Karnataka HC: Taxability of Bonus shares under section 56(2)(vii)?

 

The Assessing Officer held that the assessee had received 1,00,00,000/- bonus shares issued by M/s Manipal Education and Medical Group (India) Pvt. Ltd. The Assessing Officer invoked Section 56(2)(vii) of the Act and treated the receipt of bonus shares as income from other sources and assessed the fair market value of the bonus shares at Rs.12,49,00,000/-. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who allowed the appeal preferred by the assessee inter alia on the ground that conversion of reserve into capital did not involve release of profit and therefore, provisions of Section 56(2)(vii) of the Act were not applicable to the assessee and directed deletion of a sum of Rs.12.49 Crores.