The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that Share Application Money is ‘Capital Asset’ for the purpose of Income Tax Act.
As a part of corporate restructuring undertaken by the assessee group, it was decided that shares of certain group entities held by the assessee would be transferred to other group entities, with the assessee-company focusing on real estate business.
The assessee, M/s Morarjee Realties Ltd. transferred its investments held in the shape of equity shares, preference shares and rights to apply for shares i.e. share application money held in M/s MBL, to an entity MGM Shareholders Benefit Trust. The assessee similarly transferred equity shares in certain entities as well as share application money held in M/s Morarjee Legler Limited to M/s MBL.
While doing so, the assessee suffered Long Term Capital Losses as well as short terms capital losses, the set-off of which was denied by Ld. AO. However, upon further appeal, Ld. first appellate authority allows the same against which the revenue was in appeal.
The Tribunal in its order partially allowed the appeal by observing that though losses arising out of transfer of equity shares and preference shares would be allowable to the assessee but share application money could not be considered as Capital Asset within the meaning of Sec.2(14) of the Act.
The issue raised was whether share application money could be considered as capital asset or not.
The Coram Consisting of Ravish Sood and Manoj Kumar Aggarwal held that the share application money as transferred/assigned by the assessee would constitute a ‘Capital Asset’ within the meaning of Sec.2(14) of the Act. It does not fall under any of the exclusions. Consequently, the resultant losses would be allowable to the assessee.
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