{"id":7719,"date":"2020-06-06T10:01:16","date_gmt":"2020-06-06T04:31:16","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=7719"},"modified":"2020-06-06T10:01:16","modified_gmt":"2020-06-06T04:31:16","slug":"overview-of-section-562-of-the-income-tax-act1961","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/overview-of-section-562-of-the-income-tax-act1961\/","title":{"rendered":"Overview Of Section 56(2) Of The Income-tax Act,1961"},"content":{"rendered":"

CA Chandrakant K Thakkar has prepared a compilation in which he has traced the legislative history of section 56(2) of the Income-tax Act and explained the rationale of the numerous amendments. He has also set out in a tabular format the various controversial issues that have arisen to date and the judicial pronouncements which answer them. The compilation will prove invaluable as a ready-reckoner of all important case laws on section 56(2) of the Act<\/strong><\/p>\n

1. INTRODUCTION:<\/strong><\/p>\n

In any law with passage of time, new sections are introduced, existing sections are deleted and\/or modified. It is a continuous process. People generally find out loopholes in the existing provisions and take advantage of such loopholes. Government comes to know of advantage being taken and accordingly introduce new section or modifies existing section so as to plug the loophole. When we analyze the provisions of section 56(2), we can see that number of changes have been made in said section time and again so as to plug the loopholes. Let us discuss the section 56(2) in detail and understand the technical aspects of provisions of section 56(2). I have prepared a table in which reference of section 56(2) and its sub section is given, said section is for taxability of what type of transaction, when it was introduced, it is effective up to which date, what are the issues in said section and reference of definitions available in said section and where said definition is defined. This table would be very useful for understanding of provisions of section 56(2) of Income Tax Act,1961.<\/p>\n

<\/p>\n

2. REFER TABLE TO U<\/strong>NDE<\/strong>RSTA<\/strong>ND PROVISIONS OF SECTION  56(2):<\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

Section <\/strong> <\/p>\n<\/td>\n

\n

Introduced from and operative till<\/strong> <\/p>\n<\/td>\n

\n

Subject matter<\/strong> <\/p>\n<\/td>\n

\n

Issues<\/strong> <\/p>\n<\/td>\n

\n

Definitions defined in which section<\/strong> <\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(i)<\/p>\n<\/td>\n

\n

1-4-1965 to till date<\/p>\n<\/td>\n

\n

Dividend<\/p>\n<\/td>\n

\n

In current year i.e FY 19-20 Dividend declared in last week, DDT paid by company, received in new year i.e F.Y 20-21, it will not be taxable in FY 20-21. So you will have to keep track of the same.<\/p>\n<\/td>\n

\n

Dividend as defined in section 2(22)<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(Ib)<\/p>\n<\/td>\n

\n

1-4-1972 to till date<\/p>\n<\/td>\n

\n

Winning from lotteries, cross word puzzle, races, horse races, card games, other games, gambling, betting <\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

Lottery is defined in explanation (i) to section 2(24).
\n Card game and other games is defined in explanation (ii) to section 2(24).<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(ic)<\/p>\n<\/td>\n

\n

1-4-1988 to till date<\/p>\n<\/td>\n

\n

Sum received from employees as contribution to PF or superannuation fund or ESI or any other fund for welfare of employees<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(id)<\/p>\n<\/td>\n

\n

1-4-1989 to till date<\/p>\n<\/td>\n

\n

Interest on securities not chargeable under head Business & profession<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

Interest as defined in section 2(28B)<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(ii)<\/p>\n<\/td>\n

\n

Still operative<\/p>\n<\/td>\n

\n

Income from hire on machinery, plant or furniture belonging to assessee and let on hire and it is not chargeable under head Business & profession<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(iii)<\/p>\n<\/td>\n

\n

still operative<\/p>\n<\/td>\n

\n

Income from hire on machinery, plant or furniture belonging to assessee and the letting of building and building is inseparable from letting of plant, machinery, furniture and letting on hire  is not chargeable under head Business & profession<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(iv)<\/p>\n<\/td>\n

