ITO, WD-7(3), KOLKATA, Kolkata V. M/s Energy Development Compnay Ltd., Kolkata

ITA 797/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9304 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 30-04-2014
• Court: TRIBUNAL
• Keywords: Capital receipt
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN JM, & DR. A.L.SAINI, AM ./ ITA NO.797/KOL/2014 ( / ASSESSMENT YEAR :2010-2011) ITO WARD-7(3), KOLKATA, P-7, CHOWRINGHEE SQUARE, R.NO.17, 5 TH FLOOR, KOLKATA- 700 069 VS. M/S ENERGY DEVELOPMENT COMPANY LIMITED, EDCL HOUSE, 1A, ELGIN ROAD, KOLKATA-700020 ./ ./PAN/GIR NO. : AABCE 6969 K ( /APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : NONE /ASSESSEE BY : MS.VANDANA BHANDARI / DATE OF HEARING : 07/02/2017 /DATE OF PRONOUNCEMENT 03/03/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: ` THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAI NING TO THE ASSESSMENT YEAR 2010-2011, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLK ATA, IN APPEAL NO.145/CIT(A)-VIII/KOL/13-14, DATED 27.02.2014, WHI CH IN TURN ARISES OUT OF AN ORDER PASSED BY THE AO U/S.143(3) OF THE INCO ME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 28.03 .2013. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING NIL INCOME ON DATED 14.10.2010, FOR A.Y.2010-11. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY THROUGH CASS AND THE AO FRAMED ASSESSMENT U/S.143(3) TREAT ING THE FORFEITED AMOUNT OF RS.12,40,00,000/- AS REVENUE INCOME IN RE SPECT OF 75000 WARRANTS. THE ASSESSE UNDER CONSIDERATION HAD FORFE ITED 75000 WARRANT AMOUNTING TO RS. 12,40,00,000/- ALLOTTED TO PROMOTE RS AND OTHER INVESTORS ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 2 AND TRANSFERRED THE SAID AMOUNT TO THE CAPITAL RESE RVE. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSE SUBMITTED BEFORE THE ASSESSING OFFICER THAT SAID AMOUNT IS CAPITAL RECEIPT AND AS SUCH SHOULD NOT BE TREATED AS REVENUE RECEIPT. BUT ASSESSING OFFICER H AS IGNORED THE SUBMISSIONS OF THE ASSESSE AND TREATED THE SAID REC EIPT AS REVENUE IN NATURE. 3. NOT BEING SATISFIED WITH THE ORDER PASSED BY TH E AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO HAS DELETED THE ADDITIONS OF RS.12.40 CRORES OBSERVING THE FOLLOWINGS :- 7.8 ON CAREFUL ANALYSIS OF THE DECISION OF THE ITA T DELHI BENCH I FIND THAT THE FACTUAL MATRIX OF THE DECIDED CASE IS IDENTICAL TO THE FACTS INVOLVED IN PRESENT CASE. IN THE IMPUGNED ORD ER THE AO ASSESSED THE AMOUNT FORFEITED AS APPELLANT`S INCOME ASSESSABLE U/S 28(IV) OF THE I.T. ACT. IN THE DECIDED CASE DUE CONSIDERATION OF THE TERMS OF THE ISSUE OF OPTIONALLY CONVERTIBLE WA RRANT THE TRIBUNAL CAME TO THE CONCLUSION THAT THE AMOUNT DID NOT REPR ESENT REVENUE RECEIPT AND IT WAS ALSO NOT ASSESSABLE U/S 28 (IV) OF THE I.T. ACT. SO THE FACTS INVOLVED IN THE PRESENT CASE ARE FOUND TO BE IDENTICAL TO THE ISSUE INVOLVED IN THE CASE DECIDED BY THE ITAT DELHI BENCH, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT DEL HI BENCH, I HOLD THAT THE AO WAS NOT JUSTIFIED IN ASSESSING RS. 12.4 0 CRORES AS INCOME OF THE APPELLANT, ASSESSABLE U/S 28 (IV) OF THE ACT. THE ADDITION OF RS.12.40 CRORES IS DIRECTED TO BE DELET ED. GROUND NO.2 IS ACCORDINGLY ALLOWED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T.