Bombay HC Quashes ₹329 Cr Tax Claim Against Grasim Industries
Court rules that discounted rights shares cannot automatically be treated as taxable income, citing procedural lapses and the nature of the allotment.
- Bombay High Court quashes ₹329 crore tax claim
- Grasim subscribed to Vodafone Idea rights shares
- Reassessment notice found time-barred by court
- Proportionate rights allotment not taxable on these facts
GG News Bureau
Mumbai, 22nd Oct: The Bombay High Court on Thursday quashed a ₹329.04 crore income tax claim against Grasim Industries Ltd. over its subscription to rights shares of Vodafone Idea Ltd., ruling that the difference between the issue price and fair market value could not automatically be treated as taxable income.
A division bench of Justices B. P. Colabawalla and Farhan P. Dubash set aside the reassessment proceedings on two grounds: the tax department failed to disclose the information supporting its allegation within the statutory limitation period, and Section 56(2)(x) of the Income Tax Act did not apply to the proportionate rights allotment on the facts of the case.
Court Finds Reassessment Time-Barred
Grasim had subscribed to 230.9 crore Vodafone Idea shares at ₹12.50 per share in the financial year 2019–20. The tax department valued the shares at ₹13.925 apiece on the allotment date and treated the difference of ₹1.425 per share, amounting to ₹329.04 crore, as a taxable benefit.
The department issued a show-cause notice on March 24, 2026, but disclosed the transaction details, valuation calculation and statutory basis for the proposed tax only on May 27. The limitation period had expired on March 31, the court noted.
“The amount of Rs. 329,03,62,124/- stated in the impugned notice is the result of a computation; it does not, by itself, disclose the information on which that computation rests,” the bench observed.
The judges held that providing the missing information after the deadline could not retrospectively validate the notice. The ruling reinforces the requirement for tax authorities to disclose the substantive basis for reopening an assessment within the prescribed period.
Rights Shares Not Automatically Taxable
On the taxability issue, the court distinguished newly issued rights shares from existing shares transferred by another person.
Vodafone Idea’s rights issue was offered proportionately to existing shareholders, and Grasim’s percentage holding remained unchanged after the allotment. The bench said the difference between the subscription price and market price could not be treated as income without examining the nature and effect of the rights issue.
The court also referred to Section 55(2)(aa) of the Income Tax Act, which prescribes the actual amount paid as the cost of acquisition of rights shares. It clarified that this provision does not independently create an exemption from Section 56(2)(x), and that the relevant provisions must be interpreted harmoniously.
The judges noted that the department had not identified an acquisition of pre-existing shares from another person or any disproportionate benefit to Grasim.
The ruling was confined to the facts of the case and does not establish a blanket exemption from tax for all rights-share allotments.
