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2010 (1) TMI 123 - HC - Income TaxCapital loss on account of forfeiture of shares – tax evasion - The assessee after making the initial payment could not make the balance payment and, therefore, M/s BLB Limited forfeited the amount of Rs.59,50,000/- earlier paid by the assessee. The assessee claimed this loss as short-term capital loss under the head “capital gain”. It was submitted on behalf of the assessee that the company had debited the loss to its capital account and not to the profit and loss account and consequently, there was no effect on the profit and loss account of the assessee company. The Assessing Officer, however, observed that the same had cast an effect on the short term capital gains of the assessee showing and the forfeiture of this amount in the manner indicated by the assessee was a tax-evasion tactic, prohibited by law. – CIT(A) and ITAT has decided in favor of assessee – held that - the forfeiture of the convertible warrant has resulted in extinguishment of the right of the assessee to obtain a share in BLB Limited. It is not a case where the asset itself has been extinguished or destroyed. A share in a company is nothing but a share in the ownership of the company. While the right of the assessee to share in the ownership of the company (BLB Limited) stands extinguished on account of the forfeiture, the company, with all its assets, continues to exist. The forfeiture only results in one less shareholder. It is not as if the ‘asset’ in which a share was being claimed was also extinguished. - the question of whether forfeiture amounted to transfer, was not at all raised before the authorities below, hence not acceptable – decided in favor of assessee
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