\n

1-10-1996 to till date<\/p>\n<\/td>\n

\n

Any sum received under keyman insurance policy including bonus. <\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

Keyman insurance policy is defined in section 10(10D) Explanation -1<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(v)<\/p>\n<\/td>\n

\n

1-09-2004 to 31-3-2006<\/p>\n<\/td>\n

\n

Money received in excess of Rs 25000 by individual or HUF like section 56(2)(x) discussed below<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(vi)<\/p>\n<\/td>\n

\n

1-4-2006 to 30-09-2009<\/p>\n<\/td>\n

\n

Money received in excess of Rs 50000 by individual or HUF like section 56(2)(x) discussed below<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(vii)<\/p>\n<\/td>\n

\n

1-10-2009 to 31-3-2017<\/p>\n<\/td>\n

\n

Money received in excess of Rs 50000 by individual or HUF like section 56(2)(x) discussed below<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(viia)<\/p>\n<\/td>\n

\n

1-6-2010 to 31-3-2017<\/p>\n<\/td>\n

\n

Where a firm or company in which public are not substantially interested receives sum of Rs 50000 without consideration the whole fair market value and for a consideration, fair market value in excess of consideration<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(viib)<\/p>\n<\/td>\n

\n

1-4-2013 to till date<\/p>\n<\/td>\n

\n

Where a company not being company in which public are substantially interested from any person being Resident, any consideration for issue of shares, the consideration in excess of fair market value shall be taxable <\/p>\n<\/td>\n

\n

The clause is not applicable to venture capital company, startup companies or other companies notified by central government subject to fulfilment of conditions specified in notification. If company does not fulfil conditions of notification, excess of sum received over fair market value will be taxable and it will be subject to penalty u\/s 270A as misreporting under sub section (8) and (9) of section 270A. <\/p>\n<\/td>\n

\n

Company in which public are substantially interested is defined in section 2(18). Fair market value is to be considered as per Explanation (a) to section 56(2)(viib). Specified fund is to be considered as per Explanation (aa) to section 56(2)(viib), Trust is to be considered as per Explanation (ab) to section 56(2)(viib) and venture capital company, venture capital fund and venture capital undertaking is to be considered as per clause (a), clause (b) and clause (c) of Explanation  to section 10(23FB). Fair market value is to be considered as per Rule 11UA or as per Explanation (a) (ii) to section 56(viib).<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(viii)<\/p>\n<\/td>\n

\n

1-4-2010 to till date<\/p>\n<\/td>\n

\n

Any interest received on compensation or enhanced compensation will be taxed in the year in which it is received (Refer section 145B(1)<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(ix)<\/p>\n<\/td>\n

\n

1-4-2015 to till date<\/p>\n<\/td>\n

\n

Any sum received as advance or otherwise in the course of negotiation for transfer of capital asset if such sum is forfeited and the negotiations do not result in transfer of such capital asset  <\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n

\n

Capital asset is defined in section 2(14). Transfer is defined in section 2(47).<\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(x)<\/p>\n<\/td>\n

\n

1-4-2017 to till date<\/p>\n<\/td>\n

\n

Any person receives from any person in excess of Rs. 50,000\/ without consideration it will be taxable. If consideration of immovable property is nil, then stamp duty valuation in excess of Rs 50,000 or if consideration is received but it is received but the difference between stamp duty valuation and consideration exceeds Rs 50,000 or the amount equal to 5% (now 10% from 1-4-2020) of consideration whichever is higher,<\/p>\n

Other than immovable property without consideration, then fair market value in excess of Rs. 50,000\/ or if consideration is received fair market value in excess of Rs 50000\/<\/p>\n<\/td>\n

\n

This section is on abolition of section 56(2) (vii) because (vii) (effective 1-4-2009 to 31-3-2017) (included only individual or HUF being recipient, firm, company etc. were not part of section but made effective from 1-6-2010 to 31-3-2017) vide 56(2)(viia)  and lot of advantage was taken of this loop hole.<\/p>\n<\/td>\n

