2008 (2) TMI 516 - AT - Income Tax

Tribunal Rules Forfeited Share Application Money as Capital Receipt, Not Taxable Income, Dismissing Revenue's Appeal.

Deputy Commissioner Of Income-tax, Circle - 1. Versus Brijlaxmi Leasing And Finance Limited.

Deputy Commissioner Of Income-tax, Circle - 1. Versus Brijlaxmi Leasing And Finance Limited. - [2009] 309 ITR 211, ITD 118, 546, Issues:1. Taxability of forfeited share application money as capital receipt or revenue receipt.Analysis:The appeal was filed by the revenue challenging the order of the CIT(A) regarding the tax treatment of forfeited share application money amounting to Rs. 1,23,31,000. The revenue contended that the forfeiture should be treated as a revenue receipt subject to tax. The Assessing Officer initially treated the amount as revenue receipts, citing the inclusive definition of 'income' under section 2(24) of the Act. The CIT(A) considered various legal precedents and held that the forfeited amount should be considered as capital in nature, following the principles laid down in previous court decisions.The assessee relied on judgments such as Eklingji Trust v. CIT and Kettlewell Bullen & Co. Ltd. v. CIT to argue that the forfeited amount should be treated as capital receipt due to the initial nature of the share capital money. Additionally, the assessee referred to the decision in Travancore Rubber & Tea Co. Ltd v. CIT to support the contention that forfeited amounts should be considered as capital receipts. The CIT(A) agreed with the assessee's arguments and deleted the addition made by the Assessing Officer.The revenue, on the other hand, relied on the decision in CIT v. T.V. Sundaram Iyengar & Sons Ltd. to argue that forfeited share capital should be treated as a revenue receipt. However, the Tribunal distinguished the facts of the case from the cited precedent and found that the forfeited amount in the present case was not related to security deposits or advances for business purposes. The Tribunal referred to the decision in Prism Cement Ltd. v. Jt. CIT and concluded that the forfeited amount should be considered as a capital receipt, in line with the treatment of non-convertible debenture advance amounts.In its final decision, the Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order. The Tribunal emphasized that the forfeited amount, being related to share application money, should be treated as a capital receipt and not as a revenue receipt subject to taxation.