Commissioner Of Income Taxcentral Circle 2(3), Chennai v. M/S.tangi Facility Solutions Pvt Ltdold

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.11.2024 CORAM THE HON'BLE MR.JUSTICE R.SURESH KUMARANDTHE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case Appeal No.259 of 2024 Commissioner of Income TaxCentral Circle 2(3), Chennai. ...Appellant Vs. M/s.Tangi Facility Solutions Pvt LtdOld No.42, New No.2, Luz AvenueMylapore, Chennai 600 004....Respondent ----- Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 03.06.2024 in ITA No.735/Chny/2023. ----- For Appellant : Mr.Karthik Ranganathan Senior Standing Counsel J U D G M E N T(Delivered by R.SURESH KUMAR,J.) This appeal has been filed against the order of the Income Tax Appellate Tribunal in ITA No.735/Chny/2023 dated 03.06.2024. 2. The following substantial questions of law have been raised by the appellant / Revenue. 1. Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that the provisions of Section 2(22)(b) of the Act do not apply in the present case when the only business activity carried out by the assessee in investing in shares of M/s.UDS Pvt Ltd and reporting the income arising from this investment as dividends or profits from the sale of those shares?the Tribunal was right in holding that the provisions of Section 2(22)(b) of the Act do not apply in the present case when the only business activity carried out by the assessee in investing in shares of M/s.UDS Pvt Ltd and reporting the income arising from this investment as dividends or profits from the sale of those shares? 2. Whether on the fats and circumstances of the case, the Tribunal was correct in holding that the provisions of Section 56(2)(viia) of the Act do not apply when the shares in question were acquired without any consideration, as opposed to their fair market value of Rs.2,54,55,24,025/- as stipulated in Section 56(2)(viia)?was correct in holding that the provisions of Section 56(2)(viia) of the Act do not apply when the shares in question were acquired without any consideration, as opposed to their fair market value of Rs.2,54,55,24,025/- as stipulated in Section 56(2)(viia)? 3. Whether the Tribunal was correct in holding that the provisions of Section 56(2) (viia) of the Act do not apply, considering the CBDT Circular No.3/2019 dated 21.01.2019 clearly states that excluding fresh issuances of shares or bonus shares from the provisions of Section 56(2)(viia) would be an incorrect approach, as this could lead to potential abuse and contradict the explicit provisions and legislative intent of Section 56(2)(viia)? Was the inclusion of Clause (vii) in Section 56(2) intended as an anti-abuse measure to prevent the transfer of shares of a specified company for no consideration or inadequate consideration?of Section 56(2) (viia) of the Act do not apply, considering the CBDT Circular No.3/2019 dated 21.01.2019 clearly states that excluding fresh issuances of shares or bonus shares from the provisions of Section 56(2)(viia) would be an incorrect approach, as this could lead to potential abuse and contradict the explicit provisions and legislative intent of Section 56(2)(viia)? Was the inclusion of Clause (vii) in Section 56(2) intended as an anti-abuse measure to prevent the transfer of shares of a specified company for no consideration or inadequate consideration? 4. Whether, based on the facts and circumstances of the case and applicable law, the Tribunal was correct in relying on the applicable law, the Tribunal was correct in relying on the T.C.A.No.259 of 2024 4. Whether, based on the facts and circumstances of the case and applicable law, the Tribunal was correct in relying on the applicable law, the Tribunal was correct in relying on the T.C.A.No.259 of 2024 decision of the Hon'ble Karnataka High Court in PCIT Vs. Dr.Ranjan Pai (ITA No.501 of 2016 dated 15.12.2020), given the present assessee's method of accounting for reporting dividend income and profits from the sale of shares received from M/s.UDS Pvt Ltd., year after year, is distinguishable from the accounting method used in the case of Dr.Ranjan Pai? 5. Whether, based on the facts and