(A) - VIII, KOLKATA HAS ERRED IN HOLDING THAT THE AO WAS NOT LEGALLY AND FACTUALLY CORRECT IN INVOKING SEC.1 45(3) OF THE IT ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-VIII, KOLKATA HAS ERRED IN NOT CONFORMIN G THE METHOD OF INVOCATION OF SEC.145(3) OF THE I.T.ACT, 1961 AS PROPER. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-VIII HAS ERRED IN HOLDING THE FORFEITURE OF SHARE ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 3 WARRANTS AS CAPITAL RECEIPT IN NATURE AND ALSO DELE TING THE ADDITION OF RS.12.40 CORES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-VIII ERRED IN NOT CONFIRMING THE ADDITIO N ON FORFEITURE OF SHARE WARRANT AMOUNTING TO RS.12.40 CORES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A)-VIII, KOLKATA ERRED IN NOT APPLYING THE D ICTUM OF COLOURABLE DEVICE ENUNCIATED IN THE CASE OF MCDOWEL L & COMPANY LIMITED VS. C.T.O. (1985) 154 ITR 148. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A)-VIII, KOLKATA ERRED IN NOT ALLOWING THE A DDITION MADE ON FORFEITURE OF SHARE WARRANT AMOUNTING TO RS.12.4 0 CRORES TO BE ADDED IN BOOK PROFIT ASSESSABLE U/S.115JB OF THE IT ACT, 1961 WHICH FALLS AUTOMATICALLY IN LINE WITH THE ADD ITION. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR ABR OGATE ANY GROUND OF APPEAL AT THE TIME OF HEARING. 5.HOWEVER, IN THIS APPEAL THE REVENUE HAS RAISED A MULTIPLE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE SOLITARY G RIEVANCE OF THE REVENUE HAS BEEN CONFINED TO GROUND NO.3 WHICH RELA TES TO THE ISSUE WHETHER FORFEITURE OF SHARE WARRANTS IS CAPIT AL RECEIPT IN NATURE OR REVENUE IN NATURE. OTHER GROUNDS RAISED BY THE R EVENUE ARE SUPPORTIVE/CONSEQUENTIAL/PREMATURE GROUNDS. 5.1 NONE APPEARED ON BEHALF OF THE REVENUE. 5.2. LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US THA T THE LD. AO HAS CONCLUDED WRONGLY, THAT THE AMOUNT OF RS.12.40 CRORES TRANSFERRED BY THE ASSESSEE TO THE CAPITAL RESERVE AND REPRESENTIN G AMOUNT OF SHARE WARRANT FORFEITURE IS A REVENUE RECEIPT AND SHOULD BE TAXED UNDER SECTION 28(IV) OF THE ACT. THE LD. AR FURTHER SUBMITTED THA T THIS CONCLUSION OF THE AO IS WITHOUT APPRECIATION OF THE FACTS AND THE LAW ON THE SUBJECT. THE LD. AR ALSO SUBMITTED THAT THE AMOUNTS INVOLVED ARE CAP ITAL RECEIPTS AND ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 4 HENCE NOT TAXABLE AS INCOME OF THE ASSESSEE. A SHAR E WARRANT IS A FINANCIAL INSTRUMENT WHICH ENTITLES THE HOLDER THER EOF TO ACQUIRE CERTAIN SHARES ON CERTAIN CONDITIONS WHICH ARE MENTIONED IN THE SHARE WARRANT ITSELF. THE SECTION 114 OF THE COMPANIES ACT, 1956 DEALS WITH THE ISSUE AND EFFECT OF