Write off of Share Application Money
This query is : Resolved
15 October 2007
XYZ Company has accepted Rs.2 Crore as share application money. The Autorised share capital is Rs.1 Crore. Now due to heavy business lossess, Rs.2 crores given as share application money were wiped out. The company has stopped doing business. My Query is Can a company write off the Share Application Money and show the same is income in P&L account? Otherwise Company has to incur a huge expense for increase of share capital and allotment of shares, for which company have not money to spent. Expert opinion is sought from the fellow members. Thanks in advance
15 October 2007
Hi Rakesh,
First of all the Share Application money has to be < than the Authorised capital.
the compnay have stopped the business, so you cannot increase the Authorised capital, also you cannot write off the share capital money in P& L Account
First of all the Share Application money has to be < than the Authorised capital.
the compnay have stopped the business, so you cannot increase the Authorised capital, also you cannot write off the share capital money in P& L Account
15 October 2007
Prior to allotment of shares , the shareholders , depending on the facts of the case ( say not alloted for a long time) has claim over the money .How can you unilateraly write off their claim. Even if you write off , whether their right to refund or allotment will cease??No.
Now purely from Income Tax point of view ..........If you show something as income although it is not income the AO will not have any objection.However, it may raise suspicion regarding genuiness of shareapplication money , in that case the year in which the shareappication money was received may be reopened, depending on the facts of the case. Suppose in your case there is no such possibility or you are prepared to establiesh the genuines of share application.........happily credit it to Profit and Loss Account and qualify your audit report on the accounting.
Now purely from Income Tax point of view ..........If you show something as income although it is not income the AO will not have any objection.However, it may raise suspicion regarding genuiness of shareapplication money , in that case the year in which the shareappication money was received may be reopened, depending on the facts of the case. Suppose in your case there is no such possibility or you are prepared to establiesh the genuines of share application.........happily credit it to Profit and Loss Account and qualify your audit report on the accounting.
15 October 2007
Forfeiture of shares
29. If a member fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.
30. The notice aforesaid shall—
(a) name a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made; and
(b) state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited.
31. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect.
32. (1) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Board thinks fit.
(2) At any time before a sale or disposal as aforesaid, the Board may cancel the forfeiture on such terms as it thinks fit.
33. (1) A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding the forfeiture, remain liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares.
(2) The liability of such person shall cease if and when the company shall have received payment in full of all such moneys in respect of the shares.
34. (1) A duly verified declaration in writing that the declarant is a director *[, the managing agent, the secretaries and treasurers], the manager or the secretary, of the company, and that a share in the company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share.
(2) The company may receive the consideration, if any, given for the share on any sale or disposal thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of.
(3) The transferee shall thereupon be registered as the holder of the share.
(4) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.
35. The provisions of these regulations as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.
29. If a member fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.
30. The notice aforesaid shall—
(a) name a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made; and
(b) state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited.
31. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect.
32. (1) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Board thinks fit.
(2) At any time before a sale or disposal as aforesaid, the Board may cancel the forfeiture on such terms as it thinks fit.
33. (1) A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding the forfeiture, remain liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares.
(2) The liability of such person shall cease if and when the company shall have received payment in full of all such moneys in respect of the shares.
34. (1) A duly verified declaration in writing that the declarant is a director *[, the managing agent, the secretaries and treasurers], the manager or the secretary, of the company, and that a share in the company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share.
(2) The company may receive the consideration, if any, given for the share on any sale or disposal thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of.
(3) The transferee shall thereupon be registered as the holder of the share.
(4) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.
35. The provisions of these regulations as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.
15 October 2007
The shareholder have no problem in writing off the money, in fact shareholder is willingly ready to give a letter for writing off, the transaction was genuine so i don't apprehend even if ITO opens the case, and even if the amt. is credited to P&L the carry forward loss is enough to adjust the write off of entire share application money
15 October 2007
under companies act,sec 205 c, share application money due for refund has to be credited to investor edu. fund set up by govt.
note the word due for refund. it is due for refund if deposit holder of share appl. money asked for refund.
transfer to the govt. fund arises only when such amounts remained unpaid for seven years from the date they are due.
there are companies sitting on such unpaid shareappl. money for years.
so if you dont receive an appl. for refund ,it is not due for repayment subject to above conditions of trsfr. to govt.fund.
i cannot recollect any section or prov. under cos. act to credit the unpaid shareappl. deposit to p&l account.
it is not always a must that you allott shares against such a share appl. deposit. it is refundable to the original deposit holder of share appl. as explained above.
dont feel obliged that you must allott shares and increase the aut. capital.
if you cannot pay back ,you need to obtain a letter from the holder of share appl. money that he is surrendering the same to the company inview of poor fin. condition and that he has waived the repayment.
since you stopped business ,you can produce such waiver letters on demand by any regulatory agency.as there is no business, the question of credting p&l does not arise.
only on waiver and if you still carry business only then can your crediting p&l is right subject to assessing officer satisfied on the genuineness of source of the share appl. money.
R.V.RAO
note the word due for refund. it is due for refund if deposit holder of share appl. money asked for refund.
transfer to the govt. fund arises only when such amounts remained unpaid for seven years from the date they are due.
there are companies sitting on such unpaid shareappl. money for years.
so if you dont receive an appl. for refund ,it is not due for repayment subject to above conditions of trsfr. to govt.fund.
i cannot recollect any section or prov. under cos. act to credit the unpaid shareappl. deposit to p&l account.
it is not always a must that you allott shares against such a share appl. deposit. it is refundable to the original deposit holder of share appl. as explained above.
dont feel obliged that you must allott shares and increase the aut. capital.
if you cannot pay back ,you need to obtain a letter from the holder of share appl. money that he is surrendering the same to the company inview of poor fin. condition and that he has waived the repayment.
since you stopped business ,you can produce such waiver letters on demand by any regulatory agency.as there is no business, the question of credting p&l does not arise.
only on waiver and if you still carry business only then can your crediting p&l is right subject to assessing officer satisfied on the genuineness of source of the share appl. money.
R.V.RAO
15 October 2007
If the share application money was received from the promoter directors, it may be converted in to a loan from Directors with the written consent from them. Then it may be written off with their consent.
15 October 2007
Mr. Ramasubbu K,
Is it possible with a Limited company also ??? Plz support your answer with judiciary.
Is it possible with a Limited company also ??? Plz support your answer with judiciary.
16 October 2007
Mr.Dashrath
Yes it is possible. we can do this. There is no prohibition in the Act for such conversion.
Yes it is possible. we can do this. There is no prohibition in the Act for such conversion.
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