The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the amount forfeited out of share capital would amount to “capital receipt” and therefore, the provisions of section 56(2)(ix) of the Income Tax Act, 1961 shall not be applicable.
The assessee Mangal Credit and Fincorp Ltd, a non-banking financial company, approached the ITAT challenging the orders of the lower authorities.
The assessee, for the relevant assessment year, had allotted shares against share warrants issued to them upon payment of 25% of the value of shares. As per the terms of agreement, the balance amount has to be paid on 22.8.2017/2.9.2017 in order to fully convert the share warrants into shares, failing which the initial payment of 25% is liable to be forfeited. Out of the ten parties to whom share warrants were issued, six parties did not pay the balance amount of 75% and hence the assessee forfeited the payments of 25% already made by them. The amount so forfeited worked out to Rs. 1,50,35,625/-.
The Assessing Officer held that such amount is revenue receipt and is taxable under the provisions of section 56(2)(ix) of the Income Tax Act, 1961.
Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM) observed that the share capital collected by the assessee is not in the course of negotiations for transfer of capital asset.
“The shares so issued may constitute Capital asset in the hands of the persons, who purchased the shares, but that is not relevant here. Issuing share capital does not result in transfer any capital asset. Accordingly, since the money was not received in the course of negotiations for transfer of capital asset, the provisions of sec.56(2)(ix) will not apply to the facts of the present case,” the ITAT said.
Relying on an identical order in the case of M/s. R.S. Triveni Foods P. Ltd. Vs. Addl. CIT, the ITAT deleted the impugned order and held that “the amount of Rs.1,50,35,625/- forfeited by the assessee out share capital issued by it shall not fall within the scope of sec.56(2)(ix) of the Act. Further, the said amount shall constitute a Capital receipt in the hands of the assessee. Accordingly, the above said amount is not taxable in the hands of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of the above said amount made in the hands of the assessee.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