A SHARE WARRANT TO A BEARER. A PUBLIC COMPANY LIMITED BY SHARES, IF SO AUTHORISED BY ITS ARTICLES, MAY, WITH THE PREVIOUS APPROVAL OF THE CENTRAL GOVERNMENT, WITH RESPECT TO ANY FULLY P AID-UP SHARES, ISSUE UNDER ITS COMMON SEAL A WARRANT STATING THAT THE BE ARER OF THE WARRANT IS ENTITLED TO THE SHARES THEREIN SPECIFIED, AND MAY P ROVIDE, BY COUPONS OR OTHERWISE, FOR THE PAYMENT OF THE FUTURE DIVIDENDS ON THE SHARES SPECIFIED IN THE WARRANT. A COMBINED READING OF THE PROVISION S IN THE COMPANIES ACT, 1956 AND THE SEBI (DIP) GUIDELINES, CLEARLY ES TABLISHES THAT THE SHARE WARRANT IS A FINANCIAL INSTRUMENT WHICH CAN B E CONVERTED INTO SHARES ON THE PAYMENT OF A CERTAIN ADDITION AMOUNT. HENCE , THE ACQUISITION OF A SHARE WARRANT IS THE BEGINNING OF THE SHARE ACQUISI TION PROCESS AND THE MONEY PAID FOR THE PURCHASE OF A SHARE WARRANT IS S IMILAR TO SHARE APPLICATION MONEY. THE ONLY DIFFERENCE BEING THAT S HARE APPLICATION MONEY IS REFUNDABLE IN CERTAIN CONDITIONS WHEREAS T HE MONEY PAID FOR THE ACQUISITION OF SHARE WARRANTS IS NON REFUNDABLE. SI NCE THE MONEY PAID ON PURCHASE OF A SHARE WARRANT IS NON-REFUNDABLE, THE WARRANTS CAN BE CONSIDERED AT PAR WITH PARTLY PAID EQUITY SHARES AN D HENCE ARE OFTEN TREATED AS POTENTIAL EQUITY SHARES. THE ONLY DIFFER ENCE BETWEEN PARTLY PAID UP EQUITY SHARES AND WARRANTS IS THAT THE FORMER MA Y BE ENTITLED TO EQUITY DIVIDEND WHEREAS THE LATTER ARE NOT. THE FACT THAT FOR THE PURPOSES OF ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 5 ACCOUNTING, THE SHARE WARRANTS ARE TO BE TREATED AS POTENTIAL EQUITY SHARES IS CORROBORATED BY THE ACCOUNTING STANDARD 2 0 WHICH GOVERNS THE COMPUTATION OF EARNINGS PER SHARE (EPS). THEREFORE, AS PER AS 20 ISSUED BY THE MINISTRY OF CORPORATE AFFAIRS ON EARN ING PER SHARE CLEARLY SHOWS THAT SHARE WARRANTS ARE POTENTIAL EQUITY SHAR ES. THE ASSESSEE HAD IN THE FINANCIAL YEAR 2007-08 AND 2008-09 ALLOTTED 35,00,000 AND 40,00,000 LAKH SHARE WARRANTS AMONGST PROMOTERS AND INDEPENDENT INVESTORS WHO HAD PAID AN AMOUNT OF RS.12.40 CRORES IN AGGREGATE TO THE COMPANY AS CONSIDERATION FOR THESE SHARES WARRANTS. IN BOTH THESE YEARS, THE ASSESSEE HAD DISCLOSED THESE AS PART OF THE SHA REHOLDERS FUND UNDER THE HEADING SHARE WARRANT ON THE FACE OF THE BALANC E SHEET AND HAD MADE ADEQUATE DISCLOSURES FOR THE SAME IN THE NOTES TO A CCOUNT. DURING THE FINANCIAL YEAR 2009-10 RELEVANT TO THE AY 2010-11, SUBSCRIBERS TO THE SHARE WARRANTS DID NOT MAKE ANY FURTHER PAYMENTS. K EEPING IN LINE WITH THE TERMS OF THE ISSUE AND THE EXISTING REGULATIONS , THE SHARE WARRANTS LAPSED AND CONSEQUENTLY THE ASSESSEE FORFEITED THE AMOUNT RECEIVED AT THE TIME OF ISSUE OF THE WARRANTS. THE FORFEITED AM OUNT WAS SHOWN AS PART OF SHAREHOLDERS FUND UNDER THE HEADING CAPITAL RESE RVE AND HAD MADE ADEQUATE DISCLOSURES FOR THE SAME IN THE NOTES TO A CCOUNT. AS PER THE AO SINCE THE SUBSCRIBERS OF THE WARRANTS HAVE TREATED THE SAID FORFEITURE AS A