Capital gain/loss : Ss. 2(47) and 45 of I. T. Act, 1961 : A. Y. 1998 – 99 : Application for shares : Assessee failed to pay balance amount on allotment of shares : Forfeiture of share application money : Assessee’s right in shares extinguished : Loss on f

[Dy. CIT vs. BPL Sanyo Finance Ltd., 312 ITR 63 (Karn) : 223
CTR 461 (Karn.)]

The assessee company had applied for the shares of IDBI and
had remitted the share application money. IDBI allotted 89,200 shares to the
assessee and called upon the assessee to pay the balance sum for issuance of
shares in its favour. The assessee failed to remit the balance outstanding
allotment money. Therefore, the IDBI cancelled the allotment and forfeited the
share application money. In the return of income for the A. Y. 1998 – 99, the
assessee claimed the forfeited amount as short-term capital loss. The
Assessing Officer disallowed the claim. The Tribunal allowed the assessee’s
claim.

On appeal by the Revenue, the Karnataka High Court upheld
the decision of the Tribunal and held as under :

“Consequent to the assessee’s default of not paying the
balance of money on allotment, its rights in the shares stood extinguished on
forfeiture by IDBI. The loss suffered by the assessee, i.e., the
non-recovery of the share application money was consequent to the forfeiture
of its rights in the shares and was to be understood to be within the scope
and ambit of transfer. The Tribunal was justified in holding that it would
amount to short-term capital loss to the assessee.”