Topic
Share premium in Indian tax law refers to the amount received by a company over and above the face value of shares issued, which may be taxed under Section 56(2)(viib) of the Income Tax Act if certain conditions are met.
ITAT Kolkata set aside ₹13.5 lakh addition under Section 68 for unexplained share capital after the assessee furnished investor details, PANs, and source of funds. The ruling clarifies the evidentiary burden required to rebut Section 68 presumptions in share premium cases.
The ITAT Pune has ruled that once an assessee selects either the Net Asset Value (NAV) or Discounted Cash Flow (DCF) method under Rule 11UA to determine the fair market value of unlisted shares, the Assessing Officer has no authority to substitute it with another valuation approach or question its realism. This reinforces taxpayer autonomy in valuation and curbs arbitrary tax additions, directly impacting startups, private equity deals, and closely held companies.
ITAT Delhi rules that share capital received from a non-resident holding company cannot be taxed under Section 68 of the Income Tax Act if the assessee establishes the investor's identity, creditworthiness, and the transaction's genuineness through bank records and FIRC. This sets a precedent for protecting foreign investments from arbitrary additions where documentation is robust.
ITAT Delhi rules that Section 56(2)(viib) of the Income Tax Act applies only when consideration is received in the assessment year of share allotment. Funds received earlier via Compulsorily Convertible Debentures (CCD) conversion do not attract tax on share premium, even if valuation is based on prior balance sheets. The ruling clarifies the timing of receipt for tax applicability under this provision.
ITAT Mumbai rules that share premium received before Section 56(2)(viib) came into force (01/04/2013) cannot be taxed, even if shares are allotted later. The tribunal invalidates additions under Section 68 for lack of notice and procedural compliance, reinforcing that tax provisions cannot apply retrospectively to past transactions.
The ITAT Kolkata has ruled that when taxpayers submit credible documentary evidence establishing the identity, creditworthiness, and genuineness of share subscribers, non-compliance with summonses under Section 131 cannot justify treating share capital as unexplained cash credit. This clarifies that procedural lapses cannot override substantive proof, offering critical relief to companies relying on legitimate equity infusions.
ITAT Delhi ruled that share premium received from investors cannot be taxed as undisclosed income under Section 68 if the assessee establishes investor identity, creditworthiness, and genuineness of transactions. The tribunal deleted a Rs. 45 lakh addition, reinforcing that valuation methods like Net Asset Value (Rule 11UA) suffice when documentation is uncontroverted.
ITAT Delhi clarifies that taxpayers must discharge burden under Sections 68 and 56(2)(viib) only after providing prima facie evidence; mere suspicion by AO insufficient to sustain additions.