Days after issuing circular to clarify stance on taxation of companies, CBDT withdraws ithttps://indianexpress.com/article/business/banking-and-finance/days-after-issuing-circular-to-clarify-stance-on-taxation-of-companies-cbdt-withdraws-it-5524977/

Days after issuing circular to clarify stance on taxation of companies, CBDT withdraws it

The December 31 circular was welcomed by Congress party as a vindication of its stand in the National Herald case, with the next hearing slated for January 8 in Supreme Court.

Days after issuing circular to clarify stance on taxation of companies, CBDT withdraws it
The tax case relates to acquisition of shares of Associated Journals Ltd. (Representational photo)

Citing the sub-judice nature of the matter, the Central Board of Direct Taxes (CBDT) has withdrawn a December 31 circular related to receipt of shares by a closely held company in which public are not substantially interested. The December 31 circular was welcomed by Congress party as a vindication of its stand in the National Herald case, with the next hearing slated for January 8 in Supreme Court.

The tax case relates to acquisition of shares of Associated Journals Ltd (AJL), which published National Herald newspaper, to Young Indian, a Section 25 company incorporated in 2010. In December 2010, AJL decided to transfer its entire equity to Young Indian in lieu of YIL owning its Rs 90 crore debt after which AJL became a fully-owned subsidiary of Young Indian. Young Indian was owned by four individuals —Rahul Gandhi, Sonia Gandhi, Motilal Vora and Oscar Fernandes.

Read : Setback for Cong, HC asks Herald publisher to vacate premises

The Congress party had taken a stand that the fresh shares issued by AJL are not taxable and it is now being contested in the court.

The December 31 circular by CBDT had clarified the applicability of Section 56(2)(viia) of the Income Tax Act, saying that the provisions of the section “shall not be applicable” in case shares were “received” by a firm or a specified company as a result of the fresh issuance of shares including by way of issue of bonus, rights and preference shares or transactions of similar nature by the specified company.

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Section 56(2)(viia) of the I-T Act provides for taxation of income where a company, in which public are not substantially interested, or a firm receives shares of a specified company from a person for “no or inadequate consideration”.

However, on January 4, the CBDT issued a fresh circular withdrawing the December 31 circular, stating it has been brought to the notice of the Board that the matter relating to interpretation of the term “receives” used in section 56(2)(viia) is “sub judice in certain higher judicial forums”. The Board also said that “the matter is required to be examined afresh so that a comprehensive circular on the matter can be issued.”

Also, representations have been received from stakeholders seeking clarification on other similar provisions in section 56 of the Act, it said.

“Accordingly, the matter has been reconsidered by the Board. Given the fact that the matter relating to interpretation of the term ‘receives’ used in section 56(2)(viia) of the Act is pending before judicial forums and stakeholders have sought clarifications on similar provisions in section 56 of the Act, the Board is of the view that the matter is required to be examined afresh so that a comprehensive circular on the matter can be issued,” the CBDT said.

The Congress had welcomed the December 31 circular of the CBDT stating that fresh issuance of shares are not taxable.

“It vindicates our position that there never was an issue about issuance of such shares as a taxable event as it was being projected by way if harassment,” Congress leader Vivek Tankha had said in a statement.