Capital receipts from forfeited shares and re-issue premium are not taxable; delayed call money interest remains taxable.

Interest received for delay in payment of call money was treated as taxable because the issue had already been decided against the assessee in its earlier years and that precedent was followed. By contrast, the amount forfeited on default in payment of call money and the premium received on re-issue of forfeited shares were treated as capital receipts, since forfeiture of shares was regarded as part of the company's capital structure rather than a trading transaction. Amounts credited to capital reserve or share premium account were therefore not assessable as income.

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Issues: (i) Whether interest received for delay in payment of call money was taxable in the assessee's hands. (ii) Whether the amount forfeited on default in payment of call money and the premium received on re-issue of forfeited shares were capital receipts not liable to tax.

Issue (i): Whether interest received for delay in payment of call money was taxable in the assessee's hands.

Analysis: The issue had already been decided against the assessee in its own earlier case for prior assessment years. Following that earlier decision, the amount received as interest on delayed payment of call money was treated as taxable.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the amount forfeited on default in payment of call money and the premium received on re-issue of forfeited shares were capital receipts not liable to tax.

Analysis: Forfeiture of shares was treated as an act relating to the company's capital structure and not as a trading transaction. Amounts credited to capital reserve or share premium account were held to be part of capital, with the Companies Act and the Surtax Act supporting that treatment. The share premium did not arise from any trading activity and could not be assessed as income.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only on the treatment of the forfeited share amount and share premium, while the interest on delayed call money remained taxable.

Ratio Decidendi: Receipts arising from forfeiture of shares and premium on re-issue of shares are capital receipts linked to the company's capital structure and not trading profits, whereas interest received on delayed payment of call money remains taxable where earlier binding precedent so holds.

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