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Company autorised capital

Sandeep Mishra (CA FINAL) (151 Points)

30 January 2010

Hi..Friends, Suppose 1 pvt ltd. company has got paid up cap.of 5 lakhs which is also authorised capital. During the year it has shown huge receipts in its bank as aaplication money received for shares. And inthe immidiately next year it paid back some of the amount to the applicant. Friends , i want to know tha the financial arrangement made by the company is within the purview of law????? If not, what might be the consequences??? Plz give the specific replies...... Have a nice day.......

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16 Replies

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 30 January 2010

its denied...

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 30 January 2010

Dear Sandeep,

1. Share Application can not be accepted if authorised capital is equal to paid up capial.. coz as per schedule VI of compamies act , issued capital cannot be morethan authourised capital.. So its the violation of companies act.

2. So the application money received during the year can be treated as unsecured loan u/s 269SS of income tax act.. so the AO can treat the same accordingly..

But Views other members shud also be solicited..

Adarsh

Mitali Agarwal (Company Secretary) (638 Points)
Replied 30 January 2010

A company can accept application money even if its authorised cap.= paid up cap. As making application to the company for allotment is just an offer pending acceptance from the company. Without acceptance the same would not be a binding contract for the company (as explained by Ankur Sir in his previous replies).

But since the co. has refunded some of the amount, it means th co. has accepted remaining applications and should have made allotment or is in the process of making allotment to them. Views of other members solicited.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 30 January 2010

agree with Mr Mitali Agarwal

Sandeep Mishra (CA FINAL) (151 Points)
Replied 30 January 2010

No.....actually i am asking on the basis that when company has its auth.capiatl fully paid up and its shares are not freely transferable , hw can it keep huge amt as share application money???????? Even if we look at company's act it says that co. has to refud applcation money if shares are not alloted , within 90 days otherwise pay interest. But nothing like that has happend. I think co should show such application money as unsecured loan????? Ur views are solicited.....

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 30 January 2010

Originally posted by : SANDEEP MISHRA
	No.....actually i am asking on the basis that when company has its auth.capiatl fully paid up and its shares are not freely transferable , hw can it keep huge amt as share application money???????? Even if we look at company's act it says that co. has to refud applcation money if shares are not alloted , within 90 days otherwise pay interest. But nothing like that has happend. I think co should show such application money as unsecured loan????? Ur views are solicited.....

Sandeep..

Ur query is not clear...

please clarify whether authorised capital is fully exhausted?? if yes the excess money received on application must be refunded to the applicant... The company cannot keep that money..

the same can be treated as unsecured loan as i said in my previous reply...

Adarsh

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 30 January 2010

Dear Sandeep, No, in case the Authorised Capital and the Paid up capital are equal (as in your case Rs. 5 Lakh) no further, application money can be received by the company without increasing its Authorised Capital.

Aditya Mishra (Student) (35 Points)
Replied 30 January 2010

Hi To every one here aaditya, i have a querry related to Sandeep. same, co. has an autho. cap. (5 Lakh) how many shares can a co. issued to public? as well as its F.V.

Amir (Learner) (4016 Points)
Replied 31 January 2010

Dear Adarsh,

I think Share application money(together with paid up capital) can exceed the Authorized capital

Can the amount of share application money be treated as undisclosed income if it was found that the subscribers to the share capital were not genuine?

CIT v. Electro Polychem Ltd. (2007) 294 ITR 661 (Mad) Relevant Section: 68 The assessee-company filed its return of income for the relevant assessment years. The Assessing Officer found that the assessee had brought share capital by way of share applications in fictitious names. Accordingly, he made additions under section 68 in respect of the share application money. The issue under consideration in this case is whether the amount of share application money can be treated as undisclosed income if it is found that the subscribers to the share capital are not genuine. The Madras High Court applied the ratio of the decision of the Delhi High Court in CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 in this case. In that case, it was held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This observation of the Delhi High Court was confirmed by the Apex Court in CIT v. Stellar Investment Ltd. (2001) 251 ITR 263.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 01 February 2010

Acceptance of share application money over and above the authorised capital is not an issue at all and it is 100% legal and permissible.

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 01 February 2010

Originally posted by : Amir
	Dear Adarsh, I think Share application money(together with paid up capital) can exceed the Authorized capital Can the amount of share application money be treated as undisclosed income if it was found that the subscribers to the share capital were not genuine? CIT v. Electro Polychem Ltd. (2007) 294 ITR 661 (Mad) Relevant Section: 68 The assessee-company filed its return of income for the relevant assessment years. The Assessing Officer found that the assessee had brought share capital by way of share applications in fictitious names. Accordingly, he made additions under section 68 in respect of the share application money. The issue under consideration in this case is whether the amount of share application money can be treated as undisclosed income if it is found that the subscribers to the share capital are not genuine. The Madras High Court applied the ratio of the decision of the Delhi High Court in CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 in this case. In that case, it was held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This observation of the Delhi High Court was confirmed by the Apex Court in CIT v. Stellar Investment Ltd. (2001) 251 ITR 263.

Dear Amir...

Yes.. Agreed wid this case law.. i'd also read the same earlier..

My point is, if once authorised capital is fully exhausted in any of allotment, & the company wants to issue further shares, how can the shares be issue as it has no free authourised capital?

I m not talking about the position of before allotment.. i m talking about the situation when the authorised capital is equal to the paid up capital.. & company wants to issue further shares..

Amir (Learner) (4016 Points)
Replied 01 February 2010

Dear Adarsh,

I understood what u were asking that's why I bolded that "Under No Circumstances........"

I think that if Paid up capital = Authorized capital, still that judjement will hold good........And it will not be treated as Undisclosed Income..

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 01 February 2010

As per my opinion receipt of share application money over and above of Authorised capital is not a default at all. Reason being share application money is not in the nature of paid up capital unless and until allotment of share against the share application money.

In other words only after allotment of share you can consider such share application money as paid up share capital. But before passing allotment resolution you have to increase your Authorised capital.

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CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 22 February 2010

In my Opinion..

"Paid up capital is the part of Issued Capital

and

Issued Capital is the part of Authorised Capital"

If company's authorised capital is fully exhausted, then company has to increase its Authorised Capital BEFORE BRINGING UP NEW ISSUE... and if New issue is not brought up then how can anyone get share application & for which issue the share application be filed???

So, there must be an ISSUE OF SHARES for receiving share application form.. If no new issue is brought by the company, then share application money cannot be accepted by the company....

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