The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) held that, Amount received as forfeiture of share application money for issue of share warrants is ‘capital receipt’ for the purpose of Income Tax Act, when the same was not earned during the ordinary course of business of the assessee.
Assessee-Company is engaged in the business of manufacturing and export of rubber and textile products. For the relevant assessment year, the assessee received income for forfeiture of application money received by way of issue of share warrants and claimed it to be a capital receipt. The Assessing Officer found the same as revenue receipt and completed assessment accordingly. The assessee maintained that as the amount received is not from the business activities it cannot be termed as revenue receipt and it should be reduced from the total income. The first appellate authority allowed the claim of the assessee and therefore, the Revenue approached the ITAT for relief.
The bench noted that there is no dispute from the side of Revenue to the established fact that assessee received the application money of Rs.94.80 lacs for technical textile project as per Security Exchange Board of India and Bombay Stock Exchange guidelines and with the necessary approval for issuing share warrants. It was furher noted that the sum of Rs.94.80 lacs has been shown in the audited balance sheet under the head “share-holders fund.” As the shares were to be allotted before 24.2.2009 but the share warrant applicants failed to give the balance amount, the warrant application money had been forfeited during the relevant year.
Based on the decision of the Allahabad bench of ITAT in DCIT (OSD) vs. Brijlaxmi Leasing & Finance Ltd, the bench held that the first appellate authority rightly held that the amount of Rs.94.80 lacs received as share application money for issuing of share warrants as capital receipt and not revenue receipt as it was not earned from regular business activities carried on by the assessee.
Read the full text of the order below.