M&A Critique
Case Law High Court

Commissioner of Income Tax Vs. M/s Green Infra Ltd.

This Appeal under Section 260A of the Income Tax Act, 1961 (the Act) challenges the order dated 23rd August, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 2011 – 12.

Question of Law

  1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in disagreeing with invocation of Section 68 of the Act to tax share premium?
  2. Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that because its subsidiary company has started manufacturing and therefore interest income from fixed deposit is to be charged as business income?

Facts of the case – Question of Law (I)

Before the Tribunal, the revenue raised a new plea viz. that the so called share premium has to be considered as cash credit & should be taxable under Section 68 of the Income tax Act, 1961.

The applicability of Section 68 of Income Tax act 1961 judged on the parameters of

  • Identity of the subscriber: was confirmed by virtue of the Assessing Officer issuing a notices under Section 133(6) of the Act to them.
  • Genuineness of the transaction: It is Found that transaction is genuine in nature as entire transaction is recorded in the Books of Accounts and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by Bank Statements which were examined by the tribunal.
  • Capacity of the subscriber to subscribe share capital: 98% of the shares is held by IDFC Private Equity Fund II which is a Fund Manager of IDFC Ltd, the contributions in IDFC Private Equity Fund II are all by public sector undertakings.

Decision of High Court Question of Law (I)

The honourable high court agreed with the tribunal as regards non-applicability of Sec 68.

Facts of the case – Question of Law (II)

The respondent had earned interest income on fixed deposits amounting to Rs.6.09 lakhs which was shown under the heading “Profits and Gains Business.

The Assessing Officer was of the view that the respondent had not commenced its business nor was it in the business of money lending therefore the interest on bank fixed deposit would be taxable as income from other sources and not as business income. In the appeal to Commissioner of Income Tax (Appeals) upheld the view of the Assessing Officer. On further appeal to the Tribunal, found the fact that the three fixed deposit were for a period of 1 day, 28 days and 90 days respectively.

In the similar case Indo Swiss Jewels Ltd, was held interest earned on short term deposits on the money kept apart for the purpose of business had to be treated as income earned from business and could not be treated as income from other sources Considering the short duration in which the amounts were kept in fixed deposit awaiting use in its business operations would necessarily mean income earned on account of business.

Decision of High Court – Question of Law (II)

The honourable high court agreed with the tribunal as regards interest income considered as profits and gains of business.

Date of Judgement/Order: 16th January 2017

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Prajakta Deshpande