\n

Assessable, fair market value, jewellery, property, relative and stamp value shall be as per definition given in Explanation to section 56(2)(vii).
\n  
\n Jewellery is defined in section 2(14)(ii) <\/p>\n<\/td>\n<\/tr>\n

\n

56(2)(xi)<\/p>\n<\/td>\n

\n

1-4-2019 to till date<\/p>\n<\/td>\n

\n

Compensation or other payment due or received on termination of his employment or modification of terms and conditions relating to termination of employment<\/p>\n<\/td>\n

\n

On termination it was not due to employer employee relationship and was not taxable under head salary<\/p>\n<\/td>\n

<\/td>\n<\/tr>\n<\/table>\n

3. QUESTIONS WHICH ARISE WHILE ANALYSING SECTION 56(2) AND ANSWERS GIVEN   TO SAID QUESTIONS:<\/strong><\/p>\n

 <\/strong><\/p>\n

(A) PERTAINING TO 56(2)(vii)<\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
\n

SR. NO.<\/strong> <\/p>\n<\/td>\n

\n

QUESTION<\/strong> <\/p>\n<\/td>\n

\n

ANSWER<\/strong> <\/p>\n<\/td>\n

\n

CASES RELIED UPON OR CONTENTION TAKEN INTO CONSIDERATION FOR GIVING ANSWER.<\/strong> <\/p>\n<\/td>\n<\/tr>\n

\n

1<\/p>\n<\/td>\n

\n

Whether issue of bonus shares would be covered in this clause?<\/p>\n<\/td>\n

\n

Bonus shares are issued out of reserves and surplus available with the company and existing shareholders have right on the reserves and surplus, the said right is consideration and hence, said section does not apply to issue of bonus shares.<\/p>\n<\/td>\n

\n
\n

2<\/p>\n<\/td>\n

\n

Whether right shares are covered under this section?<\/p>\n<\/td>\n

\n

No, as rights of existing shareholders were attached to reserves etc. which is also a consideration. Like bonus shares, existing shareholders get right shares and they have right over reserves and surplus and hence, it is not without consideration. Letter No. 12\/6\/63 dated 17th October,1963 also states that offer under right issue at lower than market price shall not be taxable under section 2(24)(iv).<\/p>\n<\/td>\n

\n

The decisions referred for bonus shares issue can be relied in this matter also.<\/strong> <\/p>\n<\/td>\n<\/tr>\n

\n

3<\/p>\n<\/td>\n

\n

Whether land being stock in trade given as gift would be covered under this section?<\/p>\n<\/td>\n

\n

No as it does not fall within definition of property as defined in said section. If we see the definition of property as defined in section 56(2)(vii) it says in first sentence with words “capital asset being” and as definition of capital asset as provided in section 2(14) does not include stock in trade as capital asset, provisions of section 56(2)(vii) shall not be applicable to gift of land being stock in trade.<\/p>\n<\/td>\n

\n
\n

4<\/p>\n<\/td>\n

\n

Whether shares in a private limited company are allotted at less than fair market value where in company, where two shareholders are there and both are relative as defined in section 56, provisions of this section applies?<\/p>\n<\/td>\n

\n

No as it is transfer of excess rights in favor of relative. The courts and tribunals have given a verdict that provisions of section 56(2) being deeming section, should be interpreted liberally rather than literally. The benefit of issuing shares at value less than FMV is ultimately available to relative of other shareholder, provisions of section 56(2)(vii) shall not be applicable in the case. <\/p>\n<\/td>\n

\n
\n

5<\/p>\n<\/td>\n

\n

Gift is given in March\/June ,2019, last balance sheet as on 31-3-2019 is not audited, Audited Balance sheet as at 31-3-2018 is considered for fair market value. Is it tenable in the eyes of law?<\/p>\n<\/td>\n

\n

Yes, as audited balance sheet available should be considered for deciding FMV as per Rule 11UA.<\/p>\n<\/td>\n

\n
\n

6<\/p>\n<\/td>\n

\n

Assessee executed agreement to sale and gave possession in 2015-16 and conveyance deed was executed in 2018-19. Stamp duty value of which year is to be considered?<\/p>\n<\/td>\n

