TaxTMI 
TaxTMI 
2019 (8) TMI 1674
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....ee floated Fully Convertible Debentures (FCDs) of Rs. 100/- each, partly paid Rs. 50 per debenture through private placement to two entities on 06.01.2014 and thereby raised a sums aggregating Rs. 3,00,00,000/- through that process. The above raised funds were shown in the balance sheet of AY 2014-15, that is, in the earlier assessment year as long term borrowings in Schedule No.5. The call money of the debentures at the rate of Rs. 50 was payable by the debenture holders and as per the terms and conditions regulating the issue of FCD, the balance debenture call money of Rs. 50 each was payable within 90 days of allotment of FCD's. The terms and conditions of issue of FCD's were contained in the debenture application form. The FCD's were fully and compulsory convertible into 8 equity shares of Rs. 10 each at par before the expiry of 15 months from the date of allotment. As per the terms and conditions, the Board of Directors had a right to forfeit FCD's in case the debenture holder fails to make the payment of remaining debenture call money within the stipulated time of 90 days from date of allotment. The allottees of the FCD's were as under:- Name No. of FCD'....
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....upport of the same, he has reproduced the cash flow statement of financial year 2013-14 to show the utilisation of the funds. 4. Before the Ld. CIT(A) the assessee's main contention has been that the such unsecured FCD's cannot be held to be a trading liability even if the funds so mobilized are used in the day to day business of appellant company. It was submitted that in the present case, the AO ignored the fact that raising of funds through FCD's was the act of raising capital of the company which was to be converted into share capital after conversion. The AO has failed to draw a line between the funds raised on hypothecation of stock and other current asset and the funds raised to supplement the capital requirement of the business. Further, the judgement relied by the AO also highlights this distinction and when loans are borrowed to augment the funds available with the assessee and such borrowed funds are source of funds, then the Hon'ble Court has held that when the assessee is not in the business of borrowing and advancing loans, it can never be business of the assessee to borrow money by way of loans. Such borrowing was treated by the court as source of funds and waiver o....
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....ompared to raising of loans in routine course of business. The reason being the debenture holder has no right to claim back the return of the amount invested. It is rather an arrangement through which the debenture holder acquire prospective right to participate in the equity of the company at future date. So the funds provided by debenture holders are part of the capital base of the company as long term source of funds and such long term funds have been wrongly equated with the funds raised from the banks for a limited period where there is liability to repay back the same. Considering the above features the Ld. AO was not justified in applying the Logitronics case on the appellant qua the forfeiture of debentures where the case before the Court was waiver of loan taken by the company. The only common feature between the loan and FCD is that there is liability to pay interest in both cases and that fact alone cannot determine the nature of FCD into revenue receipt, as in case of loans taken for acquisition of capital asset there is liability to pay interest or in case of partnership firms the capital contribution by the partners also carry interest obligation but still such capita....
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.... to forfeiture. The debentures were fully convertible into equity shares of the company. Each debenture was to be allotted 8 equity shares of the company within 15 months from the date of allotment. During the year the call money received by the assessee company of Rs. 3,00,00,000/- was forfeited as the allottee companies despite various reminders and extension of time failed to submit the balance money and accordingly as per terms and conditions agreed the call money was forfeited. 12. The Ld. AO disallowed the claim of the appellant and held that the said receipt is a revenue receipt and the forfeiture of the same does not change it characteristic as the capital receipt. The ground taken by the Ld AO was that the since the amount raised through allotment of debentures was utilized for acquisition of current assets and in view of the ratio of judgment in Logitronics Ltd. case, the above receipt were held to be of revenue nature. Ld. CIT(A) as stated above has changed the entire tenor of the addition, by holding that it is taxable as income from other sources u/s 56(2)(ix). Thus, the order of the AO stands merged with the order of the Ld. CIT(A) and therefore, we are only require ....
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....Debenture" is a long term debt instrument used by the companies to borrow money at a fixed rate of interest. It is a type of debt instrument which is not secured by any collateral. The debenture cannot be treated as a capital asset of the issuer company because it is a kind of debt instrument with an obligation to acknowledge the debt and pay interest. It is a capital asset in the hands of the person subscribing to the debenture or the allottee of the debenture, who is entitled to get interest at a stipulated rate and may also get right to equity shares if conditions of subscription prescribes so. The money received as advance as contemplated in section 56(2)(ix) means it should have been received during the course of negotiation for transfer of a capital asset, i.e., the capital asset of the issuer company and not the receiving company. The deeming provision is applicable in a situation where the person who owns a capital asset and enters into a negotiation for transfer of his capital asset with other person and receives certain advance which is forfeited on account of failure of negotiation of transfer of such capital asset, then money received as an advance is hit by the deeming....
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....the course of the negotiations for transfer of a capital asset has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of subsection (2) of section 56, then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. This amendment aims to avoid double taxation of the forfeited advance. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. [Emphasis in bold is ours] Thus, the aforesaid amendment has to be understood in light of section 51 of the Act, which provided that where any capital asset was on any previous occasion, subject matter of negotiations for its transfer and any advance or other money has been received and retained by the assessee in respect of such negotiations, then same was to be deducted from the cost for which the asset was acquired or the written down value or the fair market value, while computing the cost of acquisition. Now, from A.Y. 2015-16, if such sum received as an....