINITION OF INCOME S UCH AS UNDER SECTION 2(24)(VI)], AND UNLESS IT IS IN NATUR E OF INCOME, IT CANNOT BE CONSIDERED FOR TAXATION UNDER SECTION 28(IV). BLENDING COMPANIES, THE SHAREHOLDERS OF EACH BLENDI NG COMPANY BECOMING SUBSTANTIALLY THE SHAREHOLDER OF T HE COMPANY WHICH HOLDS THE BLENDED UNDERTAKING. THE EXPRESSION AMALGAMATING COMPANY IS USED FOR THE BLENDING COMPANY WHICH LOSES ITS EXISTENCE INTO T HE OTHER COMPANY AND THE EXPRESSION AMALGAMATED COMPANY IS USED FOR BLENDED UNDERTAKING, WHICH HOL DS EXISTENCE OF THOSE TWO OR MORE COMPANIES. IN ESSENC E THUS, THE WHOLE EXERCISE OF AMALGAMATION IN THE NAT URE OF MERGER IS AN EXERCISE IN THAT OF POOLING OF RESO URCES, AS ALSO POOLING OF ASSETS, INTO THE COMPANY IN WHIC H TWO OR MORE COMPANIES ARE BLENDED. IN THE PRESENT CASE, AS A RESULT OF AMALGAMATION, T HE ASSESSEE, BEING THE TRANSFEREE COMPANY, WILL INCREA SE ITS ASSETS AND LIABILITIES, AND, EVEN IF THERE BE ANY B ENEFIT IN THE PROCESS, SUCH A BENEFIT CAN ONLY BE IN THE CAPI TAL FIELD BECAUSE IT IS RELATABLE TO THE NON TRADING AS SETS AND CAPITAL. WHAT IT AFFECTS IS THE CAPITAL STRUCTURE O F THE ASSESSEE COMPANY AND THE MANNER IN WHICH BUSINESS I S CONSOLIDATED. AS THE ASSESSING OFFICER HIMSELF OBSE RVED, ......THAT THE EXERCISE OF AMALGAMATION IS ALSO AI MED AT BOLSTERING THE CAPABILITY OF THE ASSESSEE TO CONDUC T BUSINESS MORE DYNAMICALLY AND EARN MORE PROFIT. SO, THE ENHANCEMENT OF ITS CAPITAL RESERVE, AS A RESULT OF THIS AMALGAMATION CAN ONLY BE CONSTRUED AS A BENEFIT ACCRUED TO THE ASSESSEE. EVEN IF, IT CAN BE SURMIS ED THAT THE ASSESSEE IS BENEFITED IN A MYRIAD WAYS BY WAY OF AMALGAMATION;, IT DOES NOT LEAD TO THE CONCLUSIO N THAT THE BENEFIT IS IN REVENUE FIELD, WHICH ALONE CAN BE TREATED AS INCOME AND, THUS, BE CONSIDERED FOR TAXABILITY U NDER SECTION 28(IV). THE ONUS IS ONE THE ASSESSING OFFIC ER TO DEMONSTRATE THAT THE RECEIPT IS OF THE REVENUE NATU RE. 42. TAKING THE BIRDS EYE VIEW ON THE ENTIRE ISSUE, THE R ECEIPT IN THE HANDS OF THE ASSESSEE SHOWN AS GENERAL REVERSE COULD NOT BE BROUGHT TO TAX. THIS FOR TWO REASONS (A) THE RECEIPT D OES NOT CARRY THE CHARACTER OF INCOME UNDER ANY PROVISION OF THE ACT, AND (B) IT BECAME A RECEIPT IN THE HAND OF THE ASSESSEE O N A M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 22 SPECIFIC DIRECTION OF HONBLE BOMBAY HIGH COURT, RELEVANT PORTION, AS EXTRACTED EARLIER IN THE ORDER. 43. IN SUCH A CIRCUMSTANCE, THE REVENUE AUTHORITIES CAN NOT CHANGE THE CHARACTER OF RECEIPT FROM GENERAL RESERVE TO SHARE PREMIUM RESERVE AND TAX THE SAME U/S 56(1). AT NO POIN T OF TIME, I.E. EITHER BEFORE THE REVENUE AUTHORITIES OR EVEN BEFO RE US, THE REVENUE COULD NOT PLACE EVEN IN ONE TEST, TO PIN POIN T THAT THE RECEIPT WOULD OR COULD HAVE BORNE THE CHARACTER OF INCOME. IN ANY CASE, WE FIND THAT THE REVENUE AUTHORITIES COMPLE TELY IGNORED THE FORMAL DIRECTIONS OF THE HONBLE BOMBAY HIGH CO URT. THIS, IN OUR OPINION AMOUNTED TO DEFIANCE OF THE ORDER OF T HE HIGHER JUDICIAL FORUM. LOOKING INTO THE ORDER OF THE HONBLE BOMBAY HIGH COURT, WE FIND THAT ALL THE WHILE, THE DIRECTION O F THE HONBLE COURT WAS TO BRING THE AMOUNT IN THE BOOKS OF THE ASSESSEE EITHER AS GENERAL RESERVE OR GOODWILL, WAS ALWAY S UNDER THE CAPITAL FIELD. 44. IN SUCH A CIRCUMSTANCE, WE HAVE NO HESITATION TO HO LD THAT THE ADDITION OF RS. 31,61,92,500/- IS NOT TAXABLE IN THE HAN DS OF THE ASSESSEE. 45. GROUNDS NO. 3 & 4 ARE THEREFORE, ALLOWED. 46. IN THE RESULT, THE APPEAL AS FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY, 2015. SD/- SD/- ' ' ' ' (N.K. BILLAIYA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 6 TH FEBRUARY, 2015 M/S SHREEPATI INFRA REALTY LTD ITA 6364/M/2014 23 !&/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A)-9, MUMBAI. 4) THE CIT- 5, MUMBAI. 5) ,- / THE D.R. G BENCH, MUMBAI. COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * *CHAVAN, SR.PS