\n

If conditions as laid down in proviso to section 56(2)(vii) (b) are fulfilled, then the stamp duty value on date of agreement to sale is to be considered and if said conditions are not fulfilled, stamp duty value on date of conveyance deed is to be considered. <\/p>\n<\/td>\n

\n

[2020] 114 taxmann.com 168 (Mumbai – Trib.) <\/strong>
\n IN THE ITAT MUMBAI BENCH ‘G’ <\/strong>
\n Sujauddian kasimsab Sayyed<\/strong>
\n v.<\/em><\/strong>
\n Income Tax Officer<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

7<\/p>\n<\/td>\n

\n

When immovable property’s right was relinquished by family members in favor of a family member under family arrangement at a consideration less than stamp value would be affected by 56(2)(vii)?<\/p>\n<\/td>\n

\n

No, As it is not commercial transaction and it is amongst relatives as defined in section 56, section 56(2)(vii) not applicable.<\/p>\n<\/td>\n

\n

[2020] 113 taxmann.com 5 (Delhi – Trib.)<\/strong>
\n IN THE ITAT DELHI BENCH ‘C’<\/strong>
\n Govind Kumar, Khemka<\/strong>
\n v.<\/em><\/strong>
\n ACIT<\/strong> Circle-47(1)<\/strong>*<\/a><\/u><\/strong> <\/strong>
\n IT APPEAL NO. 2963 (DELHI) OF 2019
\n [ASSESSMENT YEAR 2015-2016]<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

(B) PERTAINING TO 56(2)(viib)<\/strong><\/p>\n

 <\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

SR. NO.<\/strong> <\/p>\n<\/td>\n

\n

QUESTION<\/strong> <\/p>\n<\/td>\n

\n

ANSWER<\/strong><\/p>\n<\/td>\n

\n

CASES RELIED UPON OR CONTENTION TAKEN INTO CONSIDERATION FOR GIVING ANSWER.<\/strong> <\/p>\n<\/td>\n<\/tr>\n

\n

1<\/p>\n<\/td>\n

\n

Whether Preference shares would come within purview of this section?<\/p>\n<\/td>\n

\n

Yes, as words used in section 56(2)(viib) are shares and not equity shares and hence, provisions of section 56(2)(viib) are applicable to issue of preference shares. However, valuation is to be done at Book value method.<\/p>\n<\/td>\n

\n
\n

2<\/p>\n<\/td>\n

\n

Whether optionally convertible debentures or mandatory convertible debentures would come within purview of this section?<\/p>\n<\/td>\n

\n

No, because when money is received, they are not shares but debt instruments.<\/p>\n<\/td>\n

<\/td>\n<\/tr>\n
\n

3<\/p>\n<\/td>\n

\n

When shares are issued with clear source and AO is satisfied with source but issue price is higher than fair market value, whether this would come within provisions of this section?<\/p>\n<\/td>\n

\n

No, legislature’s intention is to be considered. Memorandum stated that this section is introduced to avoid flow of unaccounted money. As source is established, unaccounted money is not there, literal meaning is not to be taken but liberal meaning is to be taken.<\/p>\n<\/td>\n

\n

(i). P K Verghese (sc) with reference to section 52(2)
\n (ii).172 ITD 649\/ 107 taxmann.com 15 Vani Estate<\/p>\n

Decisions relied upon while giving above decision of Vani Estate.<\/strong>
\n (a). Allied Motors (P.) Ltd. <\/em>v. CIT <\/em>[1997] 224 ITR 677 (SC)<\/u>
\n (b) CIT<\/em> v. Kay Arr Enterprises <\/em>[2008] 299 ITR 348 (Madras HC)<\/u>
\n (c ). CIT<\/em> v. R. Nagaraja Rao <\/em>[2012] 21 taxmann.com 101(Karnataka HC)<\/u>
\n (iii). [2020] 114 taxmann.com 167 (Delhi – Trib.) <\/strong>
\n            IN THE ITAT DELHI BENCH SMC<\/strong>
\n Clearview Healthcare (P.) Ltd v.<\/em><\/strong>
\n Income-tax Officer, Ward 6(2), New Delhi*<\/a><\/u><\/strong><\/p>\n

