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2019 (8) TMI 1674 - AT - Income TaxTaxability of advance for transfer of a capital asset where advance is forfeited - Addition treating the forfeiture of application money on fully convertible debentures as capital asset by invoking the provision of section 56(2)(ix) - As per assessee said convertible debenture does not fall in definition of ‘capital asset’ in the hands of assessee and Ld. CIT (A) has erred both in law and in facts of the case in making the above addition without providing any opportunity to the appellant to represent his case before himself - HELD THAT:- Amended section 56(2)(ix) by Finance Act 2014 has to be understood in light of section 51 of the Act, which provided that where any capital asset was on any previous occasion, subject matter of negotiations for its transfer and any advance or other money has been received and retained by the assessee in respect of such negotiations, then same was to be deducted from the cost for which the asset was acquired or the written down value or the fair market value, while computing the cost of acquisition. Now, from A.Y. 2015-16, if such sum received as an advance is included in the total income then same is deducted from the cost of acquisition. Section 51 refers to capital asset belonging to the assessee which was a subject matter of negotiation for transfer and assessee receiving any sum as advance from such negotiation. It was not applicable to the transferee. Here in this case the debentures were duly allotted to the subscribing companies and due to non payment of further call money under the agreement had led to the termination of the debentures and, therefore, said sum paid by the debenture holder cannot be held to be on account of transfer of capital asset in the hands of the assessee company. Debenture is debt instrument or is a kind of long term loan to borrow money at a fixed rate of interest. It is not a capital asset although the money raised by way of debenture becomes part of the issuer company’s capital structure, but it does not become share capital. Thus, in our opinion, the forfeiture of the amount is not on account of failure of negotiation of transfer of capital asset of the assessee and thus, is not hit by section 56(2)(ix). The addition sustained by the Ld. CIT (A) is directed to be deleted. - Decided in favour of assessee.
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