Taxability -forfeiture of partly paid preference shares

Dear Members,

I have a query regarding forfeiture of partly paid non convertable preference shares in a private company during the F.Y. 2014-15.

The fact of the case is as under:

1. The compnay has issued the 5,00,000 partly paid non convertable preference shares at the rate 10/- per shares with premium of rs. 90/- per shares in the year of 2009-10.

2. The company has received rs.8/- per share and rs. 2/- is still called up,  

now we are going for the forfeiture of shares kindy advise us if there is any tax implication under the income tax act (Sec 56(2)(IX) and Sec 2(14) and any other applicable section of income tax act.

as well as kindly advice on the companies act 2013 impacts on forfeiture of shares.

Regards

CS. Jasbir Singh

 

Replies (1)

Prioir to the insertion of S.56(2)(IX) it was held by several courts that since such forfeiture is on account of capital ,it is a capital receipt & hence not liable to tax. But now this should be charged as income.

 

On the other hand forfeiture leads to extenguishment of the rights and hence there is also a transfer as per S.2(47). Sale consideration shall be Nil and loss shall be allowed to the shareholder

Cost of acquisition should also include premium

 

 

Other views are welcomed.

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