2017 (4) TMI 185 - HC - Income Tax

Addition u/s 68 - Held that - Revenue states that the impugned order itself holds that share premium of ₹ 490 per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of section 68 of the Act and found on facts that it is not so hit. Therefore, section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner.- Decided against revneue Interest income from fixed deposit chargeable as business income - assessee s subsidiary company has started manufacturing - Held that - The business of the respondent- assessee was of financing, investing, sourcing, operating, green or clean technological products and services had commenced. Therefore, consequently, allowed the claim made for depreciation and expenses to deter mine business profits. The above finding of the Tribunal that the business of the respondent had commenced is not challenged before us by the Revenue. It needs no emphasis that setting up a business or commencement of business cannot vary dependent upon the claim being made, i.e., for expenses it has commenced and for income it has not commenced. Therefore it is not open to the Revenue to contend that the business was not set up/commenced for the purposes of holding that the income earned is not income from business. Further the respondent s business and the period of fixed deposits, the impugned order holds the interest earned on them is taxable as business income. In fact this court is almost similar circumstances in Indo Swiss Jewels Ltd. (2005 (9) TMI 47 - BOMBAY High Court ) has held interest earned on short- term deposits on the money kept apart for the purposes of business had to be treated as income earned from business and could not be treated as income from other sources. Considering the short duration in which the amounts were kept in fixed deposit awaiting use in its business operations would necessarily mean income earned on account of business following the ratio of this court in Indo Swiss Jewels Ltd. (2005 (9) TMI 47 - BOMBAY High Court ). - Decided against revneue

Summary

Issues Involved:
1. Challenge to the order passed by the Income-tax Appellate Tribunal for the assessment year 2011-12 under section 260A of the Income-tax Act, 1961.
2. Interpretation of whether an amount per share constitutes share premium and the application of section 68 of the Act.
3. Determination of whether interest income from fixed deposits should be taxed as business income or income from other sources.

Analysis:

Issue 1: Challenge to Tribunal's Order
The appellant challenged the Tribunal's order dated August 23, 2013, regarding the assessment year 2011-12 under section 260A of the Income-tax Act, 1961. The questions of law raised for consideration included the treatment of share premium, invocation of section 68 of the Act, and the classification of interest income from fixed deposits.

Issue 2: Interpretation of Share Premium and Section 68 of the Act
Regarding the application of section 68 of the Act, the Revenue raised a new plea before the Tribunal, arguing that the share premium should be considered a cash credit. However, the Tribunal found that the identity, genuineness, and capacity of the share subscribers were confirmed, and the transaction was recorded through banking channels. The Tribunal concluded that section 68 of the Act was not applicable as the factual findings did not support it. Therefore, the question related to section 68 did not give rise to any substantial legal issue.

Issue 3: Taxation of Interest Income
The Assessing Officer reclassified interest income from fixed deposits as income from other sources instead of business income. The Tribunal, considering the nature of the business, held that the interest earned should be taxed as business income. The Tribunal relied on a previous court decision to support its stance. The Revenue contended that as the business had not commenced, the income should not be considered business income. However, the Tribunal found that the business had indeed commenced, allowing the claim for depreciation and expenses. The Tribunal's decision was based on the nature of the business and the purpose of the fixed deposits, aligning with previous court rulings. As a result, the question related to the taxation of interest income did not present a substantial legal issue.

In conclusion, the High Court upheld the Tribunal's decision on the interpretation of share premium and the taxation of interest income. The Court directed the Registry to inform the Tribunal about the order for further proceedings. The substantial question of law related to share premium was admitted for appeal.