THE COMMISSIONER OF INCOME TAX-IV, AHMEDABAD vs. M/S. SHREE RAMA MULTI TECH LTD.

CIVIL APPEAL No. 6391/2013Supreme Court[2018] 3 S.C.R. 92724 April 2018Bench: 2 JudgesAuthor: R.K. AGRAWAL, ABHAY MANOHAR SAPRE COMMISSIONER OF8 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Shree Rama Multi Tech Ltd., is engaged in manufacturing multi-layer tubes. The dispute pertains to Assessment Years 1999-2000, 2000-2001, and 2001-2002. The assessee claimed a set-off of interest income earned on share application money against public issue expenses. The Assessing Officer initially assessed the income, but subsequent orders from the Tribunal and CIT(Appeals) led to re-determinations. The Tribunal, in its order dated 21.10.2011, allowed the assessee's claim for deduction of interest income of Rs. 1,71,30,212/- against public issue expenses and remanded other issues. The Revenue appealed to the High Court, which dismissed the appeal. The Revenue has now filed this appeal before the Supreme Court against the High Court's order.

What did the Supreme Court hold?

The Supreme Court held that if share application money is deposited in a bank due to a statutory mandatory requirement, the accrued interest is not liable to be taxed and is eligible for deduction against public issue expenses. The Court reasoned that such interest is inextricably linked with the company's requirement to raise share capital and is thus adjustable towards the expenditures involved in the share issue. The issue of shares relates to the company's capital structure, and expenses incurred in connection therewith are to be capitalized. The purpose of such a deposit is to comply with statutory requirements, and any interest accrued is merely incidental. The Court relied on its earlier decisions in Commissioner of Income Tax v. Bokaro Steel Ltd. and Commissioner of Income Tax v. Karnal Co-operative Sugar Mills Ltd. The Court affirmed the High Court's decision upholding the Tribunal's view that the interest income earned out of share application money is liable to be set off against public issue expenses. The appeals were dismissed.

What were the issues?

1. Whether, in the facts and circumstances of the case, interest accrued on account of deposit of share application money is taxable income at the hands of the Respondent? Assessee's Contentions: The assessee contended that the interest earned on share application money, which was statutorily required to be kept in a separate account until share allotment, was inextricably linked to the expenditure incurred for raising share capital. Therefore, this interest income should be adjustable against public issue expenses and not be taxed as income from other sources. The High Court was correct in upholding the Tribunal's decision. Revenue's Contentions: The Revenue contended that the High Court erred in relying on its earlier order in Assistant Commissioner of Income Tax vs. Panama Petrochem Ltd. The Revenue argued that interest income is generally of a revenue nature unless received as damages or compensation, which is not the case here. They also noted that the Department could not file a special leave petition in the Panama Petrochem case due to low tax effect.

Which sections of the Income-tax Act were involved?

Section 147,Section 240

AI-generated summary — verify with the full judgment below

A B C D E F G H 927 THE COMMISSIONER OF INCOME TAX-IV, AHMEDABAD v. M/S. SHREE RAMA MULTI TECH LTD. (Civil Appeal No. 6391 of 2013) APRIL 24, 2018 [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961 – Deduction – Share application money deposited in bank – Interest income earned therefrom – Claim for set off of interest income against the public issue expenses – Held: 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 – Such interest earned is inextricably linked with requirement of company to raise share capital and is thus adjustable towards the expenditures involved for the share issue.

Income Tax Act, 1961 – Deduction vis-a-vis income from other sources – Distinction between – Held: 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

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 147

All 48,773 judgments and leading authorities on Section 147 →

Recent GST High Court judgments

Search GST case law →