Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6391 of 2013
The Commissioner of Income TaxIV,
Ahmedabad …..Appellant(s)
Versus
M/s. Shree Rama Multi Tech Ltd …..Respondent(s)
WITH
CIVIL APPEAL NO. 8336 OF 2013
J U D G M E N T
R.K. Agrawal, J.
1) The present appeal has been preferred against the
impugned final judgment and order dated 18.12.2012 passed by
the High Court of Gujarat in Tax Appeal No. 235 of 2012 whereby
the Division Bench of the High Court dismissed the appeal filed
by the Revenuethe appellant herein against the judgment and
order dated 21.10.2011 passed by the Income Tax Appellate
Signature Not Verified
Digitally signed by
SWETA DHYANI
Date: 2018.04.24
17:14:42 IST
Reason:
Tribunal (in short ‘The Tribunal”) in ITA No.1039/Ahd./2007 and
ITA No. 240/Ahd./2008.
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2) Brief facts:
a) The Respondent M/s. Shree Rama Multi Tech Ltd. is
engaged in the manufacture of multilayer tubes and other
specialty packaging and plastic products. The dispute in the
present case relates to Assessment Years 19992000, 20002001
and 20012002. The Respondent filed its return of income for the
Assessment Year 20002001 declaring a total income of Rs
20,00,59,650/. However, the Assessing Officer, vide order dated
31.03.2003, passed an order of assessment assessing the taxable
income at Rs 27,61,14,254/. But the same came to be modified
in light of the decision given by the Tribunal dated 16.12.2004 in
ITA No. 1481/Ahd./2004 and ITA No. 1685/Ahd./2004 wherein
the Tribunal has directed for readjudication on certain matters
including that of setoff as claimed under the head of interest on
share application money. In pursuance of the Order passed by
the Tribunal dated 16.12.2004, the total income was re
determined at Rs. 17,30,88,691/ by the Assessing Officer vide
order dated 29.12.2004 but was restricted to 20,00,59,650/ in
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view of proviso to Section 240(b) of Income Tax Act, 1961 (in
short ‘the IT Act’).
(b) Aggrieved by the aforesaid order, the Respondent went in
appeal before learned Commissioner of Income Tax (Appeals).
Learned CIT (Appeals), vide order dated 09.01.2006, allowed the
appeal filed by the Respondent while directing the Assessing
Officer to grant relief by recomputing the income and modifying
the tax calculation without applying the proviso to Section 240 of
the IT Act. In the meanwhile, reassessment proceedings were
initiated in accordance with Section 147 of the IT Act on the
ground that the Assessing Officer has reason to believe that
income for the said Assessment Year has escaped assessment.
Finally, on 21.03.2006, the Assessing Officer determined the
total income at Rs 20,66,29,165/.
(c) Being aggrieved by the order dated 21.03.2006 in not
allowing set off of the interest income against the public issue
expenses in accordance with the directions of the Tribunal while
rejecting the claim for the deduction of interest income of Rs.
1,71,30,212/ from public issue expenses, the Respondent went
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in appeal before the CIT (Appeals) by filing CIT (A) ACITC
8/74/20062007. Learned CIT (Appeals), vide order dated
05.01.2007, partly allowed the appeal filed by the Respondent
while affirming the findings of the Assessing Officer in not
allowing set off of interest income from share application money.
(d) Being aggrieved by the order passed by learned CIT
(Appeals), both the parties filed crossappeals before the
Tribunal. The Tribunal, by a common judgment dated
21.10.2011, allowed the claim of the Respondent with respect to
the deduction on account of interest income of Rs 1,71,30,212
and remanded the matter back to the Assessing Officer on other
issues.
(e) Being aggrieved, the Revenue filed an appeal before the
High Court being ITA No. 235 of 2012. A Division Bench of the
High Court, vide order dated 18.12.2012, dismissed the appeal
on the point of taxability of the interest income.
(f) Aggrieved by the order dated 18.12.2012, the appellant has
filed this appeal before this Court.
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3) Heard learned counsel for the parties and perused the
factual matrix of the case.
Point(s) for consideration:
4) Whether in the facts and circumstances of the present case,
interest accrued on account of deposit of share application
money is taxable income at the hands of the Respondent?
Rival contentions:
5) Learned counsel appearing on behalf of the Appellant
contended that the impugned final order passed by the High
Court is against law and facts of the present case. He further
contended that the High Court grossly erred in relying on its
earlier order dated 26.07.2011 passed in Tax Appeal No. 315 of
2010 titled Assistant Commissioner of Income Tax vs.
and not appreciating the fact that the
Panama Petrochem Ltd.
Department could not file a petition for special leave before this
Court due to low tax effect being Rs. 9,81,541/ wherein it was
held that the interest income occurred by keeping the amount of
share application money in a bank account is liable to be setoff
against the public issue expenses.
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6) Learned counsel for the appellant finally contended that the
law is well settled that the interest income is always regarded as
of revenue nature unless it is received by way of damages or
compensation. The present case is not related either to damages
or compensation and the High Court erred in arriving on such a
conclusion which is not in accordance with law and is liable to be
aside.