Lalithaa Jewellery Mart (P.) Ltd.<\/em> v. Asstt. CIT <\/em>[2019] 108 taxmann.com 490\/178 ITD 503 (Chennai – Trib)<\/u> (para 5.1) followed.<\/em><\/p>\n

(iv). 175 ITD 449 Subodh memon               
\n (v). 174 ITD 465\/(2019) 101 taxmann.com 122 Kumar Pappusingh v DCIT
\n (vi). 177 ITD 809<\/p>\n

(vii). 2015] 57 taxmann.com 284 (Mumbai – Trib.)<\/strong>
\n IN THE ITAT MUMBAI BENCH ‘A’<\/strong>
\n Deputy Commissioner of <\/strong>Income<\/strong>–<\/strong>tax<\/strong>, 3 (2), Mumbai<\/strong>
\n v.<\/em><\/strong>
\n KDA Enterprises (P.) Ltd<\/strong>
\n IT APPEAL NO. 2662 (MUM.) OF 2013
\n [ASSESSMENT YEAR 2009-10]<\/p>\n<\/td>\n<\/tr>\n

\n

4<\/p>\n<\/td>\n

\n

If a company has taken intrinsic value of intangible assets and immovable property based on valuation reports received for which accounting entry of difference between market value and book value was not passed in books of accounts. FMV can be rejected by AO?<\/p>\n<\/td>\n

\n

No, accounting entry cannot be base for determining FMV.<\/p>\n<\/td>\n

\n

[2019] 109 taxmann.com 165 (Ahmedabad – Trib.) <\/strong>
\n IN THE ITAT AHMEDABAD BENCH ‘D’ <\/strong>
\n Unnati Inorganics (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Income Tax Officer, Ward-1(5), Bhavnagar*<\/a><\/u><\/strong>
\n IT Appeal No. 2474 (Ahd.) of 2017
\n [ASSESSMENT YEAR 2014-15] <\/p>\n

Above decision was given by relying on  Kedarnath Jute Mfg. Co. Ltd.<\/em> v. CIT <\/em>[1971] 82 ITR 363 (SC)<\/u> <\/p>\n<\/td>\n<\/tr>\n

\n

5 <\/p>\n<\/td>\n

\n

When AO made inquiry for issue of shares and had accepted one method prescribed in rule 11UA, whether CIT (A) can change calculation and enhance income without bringing any defect in valuation done?<\/p>\n<\/td>\n

\n

To choose any one method out of three alternatives prescribed in section 56(2)(viib) is right of assessee. CIT (A) without bringing any wrong doing in calculation, cannot change the calculation and enhance the income. <\/p>\n<\/td>\n

\n

[2020] 113 taxmann.com 441 (Kolkata – Trib.) <\/strong>
\n IN THE ITAT KOLKATA BENCH ‘C’ <\/strong>
\n Trimex Fiscal Services (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Principal Commissioner of Income-tax, Kolkata*<\/a><\/u><\/strong>
\n IT Appeal No. 892 (Kol.) of 2018
\n [ASSESSMENT YEAR 2013-14] <\/p>\n

[2019] 104 taxmann.com 385 (Delhi – Trib.)<\/strong>
\n IN THE ITAT DELHI BENCH ‘C’<\/strong>
\n India Today Online (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Income<\/strong> <\/strong>Tax<\/strong> Officer, Ward-12(2), New Delhi<\/strong>*<\/a><\/u><\/strong> <\/strong>
\n IT APPEAL NOS. 6453 & 6454 (DELHI) OF 2018
\n [ASSESSMENT YEARS 2013-14 AND 2014-15]<\/p>\n<\/td>\n<\/tr>\n

\n

6 <\/p>\n<\/td>\n

\n

Can CIT revise the order u\/s 263 for case of issue of shares at FMV duly verified by AO during assessment proceedings u\/s 143(3) and make addition by calculation made by him as per this provision?<\/p>\n<\/td>\n

