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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-III, Chennai, dated 28.03.2014 and pertains to assessment year 2002-03.
Shri A.B. Koli, the Ld. Departmental Representative submitted that share application money to the extent of `22,17,875/- was outstanding for more than three years and shares were also not allotted. Referring to Section 28(iv) of the Income-tax Act, 1961 (in short "the Act"), the Ld. D.R. submitted that it is a benefit accrued to the assessee in the form of business. Therefore, it is taxable in the hands of the assessee. According to the Ld. D.R., the assessee retained the share application money for more than three years.
Therefore, the share applicants cannot get back the money by way of legal process. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee. Referring to the order of the CIT(Appeals), the Ld. D.R. submitted that after expiry of three years period of limitation, according to the Ld. D.R., the share applicants cannot claim money before the court of law. Therefore, it is a benefit accrued to the assessee in the course of its business activity. Hence, it has to be treated as income under Section 28(iv) of the Act.
On the contrary, Sh. A.S. Sriraman, the Ld.counsel for the assessee, submitted that what was received by the assessee is share applications. For various reasons, the assessee could not allot the shares to the applicants. However, it was shown as liability in the balance sheet. Once the liability is accepted in the balance sheet, according to the Ld.counsel, the period of limitation would get extended for initiating legal process to recover the money by the respective applicants. Therefore, the money which was received by the assessee towards share applications cannot be treated as income of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the provisions of Section 28(iv) of the Act. No doubt, any benefit which is accrued to the assessee in the course of its business activity has to be treated as income. Now the question is when the assessee has received share application money for allotment of shares and merely because the shares cannot be allotted, whether such money can be treated as income of the assessee? It is an admitted fact that Limitation Act provides a period of three years for filing suit to recover the money. Therefore, when the three years period expired, the applicant would not have legal right to recover the money through a court of law. However, the law does not prohibit recovery of the money through other modes. In other words, whenever the assessee’s money came in possession of the share applicants, they can, as a matter of right, adjust the outstanding against the share application money.
Therefore, at no stretch of imagination we can say that recovery of the share money is barred by limitation. What was barred by limitation after expiry of three years period is filing of a suit for recovery of money before a court of law. Apart from that, when the assessee acknowledges the liability in the balance sheet or in the return of income, such admission of liability extends the period of limitation provided in the Limitation Act. In this case, admittedly, assessee showed as liability in respect of the share application money to the extent of `22,17,875/-. Therefore, the period of limitation for filing suit gets extended. Hence, the share applicants have right to file civil suit to recover money from the assessee. In those circumstances, this Tribunal is of the considered opinion that the share application money to the extent of `22,17,875/- cannot be treated as income of the assessee at any stretch of imagination.
Therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer. This Tribunal finds no reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 9th December, 2015 at Chennai.