ITAT : Rejects taxability u/s. 56(2)(vii)(c) for share allotment under 'rights issue' in family owned company

Visakhapatnam ITAT rejects taxability u/s. 56(2)(vii)(c) in the hands of assessee-individual for share allotment under 'rights issue' in a family owned company at less than fair market value during AY 2013-14; The entire shareholding in a closely held company was held by assessee alongwith 7 of his close relatives [as defined under explanation to 56(2)(vii)(c)], during subject AY, the company issued the equity shares on rights basis for which only the assessee had applied and the other relatives did not choose to subscribe for the rights issue; Rejects Revenue’s stand that since there is no relation between the company and the assessee there is no case for invoking the explanation of ‘relative’ to exempt the assessee from taxing the excess fair market value; ITAT observes that though the assessee had received the excess shares, renouncement was from the close relatives, ITAT rules that “surrender of the rights of the close relatives in favour of another close relative is covered for exemption u/s 56(2)(vii)(c) of the Act,”; ITAT concludes that the transactions between close relatives are outside the scope of application of 56(2)(vii)(c) and should not be seen as introducing black money or evasion of the tax, cites Chennai ITAT ruling in Vaani Estates Pvt. Ltd., Karnataka HC ruling in R. Nagaraja Rao, Madras HC ruling in Kay Arr Enterprises.:ITAT