7) Per contra , learned counsel appearing on behalf of the
Respondent submitted that the case is squarely covered under
the Commissioner of Income Tax vs. Bokaro Steel Ltd.
reported in (1999) 236 ITR 315 (SC). Learned counsel finally
submitted that the judgment of the High Court was well within
the parameters of law and requires no interference.
Discussion:
8) The Respondent company had come out with initial public
issue during the year under consideration and the amount of
share application money received was deposited with the banks
on which interest of Rs. 1,71,30,202/ was earned which was
shown in the return of income originally filed as income from
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other sources which was also referred to in Col. 13(d) of the Tax
Audit report filed under Section 44AB of the IT Act. Even though
initially the income from the interest was shown as income from
other sources in the return of income, however, the Respondent
had raised an additional ground before the Tribunal to allow the
set off of such interest against the public issue expenses. The
issue was examined by the Tribunal and was set aside for fresh
adjudication by the Assessing Officer. During the course of fresh
proceedings, an opportunity was given to the Respondent to file
the details of interest on share application money. The
Respondent stated that the details of interest income on share
application money was already furnished at Annexure No. 7 of
their letter dated 11.03.2003 at the time of original assessment.
The verification of the said Annexure reveals that the Respondent
had earned the interest income on FDRs placed with the bank,
however, the period for which such FDRs were placed and the
specific period of the interest earned was not found to have been
mentioned. Under the circumstances, it was not possible to
identify as to what portion of interest earned on FDRs was
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relating to the period prior to the allotment of shares or after the
allotment of shares. Keeping in view the specific guidelines of the
Tribunal in this regard and in the absence of specific working of
interest for preallotment and postallotment, the claim of the
Respondent was not allowed and added to the total income under
the head income from the other sources as was declared in the
original return of income filed by the Respondent.
9) Coming back to the facts of the case, we may reiterate that
the Respondent was statutorily required to keep share
application money in the separate account till the allotment of
shares was completed. Interest earned on such separately kept
amount was to be adjusted towards expenditure for raising share
capital. We are, therefore, of the opinion that interest earned
was inextricably linked with requirement of company to raise
share capital and was thus adjustable towards the expenditures
involved for the share issue. Though learned counsel for the
Appellant contended that part of the share application money
would normally have to be returned to unsuccessful applicants,
and therefore, the entire share application money would not
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ultimately be appropriated by the Company, insofar as present
case is concerned, we do not see how this factor would make any
significant difference. Interest earned from share application
money statutorily required to be kept in separate account was
being adjusted towards the cost of raising share capital. In that
view of the matter, we are of the opinion that the High Court was
right in allowing such deduction.
10) In light of the above developments in the case, the question
of law has been decided by this Court in case in
Bokaro Steel
Ltd. (supra) , wherein the company was set up to produce steel.
When the construction of plant was yet not completed, company
earned interest on advances to contractor, rent from quarters let
out to employees of the contractor as well as other income such
as hire charges on plant and machinery let out to contractor,
royalty on stones removed from its land. It was in this
background that this Court held that the amounts were directly
connected to and incidental to construction of plant by the
company, amounts were capital receipts and not income from
any independent source.
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11) Further, the rationale of judgment of Bokaro Steel Ltd.
was followed in vs.
(supra) Commissioner of Income Tax
Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC). In
this case, the company had deposited certain amount with the
bank to open letter of credit for purchase of machinery for setting
up plant. On the money so deposited, it earned interest. In that
background, this Court observed that this is not a case where
any surplus shares capital money which was lying idle had been
deposited in the bank for the purpose of earning interest. The
deposit of money is directly linked with the purchase of plant and
machinery.
12) The common rationale that is followed in all these judgment
is that if there is any surplus money which is lying idle and it
has been deposited in the bank for the purpose of earning
interest then it is liable to be taxed as income from other sources
but if the income accrued is merely incidental and not the prime
purpose of doing the act in question which resulted into accrual
of some additional income then the income is not liable to be
assessed and is eligible to be claimed as deduction. Putting the
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above rationale in terms of the present case, if the share
application money that is received is deposited in the bank in
light of the statutory mandatory requirement then the accrued
interest is not liable to be taxed and is eligible for deduction
against the public issue expenses. The issue of share relates to
capital structure of the company and hence expenses incurred in
connection with the issue of shares are to be capitalized because
the purpose of such deposit is not to make some additional
income but to comply with the statutory requirement, and
interest accrued on such deposit is merely incidental. In the
present case, the Respondent was statutorily required to keep
the share application money in the bank till the allotment of
shares was complete. In that sense, we are of the view that the
High Court was right in holding that the interest accrued to such
deposit of money in the bank is liable to be setoff against the
public issue expenses that the company has incurred as the
interest earned was inextricably linked with requirement of the
company to raise share capital and was thus adjustable towards
the expenditure involved for the share issue.
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13) In view of the forgoing discussion, we are of the view that
the High Court was right in upholding the decision of the
Tribunal dated 21.10.2011 that the interest income earned out of
the share application money is liable to be set off against the
public issue expenses. The judgment passed by the Division
Bench of the High Court in remanding the matter to the Tribunal
on other issues requires no interference.
14) The appeals are accordingly dismissed. The parties to bear
their own cost.
…….....…………………………………J.
(R.K. AGRAWAL)
…….…………….………………………J.
(ABHAY MANOHAR SAPRE)
NEW DELHI;
APRIL 24, 2018.
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