\n

No, he has to bring material on record to prove that previous calculation was defective and without doing so he cannot invoke provisions of section 263.<\/p>\n<\/td>\n

\n

[2020] 113 taxmann.com 441 (Kolkata – Trib.) <\/strong>
\n IN THE ITAT KOLKATA BENCH ‘C’ <\/strong>
\n Trimex Fiscal Services (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Principal Commissioner of Income-tax, Kolkata*<\/a><\/u><\/strong>
\n IT Appeal No. 892 (Kol.) of 2018
\n [ASSESSMENT YEAR 2013-14] <\/p>\n<\/td>\n<\/tr>\n

\n

7 <\/p>\n<\/td>\n

\n

When shares are issued to second level subsidiary of a company in which public are substantially interested in excess of FMV, whether addition can be made u\/s 56(2)(viib)?<\/p>\n<\/td>\n

\n

No as section 2 (18) consider such company as company in which public are substantially interested and to such company provisions of section 56(2)(viib) are not applicable?<\/p>\n<\/td>\n

\n

[2020] 113 taxmann.com 5 (Delhi – Trib.)<\/strong>
\n IN THE ITAT DELHI BENCH ‘C’<\/strong>
\n Govind Kumar, Khemka<\/strong>
\n v.<\/em><\/strong>
\n ACIT<\/strong> Circle-47(1)<\/strong>*<\/a><\/u><\/strong> <\/strong>
\n IT APPEAL NO. 2963 (DELHI) OF 2019
\n [ASSESSMENT YEAR 2015-2016]
\n  <\/strong> <\/p>\n<\/td>\n<\/tr>\n

\n

8 <\/p>\n<\/td>\n

\n

If AO finds issue price more than FMV in case of subsidiary of company in which public are substantially interested u\/s 56(1) as it cannot be added u\/s 56(2)(viib), makes addition u\/s 56(1). Can he do so?<\/p>\n<\/td>\n

\n

No, as section 56(1) is residual section for charging revenue income and hence, it cannot be added u\/s 56(1). Secondly when there is specific provision u\/s 56(2)(viib), general provision cannot be considered for making addition. <\/p>\n<\/td>\n

\n

[2019] 105 taxmann.com 254 (Hyderabad – Trib.)
\n IN THE ITAT HYDERABAD BENCH ‘A’
\n Apollo Sugar Clinics Ltd.
\n v.<\/em>
\n Deputy Commissioner of Income-tax, Circle-1(1), Hyderabad
\n IT APPEAL NO. 2045 (HYD.) OF 2018
\n [ASSESSMENT YEAR 2015-16]<\/p>\n<\/td>\n<\/tr>\n

\n

9 <\/p>\n<\/td>\n

\n

Can AO change the method DCF considered by assesee to Book value method and make addition u\/s 56(2)(viib)?<\/p>\n<\/td>\n

\n

No, AO is not authorized to do so and selection of method is right of assessee.<\/p>\n<\/td>\n

\n

[2019] 104 taxmann.com 362 (Amritsar – Trib.)<\/strong>
\n IN THE ITAT AMRITSAR BENCH<\/strong>
\n Assistant Commissioner of <\/strong>Income<\/strong>–<\/strong>tax<\/strong>, Circle-2, Jalandhar<\/strong>
\n v.<\/em><\/strong>
\n Enterprises Business Solutions (P.) Ltd.<\/strong>*<\/a><\/u><\/strong> <\/strong>
\n IT APPEAL NO. 666 (ASR.) OF 2017
\n [ASSESSMENT YEAR 2013-14]<\/p>\n

[2019] 106 taxmann.com 300 (Delhi – Trib.)<\/strong>
\n IN THE ITAT DELHI BENCH ‘B’<\/strong>
\n Cinestaan Entertainment (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Income<\/strong> Tax Officer, Ward-6(2), New Delhi*<\/a><\/u><\/strong>
\n IT APPEAL NO. 8113 (DELHI) OF 2018
\n [ASSESSMENT YEAR 2015-16]<\/p>\n<\/td>\n<\/tr>\n

