Income Tax, Issue Update

Shares issued for shares under barter system: Applicability of section 68

Case:  ITO, Ward – 6(1) Vs Dhankamal Commosaes Pvt Ltd, Kolkata ITAT

Outcome: Partial


  • The Assessee Company had issued share capital in exchange for shares of another company. The Assessing Officer opined that the same was liable to be taxed under the provisions of section 68 of the Act.

Key points

  • The cash did not pass at any stage though entries were made in the cash book showing payments and receipts. But, since the entries made a complete round, no passing of cash was necessary for the purpose of making the entries. The fact that there was no passing of cash was also admitted by the Income Tax authorities in the income assessment order. The respective parties did not receive cash nor did pay cash as none had any cash for the purpose. The only point in the assessment order was that the entries not involving the passing of cash should not have found a place in but in the ledger account through journal entries. There was another self contradiction in the income entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by the Assessee. There was no real credit of cash to its cash book. Thus, the question of inclusion of the amount of the entry as unexplained cash credit could not arise.
  • This was a simple case where shareholders without paying any cash consideration received shares. Moreover, in the balance sheet of the Assessee Company in the schedule to share capital, it was very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash.
  • Hence, it was inferred that the provisions of section 68 were not applicable in the present case.

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