SHORT TERM CAPITAL LOSS, AND THE ASSESSEE HAS TREAT ED THE SAID FORFEITURE AS A CAPITAL RESERVE, THERE IS NO TAX PAYOUT IN EIT HER HAND. THIS REASONING IS DEVOID OF ANY LEGAL BASIS AND CAN NEVE R FORM THE BASIS OF ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 6 COMPLETING AN ASSESSMENT. IN ADDITION TO THIS, LD. AR FOR THE ASSESSEE HAS RELIED ON THE FOLLOWING JUDGMENTS :- (I). HOSHIARPUR ELECTRIC SUPPLY CO. [1961] 41 ITR 608 (S C) 'THE RECEIPTS THOUGH RELATED TO THE BUSINESS OF THE ASSESSEE AS DISTRIBUTORS OF ELECTRICITY WERE NOT INCIDENTAL TO NOR IN THE COURSE OF THE CARRYING ON OF THE ASSESSEE'S BUSINESS; THEY WE RE RECEIPTS FOR BRINGING INTO EXISTENCE CAPITAL OF 'LASTING VALUE. CONTRIBUTIONS WERE NOT MADE MERELY FOR SERVICES RENDERED AND TO BE REN DERED, BUT FOR INSTALLATION OF CAPITAL EQUIPMENT UNDER AN AGREEMEN T FOR A JOINT VENTURE. THE TOTAL RECEIPTS BEING CAPITAL RECEIPTS, THE FACT THAT IN THE INSTALLATION OF CAPITAL, ONLY A CERTAIN AMOUNT WAS IMMEDIATELY EXPENDED, THE BALANCE REMAINING IN HAND, COULD NOT BE REGARDED AS PROFIT IN THE NATURE OF A TRADING RECEIPT.' (II).KETTLEWELL BULLEN & CO. LTD. [1964] 53 ITR 261 (SC) 'WHETHER A PARTICULAR RECEIPT IS CAPITAL OR INCOME FROM BUSINESS, HAS FREQUENTLY ENGAGED THE ATTENTION OF THE COURTS. IT MAY BE BROADLY STATED THAT WHAT IS RECEIVED FOR LOSS OF CA PITAL IS A CAPITAL RECEIPT: WHAT IS RECEIVED AS PROFIT IN A TRADING TR ANSACTION IS TAXABLE INCOME. ' THE ABOVE VIEW IS FORTIFIED BY THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, BA NGALORE V. INDUSTRIAL CREDIT AND DEVELOPMENT SYNDICATE LTD. RE PORTED IN [2006] 155 TAXMAN 90. IN THIS CASE THE COURT HAS HELD THAT CESSATION OF LIABILITY ARISING OUT OF THE EARLY REDEMPTION OF DE BENTURES DOES NOT GIVE RISE TO ANY TAXABLE INCOME SINCE THE DEBENTURE S WERE ISSUED FOR THE PURPOSES OF PURCHASE OF FIXED ASSETS. (III).MORLEY (INSPECTOR OF TAXES) VS TATTERSALL [19 39] 7 ITR 316 (CA) .:'IF A PARTICULAR AMOUNT IS NOT RECEIVED AS TRADIN G' RECEIPT AT THE FIRST INSTANCE, IT WOULD NOT BE SUBSEQUENTLY RECORDED AS TRADING RECEIPT DUE TO CHANGE OF CIRCUMSTANCES' (IV).TRAVENCORE RUBBER & TEA CO. LTD. [2000] 109 TA XMAN 250 (SC) IN THIS CASE THE APEX COURT HAS REITERATED THE CLEA R DISTINCTION BETWEEN INCOME AND CAPITAL RECEIPT AS UNDER: 'FORFEITURE OF EARNEST MONEY AND ADVANCE WERE IN TH E NATURE OF CAPITAL RECEIPT NOT CHARGEABLE TO TAX' (V).KUSHAL K BANGIA V. INCOME TAX OFFICER [2012) 18 TAXMANN.COM 31, THE HON'BLE ITAT MUMBAI HAS HELD AS UNDER- ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 7 IT IS ONLY ELEMENTARY THAT THE COONOTATION OF INCO ME HOWSOEVER WIDE AND EXHAUSTIVE TAKES INTO ACCOUNT - ONLY SUCH CAPITAL RECEIPTS, WHICH ARE SPECIFICALLY TAXABLE UNDER THE PROVISIONS OF THE ACT. SECTION 2(24)(VI) OF THE ACT PROVIDES THAT INCOME I NCLUDES ANY CAPITAL GAINS CHARGEABLE UNDER SECTION 45. THUS IT IS CLEAR THAT A CAPITAL RECEIPT SIMPLICITOR CANNOT BE TAKEN AS INCO