TMI Blog2004 (6) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... 99,42,258 dated16-11-1994on22-11-1994. The aforesaid cheques were debited to the account of the assessee on24-11-1994. Copy of above statement is available at page 41 of the paper book. A perusal of aforesaid statement shows that opening balance with the assessee prior to deposit of Rs. 1,08,18,995 was only Rs. 5,000 and odd. So the payment of part of consideration for acquiring immovable property is shown to have been made on receipt of Rs. 1,08,18,995. There is no other credit in the bank account to link the payment of Rs. 99,42,258 made to the vendees of property No. D-3/6,Aurangzeb Road,New Delhi. Having regard to above direct evidence, we are of view that share application money received by the assessee was utilized for acquiring immovable property in question. There is direct nexus between receipt of amount and the acquisition of property in question. Factual finding recorded by the lower authorities to the contrary are against material on record and cannot be accepted. The assessee has clearly proved nexus between the receipt of share application money and its utilization in acquiring immovable property referred to above. 3. The second important question is whether above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport the claim of the assessee. Reliance was placed on Mandatory Accounting Standard No. 4 providing for contingencies in the balance sheet. The said Accounting Standard states as under: "The term 'contingencies' used in this Statement is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur." The assessee further relied upon net worth of a company defined as per section 2(29A) of the Companies Act, 1956 as under: "Net worth means sum total of the paid-up capital and free reserves after deducting the provisions and expenses as may be prescribed". (Free reserves means reserves created out of profits and share premium account but does not include reserves created out of revaluation of assets and write back of provisions for depreciation and amalgamation). It was further contended that share application money will not be treated as part of capital of a company before allotment of shares. In this connection, reference was made to section 2(32) of the Companies Act. The assessee further relied upon commentary of learned author Ramaiya on section 73 of the Companies Act where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation; 'debitum in praesenti solvendum in futuro' was unanimously accepted. The Supreme Court also held that in the expression 'debt owed', the verb 'owe' means 'to be under an obligation to pay', and it does not really add to the meaning of the word 'debt'." 7. With reference to the argument of learned counsel for the assessee that there was relationship of debtor and creditor relating to share application money till the shares are allotted, the learned D.R. referred to the Company Law Act and submitted as under: "Under the provisions of the Companies Act, 1956, issue of shares has the following stages: (a) Resolution by the Board of Directors (b) Resolution of the General Body Meeting (c) Offer of shares to prospective shareholders by the Company (d) Acceptance of Offer by the applicants by way of filing share application forms alongwith money (e) Allotment of shares by the Board (f) Issue of share certificates (g) Return of allotment with the ROC. In the instant case, stages (a) to (d) have admittedly been completed. Merely because the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a debt owed by the respondent to Lucas (England) to be taken into account for the purposes of computing the capital under section 80J." In the light of above submission, the learned D.R. submitted that amount in question could not be treated as a liability under section 2(m) of the W.T. Act. 9. We have given careful thought to the rival submissions of the parties in the light of material available on record. The quantification of the alleged liability was not challenged before us. The only question we were called upon to decide was whether Rs. 88,69,000 could be allowed to the assessee as a liability while computing its net wealth in the light of provision of section 2(m) of the W.T. Act. There is no dispute that the assessee has to show and prove that the disputed amount was a debt owed on the two valuation dates in question. There is further no dispute between the parties that amount in question was received by the assessee company as share application money. It has already been held by us that the said money was utilized for acquiring property atAurangzeb Road,New Delhi. The assessee has further to prove that it was a debt in praesenti. In other words, the liability repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight from the very beginning assessee intended to allot shares to the persons who paid share application money. The assessee never intended to return the amount received to the applicants. This was clear from the manner in which amounts were utilized for acquiring immovable properties. The situation of non-allotment of shares did not arise and, therefore, it was out of question that the assessee would be required to return the application money. 13. Having regard to above positive circumstances, and in the absence of any other material, it is difficult for us to hold that share application money represented debt in praesenti or had an obligation in present which made it payable in future. It is not permissible to ignore the treatment given to the disputed amounts by utilizing it immediately. It is difficult for the assessee to contend that assessee had an intention to return the money. The contingency requiring the assessee to return the money never arose. Therefore, there is no justification to treat receipt of share application money as a debt in above circumstances. It cannot be debt the moment it is received by the company because the company had asked for capital and applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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