2017 (3) TMI 385 - AT - Income Tax

Amount received on account of forfeiture of share application money by way of issue of share warrants - capital receipts OR revenue receipt - Held that - Commissioner of Income Tax(A) has allowed assessee s appeal in a right perspective by treating the amount of ₹ 94.80 lacs received as share application money for issuing of share warrants as capital receipt and not revenue receipt as it was not earned from regular business activities carried on by the assessee. We, therefore, find no reason to interfere with the order of ld. Commissioner of Income Tax(A) and uphold the same. See DCIT (OSD), Ahmedabad vs. Brijlaxmi Leasing and Finance Ltd. 2008 (2) TMI 516 - ITAT AHMEDABAD-B - Decided against revenue

Summary

Issues:
- Whether the amount received on account of forfeiture of share application money should be treated as a capital receipt or a revenue receipt.

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax(A) regarding the treatment of an amount of &8377; 94.80 lacs received on forfeiture of share application money as a capital receipt instead of a revenue receipt. The assessee, a limited company engaged in manufacturing and export, filed a return declaring total income at &8377; 3,92,98,770/- for Asst. Year 2010-11. The Assessing Officer rejected the claim of the assessee to exclude the amount as a capital receipt, treating it as a revenue receipt received during the normal course of business. The Commissioner, however, allowed the appeal, considering the forfeiture amount as a capital receipt based on documentary evidence and precedents.

2. The Tribunal noted that the Revenue did not dispute that the amount was received for a technical textile project as per regulatory guidelines. The Co-ordinate Bench's decision in a similar case supported treating the forfeiture amount as a capital receipt. The Tribunal highlighted the distinction between revenue and capital receipts, emphasizing that the amount was credited to shareholders' fund and not the profit & loss account. The Tribunal referred to a relevant case law to support the position that such receipts should be treated as capital rather than revenue receipts.

3. The Tribunal dismissed the Revenue's appeal, upholding the Commissioner's order treating the amount as a capital receipt. The decision was based on the nature of the transaction, the treatment in the balance sheet, and the absence of the amount in the profit & loss account. The Tribunal relied on the precedent set by the Co-ordinate Bench and the distinction between business and capital receipts. The judgment emphasized the specific circumstances of the case and the relevant legal principles to support the conclusion that the amount should be considered a capital receipt.

4. In conclusion, the Tribunal affirmed the Commissioner's decision, highlighting the factual and legal basis for treating the forfeiture amount as a capital receipt. The judgment underscored the importance of considering the specific nature of receipts in determining their tax treatment, in line with established legal principles and precedents. The Tribunal's decision provided a detailed analysis of the case, drawing on relevant facts and legal interpretations to support the dismissal of the Revenue's appeal.