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Section269T- Conversion of loan into share application money

12 October 2007

If a loan given by a Co.A ( by account payee cheque) to Co. B, is converted into shares of Co. B ( on default by co. B to repay within stipulated time period of 2 years), will it attract the rigour of Section 269T ? Will it be considered as payment otherwise than by an account payee cheque in terms of said section ?

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8 Replies

Abhishek (Chartered Accountant) (142 Points)
Replied 12 October 2007

As far as my view is concerned 269T should be interpreted literally and thus adjustment entries will come under the purview of the said section....

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(Guest)

Appreciate that money had come by an account payee cheque to co. B. Only change in character of payment. Shares are being allotted to the same person. Similar clauses of conversion are there in the Loan Agreements of Financial Institutions.

Abhishek (Chartered Accountant) (142 Points)
Replied 12 October 2007

i understood that and kept my view...guess we need more suggestions

Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 12 October 2007

section 269T mandates amount to be repaid by account payee cheque only . However , if reasonable cause is there , no penalty under section 269T can be levied . In my opinion , there is reasonable cause here.

(Guest)

pls clear my views in e-tds thanks

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CMA Gul S (Program Manager) (5910 Points)
Replied 13 October 2007

Hi Dinesh, Please have a look at the link hope this would clear your doubts for e-tds https://www.incometaxindia.gov.in/archive/TDSreturns.pdf

(Guest)

Section 269T applies in case of repayment of loans and advances . In this case there is no repayment and only conversion of loan into share app. money , therefore penalty will not beimposed .

Alok Kumar (Practicing C.A.) (56 Points)
Replied 15 October 2007

Section 269 is vey much applicable in this case but if it has been paid by Account payee cheque then there is no any problem only auditor is supposed to Declare in his tax audit report. Furhter in this case section 2(22) e is also mapplicable , if transaction taken place in between closely held companies. Furhter award of loan and its converson in to Share capital are two diffrent things. Loana amount can be converted in to share capital .