forfieture of equity share warrants

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surendra bhutoria (Querist)
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27 August 2009 a company invested in equity share warrants. it paid minimum subscription amount and balance was to be paid within 18 months from the date of issue of warrants. subsequently, the investor company was unable to pay the balance amount and the warrants were forfieted. can the investor company claim the loss on forfieture as CAPITAL LOSS under income tax Act?. please advice with relevant court rulings.

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
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27 August 2009
case laws
Dy. CIT v. BPL Sanyo Finance Ltd. [2009 -TMI - 33346 - KARNATAKA HIGH COURT]

CIT v. Mrs. Grace Collis [2008 -TMI - 5986 - SUPREME Court]

FORFEATURE OF SHARE AMOUNT TO EXTINGUISHMENT HENCE TRANSFER, LOSS OF PAYMENTS MADE EARLIER IS ALLOWABLE . PER AUTHOR- IN SUCH CASES THERE IS ALSO TRANSFER OF RIGHTS IN SHARES.

Forfeiture of shares:

Many times companies issue shares with condition that payment is to be made in two or more installments. The usual course is to collect money as share application money, allotment money, and one or more call money. Incase full payment is received at the time of application or in case of excess subscription and application and lower allotment many times share application is adjusted against allotment money and call money and shares may be marked fully paid-up. In case of fully paid-up share there will be no question of forfeiture of share.

The shares may be differently paid according to the terms of issue and payments made by shareholder. For example, suppose a shareholder has paid application money @ Rs.2 per share another had paid application and allotment money of Rs.2+2= 4 per share and another had also made payment of all calls money of say Rs.6 per share so his share is fully paid-up. In these cases shares of Rs.2 Rs.4 and Rs.10 paid-up are held by these shareholders. They will have proportionate right of dividend, and voting (vide section 87(2) of the Companies Act, 1956.

the same applied to warrants also