Whether amount forfeited on share warrant is taxable

This query is : Open

Arun Kumar (Querist)
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20 September 2012 Ours is a listed company and last year the Company has issued Convertible Warrants on preferential basis to Promoters and there friends @ Rs.15/- per warrant, 10% of which was received as subscription money and the balance was due at the time of exercising the right of converting the warrants into equity shares. As per SEBI guidelines the option should be exercised not latter than 18 months of allotment of warrants.

Warrants are subject to converted in 1 equity share of Rs.10/- at a premium of Rs. 5/- per share

Company has received Rs. 1.5/- per warrants as 10% subscription money

The 18 month deadline is expiring on 10 Feb 2010

Current market price of companyâ€™s Shares is far below from Rs. 15/- and therefore some of the subscribers are not willing to convert the warrants.

As per rules the 10% amount received against such warrants are subject to be forfeited by the company after the last date (10th Feb 2010)

My query is whether the amount so forfeited is taxable or not under the provisions of I. T. Act.

As per my opinion the amount forfeited is capital receipt as the same was received towards subscription of Capital and forfeited on account of non fulfilment of allotment criteria as required by the law and therefore not taxable, further it is not taxable capital gain as covered by the I T Act.

However I have to put sum supporting like case law or written text from reliable source to convince the directors as the amount involved is large.

Your views including counter opinions and help are invited in the above matter.

Guest

Guest (Expert)

21 September 2012 Prism Cement Limited Vs. JCIT (2006) 101 ITD 103 (Mumbai) ITAT (Mumbai 'I' Bench)

In the above case, it has been held that the shares forfeited amounts to capital receipts. Moreover the recent judgment Haryana financial Corporation vs DIT dt 20.4.12 confirms the said stand. As on date, the same is capital receipt.

swasti

swasti (Expert)
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31 October 2012 Sir, I would like to seek your advice regarding Premium on Share Warrants. If XYZ Ltd., a company in which public is not interested issues share warrants at premium, is there applicability of newly inserted Sec 56(2)(viib) or not? If not, what would happen when the warrants get converted into shares? Please guide.

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