1989 (9) TMI 13 - HC - Income Tax

Summary

Issues:
- Interpretation of section 10(3) of the Income-tax Act, 1961 regarding the exemption of interest received on unpaid calls from shareholders as casual income.
- Whether interest received by the assessee on unpaid calls from shareholders is taxable as income under the head "Income from other sources."

Analysis:
The judgment pertains to a reference made under section 256(1) of the Income-tax Act, 1961, regarding the taxability of interest received by the assessee on unpaid calls from shareholders. The assessee, a company engaged in the manufacture of industrial gases, earned interest on unpaid call money from its shareholders during the assessment years 1968-69 and 1969-70. The Income-tax Officer assessed this interest as income from other sources, which was contested by the assessee before the Commissioner of Income-tax (Appeals) and subsequently before the Tribunal.

The Commissioner of Income-tax (Appeals) upheld the assessment, stating that the interest accrued to the assessee due to provisions in the memorandum and articles of association, making it a regular feature and therefore taxable as income. The Tribunal, however, admitted the additional ground raised by the assessee and found that the interest was charged pursuant to the articles of association, not constituting a casual or windfall gain.

During the hearing, the assessee's counsel argued that the interest income was not taxable under section 10(3) as it was of a casual and non-recurring nature, relying on various case laws to support this contention. The Revenue's counsel, on the other hand, argued that the interest was received as per the articles of association and was not casual or windfall income.

The court analyzed the provisions of article 17 of the articles of association, which allowed for the charging of interest on unpaid calls from shareholders. It held that since the interest was charged as per the contractual agreement between the company and its shareholders, it was not fortuitous, accidental, or unforeseen, and therefore not casual income under section 10(3). The court cited precedents to support this interpretation and concluded that the interest received was not exempt from taxation.

In conclusion, the court answered the question in favor of the Revenue, ruling that the interest received on unpaid calls from shareholders was taxable as income. The judgment was concurred by both judges, and no costs were awarded.