ME. THIS CLEARLY IMPLIES THAT A CAPITAL RECEIPT IN PRINCIPLE IS OUTS IDE THE SCOPE OF INCOME CHARGEABLE TO TAX AND A RECEIPT CANNOT BE TA XED AS INCOME UNLESS IT IS IN THE NATURE OF REVENUE RECEIPT OR IS BOUGHT WITHIN THE AMBIT OF INCOME BY WAY OF A SPECIFIC PROVISION IN T HE ACT. NO MATTER HOW WIDE BE THE SCOPE OF INCOME UNDER SECTION 2(24) , IT CANNOT OBLITERATE THE DISTINCTION BETWEEN CAPITAL RECEIPT AND REVENUE RECEIPT. IT IS NOW WELL SETTLED THAT IN ORDER T O FIND OUT WHETHER IT IS A CAPITAL RECEIPT OR REVENUE RECEIPT ONE HAS TO SEE WHAT IT IS IN THE HANDS OF THE RECEIVER AND NOT WHA T IT IS IN THE HANDS OF THE PAYER. THE CONSIDERATION FOR WHICH THE AMOUN T HAS BEEN PAID BY THE DEVELOPERS IS, THEREFORE, NOT REALLY RELEVAN T IN DETERMINING THE NATURE OF RECEIPT IN THE HANDS OF THE ASSESSEE AS HELD BY HON 'BLE SUPREME COURT, IN THE 'CASE OF DR. K GEORGE TH OMAS V. CIT [1985] 156 ITR 412/23 TAXMANN 46, 'THE BURDEN IS O N THE REVENUE TO ESTABLISH THAT THE RECEIPT IS OF REVENUE NATURE' THOUGH 'ONCE THE RECEIPT IS FOUND TO BE OF REVENUE CHARACTER, WHETHE R IT COMES UNDER EXEMPTION OR NOT, IT IS FOR THE ASSESSEE TO ESTABLI SH'. . . IN THE INSTANT CASE THE LD. AO HAS NOT DISCHARGED I TS BURDEN BY BRINGING ANYTHING ON RECORD TO PROVE THAT THE RECEI PT IS REVENUE IN NATURE. THE REASONS ASSIGNED BY THE LD. AO WERE WRO NG AND INSUFFICIENT. PROVISIONS OF THE ACT OUGHT TO HAVE B EEN PROPERLY CONSTRUED AND APPLIED. THE RECEIPT AND SUBSEQUENT F ORFEITURE OF THE SHARE WARRANT MONEY WAS TOWARDS CAPITAL CONTRIBUTIO N OF THE COMPANY AND AS SUCH IT CANNOT BE HELD TO BE REVENUE IN NATURE AND CONSEQUENTLY CANNOT BE TERMED AS INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE ACT. ALL TYPES OF RECEIPTS CAN NOT CONSTITUTE INCOME OF AN ASSESSEE. CAPITAL RECEIPTS / LOAN RECE IPTS DOES NOT CONSTITUTE INCOME OF THE RECIPIENT. IN THE INSTANT CASE, THE MONEY FORFEITED WAS RECEIVED FOR THE CAPITAL OF THE COMPA NY. IN THE INSTANT CASE, THE SHARE WARRANT MONEY WAS FORFEITED AS PER THE TERMS OF THE ISSUE. THIS FACT IS NOT IN DISPUTE. IT IS SETTLED P OSITION OF LAW THAT BY CHARGING PROVISIONS OF SECTION 4 AND 5, THE GENERAL LIABILITY TO TAX IS IMPOSED UPON INCOME BUT THE INCOME TAX ACT DOES NOT PROVIDE THAT WHATEVER IS RECEIVED BY THE ASSESSEE MUST BE REGARD ED AS INCOME CHARGEABLE TO TAX. IN ALL CASES IN WHICH THE RECEIPT IS SOUGHT TO BE T AXED AS INCOME, BURDEN LIES UPON THE REVENUE TO PROVE THAT IT IS WI THIN THE TAXING PROVISIONS. THE REVENUE HAS NOT DISCHARGED THE BURD EN CAST ON IT TO ESTABLISH THAT AMOUNT FORFEITED PARTAKES THE CHARAC TER OF INCOME. THE AMOUNT WHEN INITIALLY RECEIVED BY ISSUANCE OF S HARE WARRANTS WAS NOT OF INCOME IN NATURE. THE MERE FACT THAT SUB SEQUENTLY THE WARRANT HOLDERS, ON ACCOUNT OF FAILURE ON THEIR PAR T TO PAY THE CALL MONEY / SUBSEQUENT MONEY HAS FORFEITED THEIR RIGHT TO RECEIVE BACK ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 8 THE AMOUNT DOES NOT