The Income Tax Appellate Tribunal of Delhi, presided over by Accountant Member Shri M. Balaganesh and Judicial Member Shri Anubhav Sharma, adjudicated on the appeal filed by the DCIT, Circle -16(1), New Delhi against Smt. Aruna Chandhok, concerning the assessment year 2015-16. The core issue revolved around the taxation of bonus shares received by the respondent, which were issued by Tech Mahindra Ltd and JM Arbitrage Advantage Fund – Bonus Options.
The revenue challenged the decision of the CIT(A) which had deleted the addition of Rs. 37,56,83,191/- made under Section 56(2)(vii)(c) for the bonus shares received. The appellant argued that the provisions of Section 56(2)(vii)(c) should not apply to bonus shares as they are merely a capitalization of profits and do not result in an increase in the wealth of shareholders.
During the hearings, various legal precedents and the provisions of the Income Tax Act were discussed extensively. The Tribunal observed that the issue of bonus shares is a reallocation of a company’s reserves and does not constitute an income as it does not enhance the shareholder’s wealth but merely splits the shareholding.
The Tribunal upheld the CIT(A)’s decision and dismissed the revenue’s appeal. It was concluded that the issuance of bonus shares does not result in any inflow of fresh funds or an increase in wealth for the shareholder, thereby not qualifying as an income under Section 56(2)(vii)(c) of the Income Tax Act. The judgment emphasized that the market value of the shares post-bonus issue adjusts in proportion to the bonus issue, and thus, the overall wealth of the shareholder remains unchanged.
This case highlights the critical legal interpretations of tax laws regarding bonus shares and their impact on shareholder wealth. It sets a significant precedent for similar cases, providing clarity on the non-taxable nature of bonus shares under specific provisions of the Income Tax Act.
Order pronounced in the open court on 05/09/2023.
Income Tax Appeal ITA No. 387/DEL/2021: Why Bonus Shares Received by Aruna Chandhok are Not Taxable
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