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Facts
The assessee had shown a liability of Rs. 3,31,78,500/- as share application money in its Balance Sheet, outstanding since 2004. The Assessing Officer treated this long-outstanding amount as income of the assessee under Section 28, specifically Section 28(iv), of the Income Tax Act, 1961.
Held
The CIT(A) deleted the addition, finding that share application money is a capital receipt and not a revenue receipt taxable under Section 28, and Section 41(1) was also inapplicable. The Tribunal affirmed the CIT(A)'s order, reiterating that Section 28(iv) does not apply to benefits received in cash and that share application money remains a capital receipt, unlike a trading advance.
Key Issues
Whether long-outstanding share application money, received in cash, can be assessed as income under Section 28(iv) of the Income Tax Act, 1961.
Sections Cited
28, 28(iv), 41(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI B.R. BASKARAN
O R D E R PER B.R. BASKARAN, A.M :
The Revenue has filed this appeal challenging the order dated 28th January, 2016 passed by the Ld CIT(A)-8, Mumbai and it relates to the Assessment Year (AY.) 2011-12. The Revenue is aggrieved by the decision of the Ld CIT(A) in deleting the addition of Rs.3.32 crores made by the AO u/s 28 of the Income Tax Act, 1961 („the Act‟).
The facts relating to the issue are discussed in brief. During the course of scrutiny proceedings, the AO noticed that the assessee has shown liability towards share application money to the tune of Rs.3,31,78,500/- in the Balance Sheet. When enquired about the same, it was submitted that the assessee had received share application money in the past financial years, i.e., from FYs. 1999-2000 to 2003-04.
It was submitted that the above said amount of Rs.3,31,78,500/- is outstanding since 2004. Since this amount was outstanding for about 10 years, the AO took the view that the same has become own money in the hands of the assessee, which is liable to be taxed u/s 28 of the Act. Accordingly, the AO assessed the above said amount as income of the assessee u/s 28 of the Act.
In the appellate proceedings, the Ld CIT(A) accepted the contentions of the assessee that the share application money cannot considered as revenue receipt assessable u/s 28 of the Act. He also held that the provisions of sec.41(1) are also not applicable. Accordingly, the Ld CIT(A) deleted the impugned addition and hence the revenue is aggrieved.
We heard the parties and perused the record. We noticed that the AO has invoked the provisions of sec.28 of the Act in order to assess the long pending share application money. Presumably, the AO has invoked the provisions of sec.28(iv) of the Act, which states that the value of any benefit or perquisite, whether convertible in money or not, arising from the business or exercise of a profession is chargeable as business income. The assessee has received share application money in the past years in cash. It has been held by the Hon‟ble Supreme Court, in the case of Mahindra & Mahindra Ltd V/s CIT (404 ITR-1) that section 28(iv) does not cover benefit received in cash. Hence, the AO was not right in invoking the provisions of sec.28(iv) of the Act.
In the grounds of appeal, the AO has stated that the ratio of the decision rendered by the Hon‟ble Bombay High Court in the case of Solid Containers Ltd (178 Taxman 192)(308 ITR 417)(Bom) would be applicable to the facts of the present case. We are unable to agree with the same. In the case of Solid Containers Ltd (supra), the said assessee had received “trading advance” during the course of carrying on business. Hence, write off of the above said trading advance was held to be taxable by the Hon‟ble Bombay High Court and in this regard, the Hon‟ble High Court had followed the decision rendered by Hon‟ble Supreme Court in the case of T V Sundaram Iyengar & Sons Ltd (222 ITR 344)(SC). In the above said case, the Hon‟ble Supreme Court has held that the trading advance, even though a capital receipt at the time of receipt, would change its character into revenue receipt if it is found to be not repayable. However, in the instant case, the Share Application money has not been received in the form of “trading advance” during the course of carrying on of the business. Further, there should not be any dispute that Share application money is a capital receipt and it is also shown as liability in the Balance Sheet. Hence, the share application money cannot change the character into revenue receipt. Accordingly, we are of the view that the AO was not right in assessing the share application money, which is outstanding in the books, as income u/s 28(iv) of the Act.
6. In view of the above, we do not find any infirmity in the decision rendered by the Ld CIT(A). Accordingly, we affirm the order passed by the Ld CIT(A).
In the result, the appeal filed by the Revenue is dismissed.