\n

10 <\/p>\n<\/td>\n

\n

Can AO reject the method adopted by assesee? In which circumstances?<\/p>\n<\/td>\n

\n

AO can reject method adopted by assessee if he is not provided details called for or if he can prove that projection or estimation done by the management and relied by valuer are not scientific. <\/p>\n<\/td>\n

\n

[2019] 102 taxmann.com 59 (Bangalore – Trib.)<\/strong>
\n IN THE ITAT BANGALORE BENCH ‘B’<\/strong>
\n Innoviti Payment Solutions (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Income<\/strong>–<\/strong>tax<\/strong> Officer, Ward- 3 (1) (1), Bengaluru<\/strong>*<\/a><\/u><\/strong> <\/strong>
\n   <\/strong>I.T. APPEAL NO. 1278 (BANG.) OF 2018
\n [ASSESSMENT YEAR 2014-15]<\/p>\n<\/td>\n<\/tr>\n

\n

11 <\/p>\n<\/td>\n

\n

Can auditor certify valuation report of company which he is auditing either as statutory auditor or tax auditor? AO can reject such report?<\/p>\n<\/td>\n

\n

Auditor cannot certify valuation report and AO can reject the same. <\/p>\n<\/td>\n

\n

[2019] 102 taxmann.com 183 (Bangalore – Trib.)<\/strong>
\n IN THE ITAT BANGALORE BENCH ‘SMC-B’<\/strong>
\n Kottaram Agro Foods (P.) Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Assistant Commissioner of Income-tax (ODS), Range-4(1), Bangalore*<\/a><\/u><\/strong>
\n IT APPEAL NOS. 2852 AND 2853 (BANG) OF 2018
\n [ASSESSMENT YEARS 2014-15 & 2015-16]<\/p>\n<\/td>\n<\/tr>\n

\n

12 <\/p>\n<\/td>\n

\n

Can AO compare projections vs actual and reject valuation report as there is deviation?<\/p>\n<\/td>\n

\n

No, there would always be difference between projections and actuals. AO has to see basis and assumptions for projection and if they are not scientific, then only report can be rejected but on ground of deviation, it cannot be rejected.<\/p>\n<\/td>\n

\n

[2020] 114 taxmann.com 323 (Mumbai – Trib.) <\/strong>
\n IN THE ITAT MUMBAI BENCH ‘F’ <\/strong>
\n Vodafone M-Pesa Ltd.<\/strong>
\n v.<\/em><\/strong>
\n Deputy Commissioner of Income-tax Circle 8(3)(2), Mumbai*<\/a><\/u><\/strong>
\n IT Appeal Nos. 1073 & 2032 (Mum.) of 2019
\n [ASSESSMENT YEAR 2015-16] <\/p>\n<\/td>\n<\/tr>\n<\/table>\n

4. OTHER CONTROVERSIAL ISSUES:<\/strong><\/p>\n

(a). WHETHER WAIVER OF PRI<\/strong>NCI<\/strong>PAL AMOUNT OF LOAN BY BANK WOULD BE TAXABLE U\/S 56(2)(X)?<\/strong><\/p>\n

A question may arise in the mind of people that when loan account with bank is settled, interest waiver is taxable u\/s 41(1) if deduction of interest has been allowed as an expense. So far as waiver of principal amount is concerned, it is capital receipt and it is not taxable. However, department may try to tax the principal amount applying provisions of section 56(2)(x) of Income Tax Act,1961.<\/p>\n

In my personal view, it is not possible to apply provisions of section 56(2)(x) to waiver of principal amount of loan as section 56(2)(x) starts with “where any person receives, in any previous year, from any person or persons—-“. As the assessee does not receive any amount by waiver of principal amount of loan, the said cannot be taxable u\/s 56(2)(x). The year in which loan was received, the action of waiver of principal amount was not there and hence, in my humble opinion, the waiver of principal amount is not taxable u\/s 56(2)(x).<\/p>\n

