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

Citation: [2018] 3 S.C.R. 927 · Decided: 24-04-2018 · Supreme Court of India · Bench: R.K. AGRAWAL · Disposal: Dismissed

Judgment (excerpt)

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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 accrual of some additional income then the income is not liable
to be assessed and is eligible to be claimed as deduction.
Dismissing the appeals, the Court
HELD: 1. 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.  Therefore, 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.
Interest earned from share application money statutorily required
to be kept in separate account was being adjusted towards the
cost of raising share capital. [Para 9][932-C, E]
[2018] 3 S.C.R. 927
927
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SUPREME COURT REPORTS
[2018] 3 S.C.R.
2. 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 instant 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,
the interest accrued to such deposit of money in the bank is liable
to be set-off 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.
The High Court was right in upholding the decision of the Tribunal
that the interest income earned out of the share application money
is liable to be set off against the public issue expenses. [Paras
12, 13][933-D-F, G]
Commissioner of Income Tax v. Bokaro Steel Ltd.
reported in (1999) 236 ITR 315 (SC); Commissioner
of Income Tax v. Karnal Co-operative Sugar Mills Ltd.
(2000) 243 ITR 2 (SC) – relied on.
Case Law Reference
(1999) 236 ITR 315 (SC)
relied on
Para 7
(2000) 243 ITR 2 (SC)
relied on
Para 11
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6391
of 2013.
From the Judgment and Order dated 18.12.2012 of the High Court
of Gujarat at Ahmedabad in Tax Appeal No. 235 of 2012.
WITH
C. A. No. 8336 of 2013.
Arijit Prasad, Ms. Gargi Khanna (for Mrs. Anil Katiyar), Advs.
for the Appellant.
Amar Dave, P. S. Sudheer, Rishi Maheshwari, Ms. Anne Mathew,
Ms. Shruti Jose, Advs. for the Respondent.
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The Judgment of the Court was delivered by
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
Revenue-the appellant herein against the judgment and order dated
21.10.2011 passed by the Income Tax Appellate Tribunal (in short ‘The
Tribunal”) in ITA No.1039/Ahd./2007 and ITA No. 240/Ahd./2008.
2. Brief facts:-
a) The Respondent - M/s. Shree Rama Multi Tech Ltd. is engaged
in the manufacture of multi-layer tubes and other specialty packaging
and plastic products. The dispu

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