Sec. 56(2)(viia) would Prevail over Sec. 47(vi) if Shares are Transferred on Account of Amalgamation: ITAT

Case Details: ACIT v. Vertex Projects LLP - [2023] 150 taxmann.com 109

Judiciary and Counsel Details

• • Laliet Kumar, Judicial Member and Rama Kanta Panda, Accountant Member.
  • Sriram Seshadri, CA for the Assessee. 
  • Rajendra Kumar, CIT-DR for the Revenue.

Facts of the Case

The issue before the Tribunal was

“Whether shares received by the company on account of amalgamation, for a price lower than the Fair Market Value of the shares, does not attract provisions of section 56(2)(viia)?”

ITAT Held

The Tribunal held that section 56(2) is an exception to section 56(1) and has provided certain income to be charged as income under the head’ income from other sources’. The Income-tax Act has included the income mentioned in clause (viia) of section 56 as an income chargeable under income from other sources.

The proviso to section 56(2)(viia) has provided an exception to its applicability. It had only excluded such properties received by way of transaction not regarded as transfer which are mentioned in clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

The legislature’s intention was manifest when it had only excluded the above-mentioned clauses of section 47. The legislature had deliberately not excluded section 47(vi) from the applicability of section 56(2)(viia).

Further, section 56(2)(viia) is the specific charging provision inserted in the Finance Act w.e.f. 01.06.2010 would have an overriding effect and will prevail vis-à-vis section 47(vi), which was inserted in the Finance Act w.e.f. 01-04-1967.

The law of interpretation of the statute is quite clear, which provides that if an income is chargeable under a specific provision [56(2)(viia)] then the general provision exempting such income [47(vi)] shall not be applicable. Even otherwise, clause (vi) of section 47 is not excluded from the purview of section 56.

Therefore, it can be safely concluded that the transfer, as contemplated under section 47(vi) will be forming part of section 56(2)(viia). Therefore, the transfer/receive of shares of a company in which the public is not substantially interested will be chargeable as income from other sources in the hands of the recipient.