(b). WHETHER GRANT RECEIVED BY AN ASSESSEE FROM <\/strong>CENT<\/strong>RAL OR STATE GOVERNMENT WOULD BE TAXABLE U\/S 56(2)(X)?<\/strong><\/p>\n

It may be contended by department that as grant or subsidy received from state or central government is without consideration, it should be taxable u\/s 56(2)(x) of Income Tax Act,1961. Now to get the answer to said question we will have to analyse the provisions of section 145B, 2 (24) (xviii), 145, ICDS VII etc. and certain clarification given by CBDT and then we can come to conclusion.<\/p>\n

Section 145B provides that income referred to in section 2(24)(viii) shall be taxable in previous year in which it is received, if not charged to income tax in any earlier previous year. So, section 145B says that income referred in section 2(24)(xviii) would be taxable in the year in which it is received. It has nothing to do with accrual. One may book the income on accrual basis as per consistent practice followed by the entity but so far as income tax is concerned, it is taxable in year in which it is received. AS 12 and INDAS suggests to book as income when there is certainty to receive grant or subsidy. ICDS VII says that it should be accounted when there is reasonable assurance that all the terms and conditions attached to grant or subsidy shall be complied and the grant shall be received. Recognition of government grant should not be postponed beyond the date of actual receipt. When the grant is received in relation to depreciable asset, it should be reduced from the value of addition to asset or WDV of block as the case may be. The grant of revenue nature like for compensation of loss or expenses should be booked as income. Under income tax Act also, Explanation to clause (i) to section 43 provides that grant attached to capital asset should be reduced from block of asset to which said assets belong. <\/p>\n

However, section 2(24)(xviii) provides that all grant subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement by whatever name called by Central Government or state Government or any authority or body or agency in cash or kind shall be taxable as it forms part of definition of income. Two exceptions are provided viz. subsidy or grant which is reduced from actual cost of asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 and subsidy or grant by the Central Government for the purpose of corpus of a trust or institution established by the Central Government or a State Government as the case may be. So, section 2(24)(xviii) does not say any thing whether received or accrued. Hence, there is controversy between ICDS and section 145B r.w.s 2(24)(xviii). Under such circumstances which will prevail over what is a major controversy. Notification No. 32\/2015 dated 31-3-2015 issued by CBDT provides that whenever there is conflict between ICDS and ACT, Act will prevail over ICDS. It is also to be taken into consideration that ICDS were applicable from AY 2017-18 and section 2(24)(xviii) was applicable from 1-4-2016. Prior to 1-4-2016, old provisions were applicable. <\/p>\n

Another question which arises whether subsidy or grant given by welfare scheme like kisan subsidy, LPG subsidy, housing subsidy etc. will be subject to tax u\/s 56(2)(x)? As per provisions of section 2(24)(xviii), it would be taxable but CBDT press release dated 5-5-2015 has clarified that LPG subsidy or other welfare subsidies shall not be income as per provisions of section 2(24)(xviii) of Income Tax Act,1961.<\/p>\n

5. CONCLUSION:<\/strong><\/p>\n

Over and above there may be controversies and questions in the minds of people. I have tried to discuss the issues that came to my mind and put before readers my views on subject. Still people will plan on provisions of section 56(2)(x) r.w.s 56(2)(vii) on items not included in definition of property. Still amendments will come on issues where tax planning would be done and the game of rat and cat would continue. I have tried to collect as much material as possible and put before readers. There are some cases where decisions which I have given in favor of assessee, there are decisions against the assessee by some ITAT or court but the said decisions are such where the contention as taken in decision in favor of assessee were not argued or considered. I hope the article will be of some help in understanding complicated provisions of section 56(2) of Income Tax Act,1961. <\/p>\n\n\n
Disclaimer: <\/strong>The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

CA Chandrakant K Thakkar has prepared a compilation in which he has traced the legislative history of section 56(2) of the Income-tax Act and explained the rationale of the numerous amendments. He has also set out in a tabular format the various controversial issues that have arisen to date and the judicial pronouncements which answer them<\/p>\n

Read more ›<\/a><\/div>\n

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