TaxTMI 
TaxTMI 
2008 (2) TMI 516
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....n money from the shareholders. The allotment money of these shares were to be paid according to the terms of offer of the public issue. Some of the shareholders had not paid the allotment money as stipulated within the time allowed as per the terms of offer and further time offered by the assessee. Subsequently, since no payment against allotment money were received, the assessee forfeited the shares and credited the sum of Rs. 1,23,31,000 to the capital reserve account. 3. Before the Assessing Officer the assessee submitted that since the amount initially received pertain the character of the capital receipt, the forfeiture of such receipts cannot be treated as revenue receipts. Reliance was placed on the decision of the Hon'ble Supreme C....
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.... trading transaction is a taxable income. It was further submitted that the Hon'ble Supreme Court in the case of CIT v. Prabhu Dayal [1971] 82 ITR 804 has observed that, the question whether a particular receipt is capital or of income ultimately depends on the facts of a particular case. Reliance was also placed on the decision in the case of Morely (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (C.A.) where it has been held that if a particular amount is not received as a trading receipt at the first instance it would not be subsequently recorded as a trading receipt due to change of circumstances. It was argued that since the share capital money received as a capital receipt at initial stage, the same cannot be subsequently recorded....
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....as per the terms of prospectus and the allotment letters, but the same were not received from some shareholders. In these cases, the share application money was forfeited as per the terms of the prospectus. Thus, it can be said that there was an agreement between the assessee-company and the shareholders with regard to the acquisition of the shares of the assessee-company by them. This agreement was not honoured by some of the shareholders inasmuch as the allotment/call money was not paid in time and so their application money was forfeited. Had the call money been received by the assessee it would have definitely gone to the capital account of the assessee and applying the test laid down in the case of London & Thames Haven Oil Wharves Ltd....
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....all money is not chargeable to tax. He further submitted that the decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons relied upon by the learned DR was considered by the Tribunal while rendering the said judgment. Therefore, it was his submission that following the same the order of the learned CIT(A) should be confirmed. He further relied upon the decision of the Special Bench of the Tribunal Asiatic Oxygen Ltd. v. Dy. CIT [1994] 49 ITD 355 (Cal.) wherein it was held that forfeiture of share is an act of company in respect of its capital structure. Any profit which arises on the forfeiture of the share cannot therefore, be treated as company's normal trading transaction giving rise to any income liable to tax ....
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....l reserve account. In the above facts, in our considered opinion the decision of the Tribunal in the case of Prism Cement Ltd. is more applicable which was rendered by the Tribunal after duly considering the aforesaid decision of the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. The Tribunal in the said case has held as under: "15. Thus, the earnest money or an advance amount received on account of issuance of NCDs, if forfeited on account of non-payment of call money, the loan liability would only convert into a capital receipt. It would not assume a character of revenue receipt or business receipt because NCDs were not issued in the course of regular business of the assessee as evident from the facts of the case.....