2020 (12) TMI 592 - AT - Income Tax

Capital gain - Capital asset u/s 2(14) - share application money as transferred / assigned by the assessee - whether it would constitute a Capital Asset within the meaning of Sec.2(14)? - whether loan given to its subsidiary in India, by the foreign company constitute capital asset? - HELD THAT - As decided in Siemens Nixdorf Information Systems Gmbh Siemens Nixdorf Information Systems Gmbh 2019 (9) TMI 199 - BOMBAY HIGH COURT wherein held Tribunal has considered the meaning of the word property as given in the context of the definition of asset in the Wealth Tax Act to hold property to include the every interest which a person can enjoy. This was extended by the Tribunal to understand the meaning of the word property as found in the context of capital asset under Section 2(14). Revenue has not been able to point out any reasons to understand meaning of the word property as given in the Section 2(14) of the Act differently from the meaning given to it under Section 2(e) of the Wealth Tax Act, 1957. The Revenue has not been able to point out why the above decision of this Court rendered in the context of capital assets as defined in Section 2(14) of the Act, is inapplicable to the present facts. Nor, why the loan given to M/s. SNISL would not, in the present facts, be covered by the meaning of capital asset as given under Section 2(14) of the Act. As the issue raised herein stands concluded by the decision of this Court in M/s. Bafna Charitable Trust 1997 (9) TMI 93 - BOMBAY HIGH COURT and also by the self evident position as found in Section 2(14) of the Act, the question as framed does not give rise to any substantial question of law. The share application money is nothing but mere advances till the time the shares are allotted and share application money is converted into share capital. This is further fortified by the fact that the provisions of The Companies Act provide for refund of share application money with interest under certain circumstances. Thus we hold that the share application money as transferred / assigned by the assessee would constitute a Capital Asset within the meaning of Sec.2(14) of the Act. It does not fall under any of the exclusions. Consequently, the resultant losses would be allowable to the assessee - Decided against revenue.

Summary

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.