Case: – The Principal Commissioner of Income Tax 1, Ahmadabad v/s Jigar Jashwantlal Shah; C/TAXAP/80/2023
The Gujarat High Court recently passed a judgment regarding the applicability of Section 56(2)(viic) of the Income Tax Act, 1961 to fresh issuances or allotments of shares by a company. The instant case involved a dispute between the revenue and the Assessee regarding the addition under Section 56(2)(viic)(c) and the valuation of shares.
The crux of the matter revolved around the allocation of additional shares to the Assessee, which was contested by the revenue on the grounds of disproportionate allocation and valuation of shares. The revenue argued that the provisions of Section 56(2)(viic)(c) should be invoked, while the Assessee contended that the said provisions were not applicable in this scenario.
The judgement of the Hon’ble High Court delved into the arguments presented by both parties and considered the findings of the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT). The Court also referenced relevant precedents and decisions from other jurisdictions to arrive at its conclusion.
The Court ultimately upheld the position that Section 56(2)(viic)(c) of the Income Tax Act cannot be invoked in the case of fresh issuances or allotments of shares by a company. It emphasized that the provisions of this section would not apply when shares are allotted strictly on a proportionate basis based on existing shareholding. The decision of the Hon’ble Court was supported by its interpretation of the law and its consideration of precedents such as Deputy Commissioner of Income Tax, Circle-2, Jaipur v/s Smt. Veena Goyal and Income-tax Officer v/s Rajeev Ratanlal Tulshyan.

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

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