DCIT v. Morarjee Realities Ltd. [I.T.A. No. 2343/Mum/2009, dt. 15-12-2020] : 2020 TaxPub(DT) 5388 (Mum-Trib)

Share application money is it a capital asset?

Conclusion: Share application money pending allotment is a capital asset.

Assessee as part of a group corporate restructuring exercise had to transfer certain equity, preference shares and rights to apply for shares, i.e., share application money to other group entities. Capital losses both long and short term arose in this respect, the set-off of which was not allowed by the assessing officer on share application money. On appeal Commissioner (Appeals) allowed the same. On higher appeal by the revenue, the ITAT held that the losses on the transfer of the shares were allowable losses but the losses which arose on the share application money paid could not be allowed as the same was not a capital asset under section 2(14). Assessee moved a miscellaneous application to the ITAT on this order citing that vide CIT v. Siemens Nixdorf Information Systems Gmbh (ITA No. 1366 of 2017, dated 26-8-2019) : 2019 TaxPub(DT) 5881 (Bom-HC) where in the jurisdictional Mumbai High Court has held that loan given by a foreign company to its subsidiary is also a capital asset under section 2(14) and the transfer of this debt to someone else which brought forward certain losses are also allowable. Arising out of ITAT recalling the original ITAT due to dismissal of cross objections bereft the said MA, the case again has come up for re-adjudication in the case of the assessee.

Held against the revenue that the assessee was entitled to claim losses on the share application money which was paid by them and transferred to their group company on the corporate restructuring exercise.