TMI Blog2003 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... onverted into a public limited company on November 22, 1988. Out of the authorised capital of Rs. 15 crores, the petitioner issued shares to the tune of Rs. 3.30 crores to resident and non-resident Indians in November, 1992. The petitioner is the third largest producer of anti-cancer drugs in the world. The public issue was over subscribed by about 30 times and the petitioner garnered about Rs. 109 crores from the investors in the primary market. Consequently, the petitioner earned interest on the excess share application money in respect of public issue of Rs. 2,04,80,212. The petitioner claimed expenditure to the tune of Rs. 1,50,79,666. The net surplus of Rs. 54,00,546 was treated as capital reserve by the petitioner-company. The respondents initiated action against the petitioner under section 132 of the Income-tax Act. The petitioner thereafter filed an application under section 245C of the Act before the first respondent. The petitioner offered Rs. 54,00,546 being the excess of interest over expenses relatable to the excess share application money. The first respondent directed that interest earned on the excess share application money relating to the public issue of Rs. 2,04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public issue is Rs. 2,04,80,212.37 and the public issue expenses are Rs. 1,64,43,513.48. The excess of income over issue expenses, i.e., Rs. 40,36,698.89 is to be treated as capital reserve and the same is shown in Schedule 2. At the time of hearing, the petitioner's representative worked out that interest earned on the share application money has to be taken to the profit and loss account and the public issue expenses should be written off over a period of ten years. Thus, the net profit of the applicant would increase by Rs. 1,88,35,861.02 and the income-tax on the interest income amounting to Rs. 1,64,86,570 has to be provided. The Assessing Officer for the assessment year 1993-94 observed that the share issue expenses could not be adjusted against the interest earned on share application money, which should be assessed only as income from other sources and not as business income. He opined that the share issue expenses could not be written of over a period of ten years or in the alternative, the share issue expenses could be adjusted against the income admitted by the applicant and the balance alone could be exempt under section 108. According to the petitioner, the interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and Fertilisers Ltd. v. CIT [1997] 227 ITR 172 (SC). This is a case that arose with regard to income-interest, in terms of the Act. The Supreme Court after noticing several judgments has ruled that the income of the assessee has to be classified under six heads, namely, salaries, interest on securities, income from house property, profits and gains of business or profession, capital gains, income from other sources. The computation of income under each of the above six heads has to be done independently and separately. There are specific rules of deduction and allowances under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the Act. The Supreme Court further noticed as under : "The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business there cannot be any question of assessment of its profits and gains of business. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources". This view of the Madras High Court was approved by the Supreme Court in the said judgment. Therefore, what is clear to me is that if interest is earned by the assessee on investment of share investors money and if that investment results in interest, the same cannot (?) be termed as "income from other sources". The Tribunal, in my view, has rightly noticed these judgments and has come to a right conclusion in this regard. The Tribunal, as a matter of fact, has noticed both these judgments to come to a conclusion that the interest received on deposit of share money could be assessed as "income from other sources". This finding cannot be said to be a legal error as contended by learned counsel for the petitioner. The petitioner relies on CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC), that was a case in which the Government company did not start any business and it provided to the contractor and his workmen the quarters for which it charged the contractor for the use of quarters. There were also subsequently agreements with regard to certain advances made by the company to the contractor. Those advances earned interest. Similarly, plant and machinery were provided to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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