CHANGE THE CHARACTER OF THE REC EIPT. IF THE WARRANT HOLDERS HAD EXERCISED THEIR OPTION AND PAID THE CALL MONEY THE ENTIRE AMOUNT WOULD HAVE GONE INTO THE SHARE CA PITAL OF THE COMPANY. THE AMOUNT FORFEITED DOES NOT FALL UNDER A NY HEAD OF INCOME AND AS SUCH THE SAME IS NOT CHARGEABLE TO TA X. (VI).IN ASSISSTANT COMMISSIONER OF INCOME-TAX V. DA S & CO. [2010] 133 TTJ 542 (MUM.), THE HON'BLE ITAT MUMBAI HAS HELD AS UNDER- ..... IF THE INITIAL RECEIPTS OF A BUSINESS ARE NO T TRADING RECEIPTS IN THE HANDS OF THE RECIPIENT, SUBSEQUENT OPERATIONS CANNO T TURN THEM INTO TRADING RECEIPTS. THEREFORE, THE ADDITION ON ACCOUN T OF FORFEITURE OF SECURITY DEPOSIT WAS TO BE DELETED .... BASED ON THE ABOVE JUDICIAL PRONOUNCEMENTS, IT IS C LEAR THAT A CAPITAL RECEIPT CANNOT BE CONSIDERED AS INCOME AND NO CHARGING PROVISION CAN BE INVOKED TO TAX SUCH A RECEIPT. IN THE GIVEN CASE, THE WRITE BACK IS OF A CAPITAL LIABILITY AND IS AKI N TO A CAPITAL RECEIPT. IN THE GIVEN CASE, IT IS CLEAR THAT THE APPELLANT H AS RECEIVED THE AMOUNTS ON ALLOTMENT OF SHARE WARRANTS AND THE SAME IS RELATED TO THE CAPITAL STRUCTURE OF THE APPELLANT AND IS DEFIN ITELY A PART OF THE FIXED CAPITAL OF THE APPELLANT. 5.3. HAVING HEARD THE SUBMISSIONS OF LD AR FOR THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORDS, WE ARE OF THE VI EW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSE, AS THE PROPOSITIONS CANVASSED BY THE LD AR FOR THE ASSESSE ARE SUPPORTED BY THE JUDGMENTS C ITED BY HIM (SUPRA). AS LD AR FOR THE ASSESSEE AS POINTED OUT THAT THE MONEY FORFEITED WAS RECEIVED FOR THE CAPITAL OF THE COMPANY. IN THE INS TANT CASE, THE SHARE WARRANT MONEY WAS FORFEITED AS PER THE TERMS OF THE ISSUE. THIS FACT IS NOT IN DISPUTE. IT IS SETTLED POSITION OF LAW THAT BY CHARGING PROVISIONS OF SECTION 4 AND 5, THE GENERAL LIABILITY TO TAX IS IMPOSED UPON INCOME BUT THE INC OME TAX ACT DOES NOT PROVIDE THAT WHATEVER IS RECEIVED BY THE ASSESSEE MUST BE R EGARDED AS INCOME CHARGEABLE TO TAX. BESIDES, IF THE INITIAL RECEIPTS OF A BUSINESS ARE NOT TRADING RECEIPTS IN THE HANDS OF THE RECIPIENT, SUBSEQUENT OPERATIONS CANNOT TURN THEM INTO TRADING RECEIPTS. ITA NO.797/KOL/2014 M/S ENERGY DEVELOPMENT CO.LTD. 9 THEREFORE, THE ADDITION MADE BY AO ON ACCOUNT OF FO RFEITURE OF SHARE WARRANTS AS CAPITAL RECEIPT IN NATURE, NEEDS TO BE DELETED. HENCE, WE DO NOT HESITATE TO CONFIRM THE ORDER PASSED BY THE LD CIT(A). THEREFOR E, WE CONFIRM THE ORDER PASSED BY THE LD CIT(A). 5.4 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 03/03/ 2017. SD/ - (N.V.VASUDEVAN) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 03/03/2017 & ()* /PRAKASH MISHRA ,SR.PS. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, KOLKATA 1. / THE APPELLANT-ITO WARD-7(3), KOLKATA 2. / THE RESPONDENT.-M/S ENERGY DEVELOPMENT CO.LTD. 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 56 7 8 , 8 , / DR, ITAT, KOLKATA 6. 7 9 / GUARD FILE. 5 //TRUE COPY//