TMI Blog2001 (4) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... consonance with guidelines given in the Prospectus, approval of RBI, Extracts of Board Meetings and as per the provisions of section 73 of the Companies Act and accordingly the shares application money was kept in Bank account. The bank has acted as a Trustee and the amount was not allowed to be either withdrawn or utilised by the assessee-company till the final allotment of shares. After the final allotment of shares was made, the non-allotees were refunded the principal amount. The accumulated interest on the deposits towards applications for allotment of shares both in case of allotees as well as non-allotees of shares for the interim period i.e., the date of deposit by the share applicants and the date of allotment of shares, was capitalised by the assessee-company. The Assessing Officer treated such interest earned for the interim period as income from other sources in the hands of the assessee-company, and thus brought into tax the amount of interest. The Assessing Officer also disallowed the claim of Rs.1,44,40,535 and Rs.38,54,600 in the assessment years 1992-93 and 1993-94 respectively as deduction towards share issue expenditure. These having been confirmed, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in Tuticorin Alkali Chemicals Fertilizers Ltd.'s case cannot be applied to the instant case. According to him, in that case Hon'ble Supreme Court observed that income is something which flows from property that property or source should belong to the applicant. In the present case, this is absent. 4.3 We have carefully perused the decisions of the ITAT, Madras Bench 'A' Henkel Spic India Ltd.'s case and found that the contention taken by the learned AR of the assessee is in consonance with the said decision. In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. the matter was related to investment of borrowed funds prior to commencement of business and the interest income earned on the same and their Lordships have treated such income as 'income from other sources'. Further some more propositions are emanating from the said decisions as follows: (a) Interest income is always of a revenue nature, unless it is a receipt by way of damages or compensation. Merely, because, it was used to repay interest on loan taken by the assessee, it did not cease to be an income. (b) If a company has not commenced business there cannot be any question of assessment of its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble A.P. High Court and Delhi High Court. Although the assessee's contention with regard to observation of the different guidelines, Acts and Rules under the provisions of Company Act and Rules, RBI instructions etc., in confirmity with such Act and Rules, it cannot be brushed aside the fact that the interest income earned has gone to the coffer of the assessee-company. Since the assessee-company has not commenced business there cannot be any question of assessment of its profits and gains of business but that does not mean that until and unless the company commences its business its income from any other source will not be taxed. For the reasons discussed above, we are of the firm view that the interest amount in question has rightly been treated by the authorities below to be the income of the assessee as 'income from other sources'. 5. The learned AR of the assessee next vehemently challenged the action of the authorities below in not allowing the assessee to set off the expenditures incurred in the process of issuing of shares against the amount received. He submitted before us that the assessee-company claimed a deduction of Rs.1,44,40,535 and Rs.38,54,600 in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank guarantee cannot be separately assessed under section 56 of the Income-tax Act. In view of the Supreme Court ruling Tuticorin Alkali Chemicals Fertilizers Ltd's case the decision of A.P. High Court Vidyut Steel Ltd's case is no more a good law on the point. (4) In the case of Bokaro Steel Ltd., the Hon'ble Apex Court held that interest on advances to contractors, rents from quarters let out to employees of contractors, hire charges from plant and machinery, royalty on stones removed from assessee's lands are all amounts directly connected to and incidental to construction of plant by assessee amounts were capital receipts and not as income of the assessee from any independent source. (5) In the case of Karnal Co-operative Sugar Mills Ltd., the assessee-company deposited money to open a letter of credit for purchase of machinery required for setting up its plant in terms of agreement with suppliers which was on the money so deposited that some interest has been earned. This is, therefore, not a case of whether surplus share capital which was lying idle which being deposited in bank for the purpose of earning interest is directly linked with the purchase of plant and m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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