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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI RAVISH SOOD, JM
Per Bench 1. Aforesaid appeal is a partially recalled matter since cross-appeals for AY 2004-05 were disposed-off vide Tribunal order dated 30/08/2019, a copy of which is on record. However, upon assessee’s miscellaneous application, revenue’s appeal was recalled vide MA No.635/Mum/2019 order dated 16/03/2020 for the limited purpose of re-adjudication of Ground Nos. 3(c) & 3(d). Accordingly, the appeal has M/s Morarjee Realities Limited Assessment Year :2004-05 come up for hearing before this bench wherein we are required to re- adjudicate the issue whether share application money could be considered as capital asset or not by considering the decision of Jurisdictional High Court in the case of CIT V/s Siemens Nixdorf Information Systems Gmbh. The relevant observation of the bench, while recalling the order was as follows: - 9. Considered the rival submissions and material placed on record. We notice that the Coordinate Bench in its order has set aside the findings of Ld. CIT(A) by observing that the share application money subscribed by the assessee is a receivable amount in case such shares were not allotted and the bench relied on S.R. Thorat Milk Products (P) Ltd. of Pune Bench decision, wherein it held that share application money is not a capital asset or cannot equate with share capital. However, we notice that the Hon’ble Jurisdictional High Court in the case of CIT V/s Siemens Nixdorf Information Systems Gmbh has considered the loan given to it subsidiary, even though a receivable amount. as a capital asset u/s 2(14) of the Act. Admittedly, the aforesaid decision of Hon’ble Jurisdictional High Court was not cited at the time of hearing of appeal. However, the Hon’ble Supreme Court in the case of ACIT V/s Saurashtra Kutch Stock Exchange Ltd. (supra), has held as under: - XXXXX XXXXX XXXXX
Respectfully following the above decision, we are of the considered view that the issue raised in the appeal has to be decided keeping in view the decision of Hon’ble Jurisdictional High Court. Non consideration of the said decision, therefore constitutes a mistake requiring rectification. Therefore, we are inclined to recall Ground No. 3(c) and 3(d) with the limited purpose for adjudicating on the issue of advance for share application, whether it can be considered as capital asset by considering the decision of Jurisdictional High Court in the case of CIT V/s Siemens Nixdorf Information Systems Gmbh (supra). At this stage, we are not inclined to adjudicate on merits or express our opinion on this issue. Accordingly, we direct the registry to fix the present appeal with limited purpose of adjudication of only ground no. 3(c) and 3(d) before the regular bench and issue notices to both the parties for hearing.
Pursuant to the same, we proceed to re-adjudicate the issue whether share application money could be considered as capital asset or not M/s Morarjee Realities Limited Assessment Year :2004-05 which are the subject matter of Ground Nos. 3(c) & 3(d) of revenue’s appeal.
We have carefully heard rival submissions, oral as well as written and carefully perused relevant material on record including orders of lower authorities and the earlier order of the Tribunal dated 30/08/2019. We have deliberated upon various judicial precedents as cited before us during the course of hearing. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.
The relevant facts as noted by the bench in para no 35 of its order dated 30/08/2019 are that as a part of corporate restructuring undertaken by the assessee group, it was decided that shares of certain group entities held by the assessee would be transferred to other group entities, with the assessee-company focusing on real estate business. Accordingly, the assessee transferred its investments held in the shape of equity shares, preference shares and rights to apply for shares i.e. share application money held in M/s MBL, to an entity MGM Shareholders Benefit Trust. The assessee similarly transferred equity shares in certain entities as well as share application money held in M/s Morarjee Legler Limited to M/s MBL. While doing so, the assessee suffered Long Term Capital Losses as well as short terms capital losses, the set-off of which was denied by Ld. AO. However, upon further appeal, Ld. first appellate authority allows the same against which the revenue was in appeal. The Tribunal in its order dated 30/08/2019 partially allowed the appeal by observing that though losses arising out of transfer of equity shares and preference shares would be allowable to the assessee but share application money could not be considered as M/s Morarjee Realities Limited Assessment Year :2004-05 Capital Asset within the meaning of Sec.2(14) of the Act. Reliance was placed on the decision of Pune Tribunal in S.R. Thorat Milk Products (P) Ltd. while arriving at such a conclusion. However, as already enumerated by us in preceding para-1, the assessee, by way of its MA, brought to the notice of the bench that the facts would be squarely covered by the binding decision of Jurisdictional High Court rendered in CIT V/s Siemens Nixdorf Information Systems Gmbh. Finding strength in the said plea, the order was recalled for limited purpose. Accordingly, at this point of time, we are only concerned with determination of question whether share application money as transferred by the assessee would constitute capital asset within the meaning of Sec. 2(14) of the Act or not? The answer to the same would determine assessee’s eligibility to claim set-off of these losses as arising out of transfer of share application money to the other entities.
