Allotment of bonus shares isn’t taxable: excessive court docket

The Karnataka High Court has held that the allotment of bonus shares isn’t taxable as revenue from different sources. This is as a result of when an organization allots bonus shares, it doesn’t lead to any change within the capital construction of the corporate. Also, when a shareholder receives a bonus share, the worth of the unique share that it holds reduces pro-rata. According to a word from PwC India, a person taxpayer had obtained 10 million bonus fairness shares from a non-public restricted firm with out the cost of any consideration. Also Read | India’s vaccine rollout adjustments gears The tax officer invoked Section 56(2)(vii) of the Act and levied tax on the honest worth of bonus shares as revenue from different sources. The provision of this part offers with deemed revenue. According to the officer, the person ought to pay tax on the bonus shares, which was obtained with out consideration. When the matter went to the revenue tax appellate tribunal (ITAT), it dominated in favour of the assessee. The tax division then appealed within the excessive court docket towards the ITAT ruling. The excessive court docket agreed with ITAT’s orders. It noticed that put up the issuance of bonus shares, the market worth and the intrinsic worth of the unique shares and bonus shares put collectively, will likely be almost the identical as per the worth of the unique share earlier than the difficulty of bonus shares. Thus, any revenue derived by the taxpayer from the receipt of bonus shares is adjusted by the depreciation within the worth of the fairness shares held, in line with PwC word. It additionally stated that there is no such thing as a materials on file to deduce that bonus shares have been transferred with an intention to evade tax, which is the target of Section 56(2)(vii) of the Income-Tax Act. Tax specialists, too, stated that when an organization points bonus shares, the capital construction stays the identical. “On allotment, there shouldn’t be any taxability. However, when the individual transfers or sells those shares, he will need to pay tax on the gains,” stated a tax knowledgeable. When bonus shares are bought, the shopping for value is taken into account nil, which suggests all the promoting value of bonus shares is taken into account as positive factors. Subscribe to Mint Newsletters * Enter a sound electronic mail * Thank you for subscribing to our publication.