1993 (9) TMI 344 - HC - Income Tax

Summary

Issues:
1. Taxability of interest received from deposits with a bank out of money from public subscription as income from business.
2. Deductibility of share issue expenses from income received from interest on deposits with the bank.

Analysis:
1. The case involved questions regarding the taxability of interest received from deposits with a bank, derived from money raised through public subscription, as income from business. The assessee company, engaged in manufacturing calcined petroleum coke, received substantial share capital subscriptions from the public, leading to excess funds being deposited in a bank, generating interest income. The Tribunal categorized this interest income as 'Income from other sources' rather than 'Income from business,' which was not contested by the assessee's counsel. The Court concurred with the Tribunal's decision, considering that the company's business was still under construction and production had not commenced, thus affirming that the interest income could not be classified as business income but rather as 'Income from other sources.'

2. Additionally, the case addressed the deductibility of share issue expenses from the interest income earned on the bank deposits. The assessee had argued for the deduction of the entire share issue expenditure from the interest income. However, since the interest income was classified as 'Income from other sources,' the share issue expenses could not be treated as business expenditure. The Court noted that Section 35D of the Income-tax Act applied in such situations, allowing for the deduction of such expenditure over successive previous years from the year in which the business commenced. Consequently, both questions were answered negatively in favor of the revenue.

3. Despite the above rulings, the Court acknowledged the assessee's entitlement to claim deductions under Section 35D for the share issue expenses. The Tribunal was directed to modify its order to allow for the deduction of the share issue expenditure in accordance with Section 35D. No costs were awarded in the case.