4. We find that the answer to the question posed before us squarely lies in the decision of Hon’ble Bombay High Court in the case of CIT V/s Siemens Nixdorf Information Systems Gmbh (ITA No.1366 of 2017 dated 26/08/2019) wherein revenue assailed the decision of a Tribunal by raising a question whether the loan given by a foreign company to its Indian subsidiary would constitute capital asset within the meaning of section 2(14) of the Act or not? The facts, as emanating from the said decision, are that a foreign entity advanced loans to its subsidiary and owing to financial troubles, it sold its debt to another entity thereby incurring short term capital loss in the process. The Ld. AO denied the same on the ground that debt would not constitute capital asset within the meaning of Sec.2(14) and further no transfer took place on M/s Morarjee Realities Limited Assessment Year :2004-05 assignment of a loss in terms of Sec.2(47) of the Act. The Ld. CIT(A), while holding that there was indeed a transfer u/s 2(47), confirmed the stand of Ld. AO that the debt was not a capital asset. Upon further appeal by assessee, the co-ordinate bench of the Tribunal, inter-alia, considering the meaning of term property, held the debt to be a capital asset and allowed the assessee’s appeal. Accordingly, the revenue was in further appeal before Hon’ble Bombay High Court. However, the Hon’ble Court refused to admit the question of law as raised by the revenue. The relevant facts as well as observation of Hon’ble Court, for ease of reference, could be extracted in the following manner: - 2. Revenue urges only the following question of law, for our consideration: “Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in law in holding that the loan given to its subsidiary in India, by the foreign company constitute capital asset within the meaning of section 2(14) of the Income Tax Act?”
3. Briefly, the facts leading to this appeal are as under: - (i) The Respondent has a subsidiary company by the name Siemens Nixdorf Information Systems Limited (SNISL). The Respondent had lent an amount of Rs.90 lakhs Euros to SNISL under an Agreement dated 21st September, 2000. SNISL ran into serious financial troubles and it was likely to be wound up. In this situation, Respondent sold this debt (Rs. 90 lakhs Euros) to one Siemens AG. This on the basis of valuation carried out by M/s. Infrastructure and Leasing Finance Ltd. The Respondent claimed the difference in the amount which was invested/ lent to SNISL and the consideration received when sold / assigned to Siemens AG as a short-term capital loss. However, the Assessing Officer while completing the assessment on 30th March, 2005 disallowed the short-term capital loss. This on the basis that the amount of Rs. 90 lakhs Euros lent by the Appellant to its subsidiary SNISL, was not a capital asset under Section 2(14) of the Act and also no transfer in terms of Section 2(47) of the Act took place on assignment of a loss; (ii) Being aggrieved with the order dated 30th March, 2005, the Respondent carried the issue in appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 14th March, 2011, the CIT(A) did not accept the Respondent’s contention that the amount of Rs.90 lakhs Euros lent to SNILS was a capital asset and upheld the order of the Assessing Officer. However, held that although the assignment of a loss was a transfer under Section M/s Morarjee Realities Limited Assessment Year :2004-05 2(47) of the Act, but it is of no avail, as the loan being assigned/ transferred, is not a capital asset; (iii) On further appeal, the Tribunal by the impugned order dated 31st March, 2016 allowed the Respondent’s appeal. It examined the definition of capital assets under Section 2(14) of the Act. It held that it defines the term 'capital asset' as 'property of any kind held by an assessee, whether or not connected with his business or profession', except those which are specifically excluded in the said section. It further records the exclusion is only for stock in trade, consumables or raw materials held for purposes of business. It thereafter examined the meaning of the word 'property' to conclude that it has a wide connotation to include interest of any kind. It places reliance upon the decision of this Court in the case of CWT v/s. Vidur V. Patel [1995] 215 ITR 30 rendered in the context of Wealth Tax Act, 1957 which while considering the definition of ‘asset’ had occasion to construe the meaning of the word ‘property’. It held the word ‘property’ to include interest of every kind. On the aforesaid basis, the Tribunal held that in the absence of loan being specifically excluded from the definition of capital assets under the Act, the loan of Rs.90 lakhs Euros would stand covered by the meaning of the word ‘capital asset’ as defined under Section 2(14) of the Act. It also held that the transfer of the loan i.e. capital asset will be covered by Section 2(47) of the Act. This as the Revenue had not filed any appeal on this issue. Thus, holding that the Respondent would be entitled to claim loss on capital account while assigning/ transferring the loan given to M/s. SNISL to one to M/s. Siemens AG.
