Share Application Money Classified as Capital Asset, Transfer Losses Allowable; Re-compute Assessee's Income.

DCIT-Circle 7 (1) Mumbai Versus M/s Morarjee Realities Ltd. (now known as Peninsula Land Ltd.)

DCIT-Circle 7 (1) Mumbai Versus M/s Morarjee Realities Ltd. (now known as Peninsula Land Ltd.) - TMI Issues Involved:
1. Whether share application money could be considered as a capital asset under Section 2(14) of the Income Tax Act.
2. The eligibility of the assessee to claim set-off of losses arising from the transfer of share application money.

Detailed Analysis:

Issue 1: Whether Share Application Money Could Be Considered as a Capital Asset Under Section 2(14) of the Income Tax Act
The core issue for re-adjudication was whether share application money could be considered a capital asset. The Tribunal had initially ruled that share application money was not a capital asset, relying on the Pune Tribunal's decision in S.R. Thorat Milk Products (P) Ltd. However, the assessee argued that this issue was covered by the binding decision of the Jurisdictional High Court in CIT V/s Siemens Nixdorf Information Systems Gmbh, which was not considered in the original hearing.

The Tribunal re-examined the definition of "capital asset" under Section 2(14) of the Act, which broadly defines it as "property of any kind held by an assessee, whether or not connected with his business or profession," excluding specific items like stock-in-trade, consumables, or raw materials. The Tribunal noted that the term "property" has a wide connotation and includes every possible interest that a person can hold or enjoy, as established in the case of CWT v/s Vidur V. Patel and Bafna Charitable Trust V/s CIT.

The Tribunal found that the ratio of the decision in CIT V/s Siemens Nixdorf Information Systems Gmbh, where a loan given to a subsidiary was considered a capital asset, applied to the present case. The Tribunal concluded that share application money, being an advance, should be treated similarly to loans and thus qualifies as a capital asset.

Issue 2: Eligibility of the Assessee to Claim Set-off of Losses Arising from the Transfer of Share Application Money
The Tribunal had initially denied the set-off of losses arising from the transfer of share application money, asserting that it was not a capital asset. However, upon re-evaluation and considering the Jurisdictional High Court's decision, the Tribunal held that share application money is indeed a capital asset. Consequently, the losses incurred from its transfer should be allowable.

The Tribunal directed the Assessing Officer (AO) to re-compute the assessee's income, allowing the set-off of the losses arising from the transfer of share application money. This decision was based on the principle that share application money, until converted into share capital, is an advance and should be treated as a capital asset.

Conclusion:
The Tribunal, following the binding decision of the Jurisdictional High Court in CIT V/s Siemens Nixdorf Information Systems Gmbh, held that share application money constitutes a capital asset under Section 2(14) of the Income Tax Act. Consequently, the losses incurred from the transfer of share application money are allowable, and the AO was directed to re-compute the assessee's income accordingly. The revenue's appeal was dismissed, and the order was pronounced in open court on 15th December 2020.