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ITAT refuses to stay tax demand on former owner of Raw Pressery brand
February, 18th 2022

An income tax appellate panel has refused to grant a stay on Rs 123 crore of taxes demanded by the authorities on share transfer by a fruit juice start-up to Mauritius based entities and actress Jacqueline Fernandes for huge premiums.

The case relates to the start-up, Raykan Beverages, that used to sell fruit juices under the brand of "Raw Pressery". While the company's loses increased day by day from Rs 25.72 crore to Rs 48.01 crore during the financial years 2016-17 and 2017-18, it issued shares to those cited above among others at a huge premium ranging from Rs 2,401.41 to Rs 2,786.26 of face value of Rs 100 each.

Against this backdrop, the assessing officer probed the taxability of share premium. Under the income tax Act provisions

a company, where public interest is not substantial, has to pay tax if it sells shares at a premium in excess of fair market value.

It appears that even in the succeeding years, the company continued to make huge losses, and was eventually sold for a mere Rs 100 crores to Wingreens Farms.

Against a loss shown by the company, the assessing officer imposed a tax at Rs 115.56 crore which now comes at Rs 123 crore with interest. The company has already lost the case at the commissioner of income tax (appeal) level.

As such, it filed appeal before the (ITAT), Mumbai both for quashing the demand as well as stay on it till order. While ITAT refrained from going to the merit of the overall case, it ordered that it is not a fit case for grant of a stay.

It said on the face of it, the computation of share premium is devoid of any basis.

It said the company has the liberty to make detailed arguments, and also to bring to the tribunal's notice any material demolishing these prima facie observations.

Amit Maheshwari, tax partner at AKM, said issuing shares at a premium is not new. "However, the basis for the calculation of premium over the face value of such shares should be based on reasonable and realistic parameters."

He said valuation is very subjective, especially in the case of start ups.

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