circumstances of the case and applicable law, the Tribunal was correct in relying on the decision in CIT Vs. Dalmia Investment Co., Ltd. (52 ITR 567) considering that the judgment pertains to profits computed from the sale of shares, whereas in the present case, the addition was made on the entire value of the shares under Section 56(2)(viia) of the Act due to the shares being acquired without any consideration, despite their fair market value being Rs.275/- per share?applicable law, the Tribunal was correct in relying on the decision in CIT Vs. Dalmia Investment Co., Ltd. (52 ITR 567) considering that the judgment pertains to profits computed from the sale of shares, whereas in the present case, the addition was made on the entire value of the shares under Section 56(2)(viia) of the Act due to the shares being acquired without any consideration, despite their fair market value being Rs.275/- per share? 6. Whether the learned ITAT erred in allowing the assessee's appeal based on the decisions of the Hon'ble Supreme Court in CIT Vs.Dalmia Investment Co. Ltd (52 ITR 567) and Hunsur Plywoods Limited Vs. CIT (229 ITR 112) by disregarding the clarification issued by the CBDT in Circular No.3/2019 dated 21.01.2019, which clearly states that excluding fresh issuances of shares or bonus shares from the provisions of Section 56(2)(viia) of the Act is not a correct approach, as it could lead to abuse and contradicts the express provisions and legislative intent of Section 56(2)(viia)?"appeal based on the decisions of the Hon'ble Supreme Court in CIT Vs.Dalmia Investment Co. Ltd (52 ITR 567) and Hunsur Plywoods Limited Vs. CIT (229 ITR 112) by disregarding the clarification issued by the CBDT in Circular No.3/2019 dated 21.01.2019, which clearly states that excluding fresh issuances of shares or bonus shares from the provisions of Section 56(2)(viia) of the Act is not a correct approach, as it could lead to abuse and contradicts the express provisions and legislative intent of Section 56(2)(viia)?" 3. Heard Mr.Karthik Ranganathan, learned Senior Standing Counsel appearing for the appellant / Revenue. 4. The bonus shares that have been distributed to the respondent / T.C.A.No.259 of 2024 assessee whether amounts to income, was the question that was posed before the Tribunal. In fact that issue had already been decided at least in three decisions which have been cited by the Tribunal in the order impugned itself. One is CIT Vs.Dalmia Investment Co. Ltd (52 ITR 567), the second decision is Hunsur Plywoods Limited Vs. CIT (229 ITR 112) and the third decision is PCIT Vs. Dr.Ranjan Pai (ITA No.501 of 2016 dated 15.12.2020). 5. Since this issue has been considered as stated in the earlier decisions, which in fact had been followed by the Tribunal through the impugned order, contra to the same since there has been no judgment, the appeal filed by the Revenue challenging the order passed by the Tribunal dated 03.06.2024 cannot be decided on a fresh question of law. Therefore, we are in agreement with the view taken by the Tribunal, there is no scope for interference with the same. Hence, the appeal deserves to be dismissed. Accordingly, it is dismissed. No costs. NCS : Yes/NoIndex : Yes/NoKST (R.S.K.,J.) (C.S.N.,J.) 04.11.2024 To The Income Tax Appellate Tribunal, 'B' Bench, Chennai. R.SURESH KUMAR, J. https://www.mhc.tn.gov.in/judis 5. Since this issue has been considered as stated in the earlier decisions, which in fact had been followed by the Tribunal through the impugned order, contra to the same since there has been no judgment, the appeal filed by the Revenue challenging the order passed by the Tribunal dated 03.06.2024 cannot be decided on a fresh question of law. Therefore, we are in agreement with the view taken by the Tribunal, there is no scope for interference with the same. Hence, the appeal deserves to be dismissed. Accordingly, it is dismissed. No costs. NCS : Yes/NoIndex : Yes/NoKST (R.S.K.,J.) (C.S.N.,J.) 04.11.2024 To The Income Tax Appellate Tribunal, 'B' Bench, Chennai. R.SURESH KUMAR, J. https://www.mhc.tn.gov.in/judis T.C.A.No.259 of 2024 ANDKST C.SARAVANAN, J. T.C.A.No.259 of 2024 04.11.2024