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205C

CA Ankit Gulgulia (Jain) (B.COM (H) FCA CIFRS CBV R-ID (IICA) R. Valuer (IBBI)) (5842 Points)

24 December 2010

Facts of the Case

The Promoters of the company had Infused in Certain Amount in the Company 8 Yrs Back as "Share Application Money". Till Date The Money is Held by the Company as Share Application Money Only.As we All Know As per S.205C(2)(b) "the application moneys received by companies for allotment of any securities and due for refund" is also Covered.

Query

Is there Any Decided Case Law that Provides Escape from S.205C for Promoters Specifically or it will apply even if the promoters have given share Application Money ?

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4 Replies

Pradeep Kamath (Chartered Accountant) (134 Points)
Replied 24 December 2010

Ankit,

My views to your query no.2:

A.For the company:

a) As share application money is a capital reciept, there can be no charge on it as income in the absence of specific provision.

b) Section 269SS is attracted based on the Jharkhand HC's decision in the case of Bhalotia Engineering Works pvt ltd (275 ITR 399)

B. For the promoters:

Karnataka HC in the case of BPL Sanyo Finance has held that forfieture of share application money can be treated as capital loss (312 ITR 63) - note that the shares were alotted in this case.

In your given case, as the shares are not allotted, there cannot be a capital loss as no right is extinguished to fall under the definition of transfer.

Thank you for the query; looking forward for superior guidance.

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Jaideep (Service) (1368 Points)
Replied 24 December 2010

Broadening scope of query...

Is there any time limit to allot share of the share application money received. As per Companies Act, 1956 shares needs to be alloted in reasonable time.

Regards

Jaideep Pandya

CA Ankit Gulgulia (Jain) (B.COM (H) FCA CIFRS CBV R-ID (IICA) R. Valuer (IBBI)) (5842 Points)
Replied 24 December 2010

Dear Jaipdeep,

Share Application Money if recived from PROI would be Covered under FEMA Provisions and Receiving company must allot or refund within 180 Days and file FC GPR for the Same with their respective AD's.

But if Money is From PRI then no Such Provisions. But the Company must ensure that it allots/refunds in atleast 7 Years to avoid implications of S.205C(2)(b) of companies Act,1956.

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