Readers must be aware that the courts and Tribunal has regarded the forfeiture of amounts of share or debenture application money as capital recipt. This was analysed in Is forefieture of share or debenture application money taxable?
The Direct Tax Code has incorporated provision u/s 56(2) by which not only share application money , but all kinds of forfeiture are sought to be taxed . Clause (v) of section 56(2) is given under :
“(v) any amount accrued, or received, on account of the cessation, termination or forfeiture of any agreement entered by the person, if the amount is not included under the head ‘Income from business’.”
It means that no more one can take the shield of income being capital in nature for keeping such amount as non taxable.