Mr. Tejveer Singh, learned Counsel in support of the Appeal submits that the impugned order of the Tribunal is not sustainable for the loan of Rs.90 lakhs Euros was not a capital asset in terms of Section 2(14) of the Act. It is further submitted that, reliance placed upon the decision of this Court in Vidur V. Patel (supra) was not proper for the reason it was rendered in the context of a different Act viz.- the Wealth Tax Act, 1957. Thus, it can have no application while dealing with the Act. It is also his submission that the reliance upon decision of the Gujarat High Court in CIT v/s. Minor Bababhai 128 ITR 1 is inappropriate, as in that case, the Revenue has accepted that the amount due from the un-secured creditor were in the nature of capital assets. Thus, there was no dispute on the issue of 'capital asset' as in this case. Therefore, this appeal deserves admission.
5. We find that Section 2(14) of the Act has defined the word ‘capital asset’ very widely to mean property of any kind. However, it specifically excludes certain properties from the definition of 'capital asset'. The Revenue has not been able to point out any of the exclusion clauses being applicable to an advancement of a loan. It is also relevant to note that it is not the case of the Revenue before us that this amount of Rs.90 lakhs Euros was a loan/ advance income of its trading activity. M/s Morarjee Realities Limited Assessment Year :2004-05 6. The impugned order of the 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 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) of the Act. The 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. This Court in the case of Vidur Patel (supra) has observed as under: - “ … So far as the meaning of 'property' is concerned, it is well settled that it is a term of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can hold or enjoy. As observed by the Supreme Court in Commissioner, Hindu Religious Endowments vs. Shri Lakshmirudra Tirtha Swami of Sri Shirur Mutt (1954) SCR 1005, there is no reason why this word should not be given a liberal or wide connotation and should not be extended to those well-recognized types of interests which have the insignia or characteristic of property right.:
The only objection of the Revenue to the above decision being relied upon is that it is rendered under a different Act. We are unable to understand this distinction when both the Acts are cognate. However, this submission need not detain us, as this Court had occasion to consider the meaning of the word ‘capital asset’ as defined in Section 2(14) of the Act in Bafna Charitable Trust v/s. CIT 230 ITR 846. In the above case, this Court observed as under: - “Capital asset has been defined in clause (14) of section 2 to mean property of any kind held by an assessee, whether or not connected with his business or profession, except those specifically excluded. The exclusions are stock- in-trade, consumable stores or raw materials held for the business or profession, personal effects, agricultural land and certain bonds. It is clear from the above definition that for the purposes of this clause, property is a word of widest import and signifies every possible interest which a person can hold or enjoy except those specifically excluded.”
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.
In the above view, as the issue raised herein stands concluded by the decision of this Court in M/s. Bafna Charitable Trust (supra) 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. Thus, not entertained. M/s Morarjee Realities Limited Assessment Year :2004-05 The ratio of the aforesaid decision has subsequently been applied by the Hon’ble High Court in Pr.CIT V/s Reliance Natural Resources Ltd. (ITA No. 623 of 2017 dated 26/08/2019) also.
We find that the ratio of aforesaid decision squarely applies to answer the question posed before us. In the aforesaid decision, it has been held that the term ‘Capital Asset’ as defined in Sec.2(14) would mean property of any kind held by an assessee, whether or not connected with his business or profession', except those which are specifically excluded in the said section. The only exclusion is only for stock in trade, consumables or raw materials held for purposes of business. Therefore, the word property would have wide connotation to include interest of any kind. The Hon’ble Court in CWT v/s. Vidur V. Patel [1995] 215 ITR 30 held the word property would be of widest import and signifies every possible interest which a person can hold or enjoy. The term should be given a liberal or wide connotation. Similar view was expressed in the decision titled as Bafna Charitable Trust V/s. CIT 230 ITR 846. We are of the considered opinion that loans and share application money as advanced by the assessee would stand on same footing since both are advances in nature. 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. Therefore, the ratio of the cited decisions is quite applicable to the facts of the present case before us. M/s Morarjee Realities Limited Assessment Year :2004-05 6. Therefore, respectfully following the aforesaid binding decision, 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. We order so. The Ld. AO is directed to re-compute assessee’s income in terms of our above order.
7. Resultantly, the revenue’s appeal stands dismissed. Order pronounced in open court on 15th December, 2020.
Sd/- Sd/- (Ravish Sood) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated : 15/12/2020 Sr.PS, Jaisy Varghese आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.