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TMI Blog2023 (5) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... us, is not hit by section 56(2)(ix). The addition sustained by the Ld. CIT (A) is directed to be deleted. Thus we hold that the amount forfeited by the assessee out share capital issued by it shall not fall within the scope of sec.56(2)(ix) - Further, the said amount shall constitute a Capital receipt in the hands of the assessee. Accordingly, the above said amount is not taxable in the hands of the assessee. Appeal of assessee allowed. - I.T.A. No. 2756/Mum/2022 - - - Dated:- 24-4-2023 - Shri B.R. Baskaran (AM) Shri Pavan Kumar Gadale (JM) For the Assessee : Shri Neelkanth Khandelwal For the Department : Smt. Mahita Nair ORDER PER B.R.BASKARAN (AM) :- The assessee has filed this appeal challenging the order dated 22.10.2022 passed by the learned CIT(A)-47, Mumbai and it relates to A.Y. 2018-19. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of Rs. 1.50 crores made under section 56(2)(ix) of the I.T. Act. 2. The facts relating to the case are stated in brief. The assessee is nonbanking financial company listed in Bombay Stock Exchange. The assessee had issued share warrants to ten persons @ Rs.36.45 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. Vs. Addl. CIT (ITA No. 739/Del/2019 dated 5.8.2019). He submitted that the Delhi Bench of the Tribunal has considered an identical issue in the above said case. However, in the case before Delhi bench of Tribunal, the assessee had issued fully convertible debentures and the part money collected was forfeited. The question that arose before the Tribunal was whether the provisions of section 56(2)(ix) of the Act will apply in respect of forfeited amount of application money collected on issuing fully convertible debentures. The Tribunal held that the provisions of sec.56(2)(ix) will not apply to the forfeited amount. Accordingly, the Ld A.R submitted that the ratio of the above said decision shall apply to the facts of present case also. 6. On the contrary, the learned DR supported the orders passed by the tax authorities. The learned DR also invited our attention to the Memorandum of Explaining the provisions of section 56(2)(ix) of the Act, when it was inserted by the Finance Act, 2014. The learned DR further submitted that the share capital shall qualify as capital asset and hence money forfeited by the assessee was in the nature of advance received during the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of negotiations for transfer of capital asset. The shares so issued may constitute Capital asset in the hands of the persons, who purchased the shares, but that is not relevant here. Issuing share capital does not result in transfer any capital asset. Accordingly, since the money was not received in the course of negotiations for transfer of capital asset, the provisions of sec.56(2)(ix) will not apply to the facts of the present case. 10. We notice that an identical view has been expressed by the Delhi bench of Tribunal in the case of M/s. R.S. Triveni Foods P. Ltd. Vs. Addl. CIT (supra). For the sake of convenience, we extract below the decision rendered by the Tribunal in the above cited case:- 11. We have heard the rival submissions, perused the relevant findings as well as material referred to before us. The main issue revolves around treating the amount of Rs. 3 crores by way of forfeiture of unsecured FCDs which though was treated as revenue receipt by the AO and held taxable as normal business income; however, the Ld. CIT(A) has taxed the same as income from other sources, by applying the deeming provision of section 56(2)(ix). As discussed above, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year; therefore, taxability qua the forfeiture amount has to be seen in this year. Such an argument of the Ld. Counsel, in our opinion is untenable. 14. From a plain reading of section 56(2)(ix), it is clear that the money should have been received as an advance or otherwise in the course of negotiation for a transfer of capital assets. Therefore, sum received in course of negotiation for transfer of a capital receipt (sic. Asset) is sine qua non for invoking of the deeming provision. The negotiation has to be in relation to transfer of a capital asset in whose hands the deeming provision is attracted. In other words, the capital asset which is the subject matter of negotiation for transfer must belong to the assessee. Ld. CIT (A) has referred to Explanation (d) below sub clause (vii) of Section 56(2), which defines capital asset to include 'shares and securities'. From bare reading of the said explanation it is seen that it is only applicable for the purpose of clause (vii) where an individual or HUF receives in any of the previous year from any person or persons any sum or money without consideration or any immovable property, etc. The said definition cannot be import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other sources has been amended by the Finance (No. 2) Act, 2014 by inserting a new clause (ix) in sub-section (2) of the aforesaid section. The said new clause (ix) provides that where any sum of money, received as an advance or otherwise in the course of the negotiations for transfer of a capital asset, is forfeited and the negotiations do not result in transfer of such capital asset, then, such sum shall be chargeable to income-tax under the head Income from other sources . This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. Consequential amendments have been made to definition of 'income' in section 2(24) and in section 51. The existing provisions contained in clause (24) of section 2 define the term income . The clause (24) has been amended so as to include any sum of money referred to in clause (ix) of sub-section (2) of section 56 in the definition of income. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. The existing provisions contained in section 51 provide that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt instrument or is a kind of long term loan to borrow money at a fixed rate of interest. It is not a capital asset although the money raised by way of debenture becomes part of the issuer company's capital structure, but it does not become share capital. Thus, in our opinion, the forfeiture of the amount is not on account of failure of negotiation of transfer of capital asset of the assessee and thus, is not hit by section 56(2)(ix). The addition sustained by the Ld. CIT (A) is directed to be deleted. 11. In view of the foregoing discussions, we hold that the amount of Rs.1,50,35,625/- forfeited by the assessee out share capital issued by it shall not fall within the scope of sec.56(2)(ix) of the Act. Further, the said amount shall constitute a Capital receipt in the hands of the assessee. Accordingly, the above said amount is not taxable in the hands of the assessee. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of the above said amount made in the hands of the assessee. 12. In the result, the appeal filed by the assessee is allowed. Pronounced in the open court on 24.4.2023. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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