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Share application money — whether covered by Sec. 269SS

We as a company have received share application money in cash. We refund the amount, when the shares are not allotted. Are such transactions covered by Sec. 269SS and 269T, when they exceed the limit of Rs. 20,000 so as to merit penalty.

Sec. 269SS and 269T cover loans or deposits. Money given towards share application cannot be described as a loan or deposit, because both loan and deposit are expected to be returned in cash and do not form consideration for goods to be supplied or shares to be allotted. But all the same, there is a decision adverse to this inference in Bhalotia Engineering Works Pvt. Ltd. v CIT (2005) 275 ITR 399 (Jharkand). The view taken in this decision is erroneous, but at the same time, it should put the companies on guard to avoid the unnecessary contingency of contesting the narrow Departmental view. However, penalty will be spared, even if share application moneys received in cash are treated as loans or deposits, if there is reasonable cause for acceptance of cash and the transaction is otherwise genuine.

S. RAJARATNAM

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