1997 (1) TMI 139 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of interest income earned on share application money for the assessment year 1992-93.
2. Nature of the share application money and the interest earned on it.
3. Timing of the accrual of interest income and its assessability.

Detailed Analysis:

Issue 1: Assessability of Interest Income Earned on Share Application Money for the Assessment Year 1992-93
The primary issue was whether the interest income earned on share application money deposited in banks should be assessed for the assessment year 1992-93. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the interest income accrued during the financial year 1991-92 and was assessable for the assessment year 1992-93. The assessee contended that the interest accrued only after the allotment of shares and the completion of statutory formalities, which occurred in the financial year 1992-93, making it assessable for the assessment year 1993-94.

Issue 2: Nature of the Share Application Money and the Interest Earned on It
The assessee argued that the share application money deposited in banks was held in a fiduciary capacity and could not be considered as the company's asset until the shares were allotted. The CIT(A) noted that, as per the Companies Act, the share application money must be kept in a separate bank account and can only be used for specific purposes. The CIT(A) concluded that the restrictions applied to the principal amount also applied to the interest earned on it, implying that the interest income did not accrue to the company until the statutory requirements were fulfilled.

Issue 3: Timing of the Accrual of Interest Income and Its Assessability
The AO argued that the interest income accrued to the company by 31-3-1992, as the shares were allotted by a board resolution on that date. However, the assessee contended that the allotment of shares was not valid until the necessary approvals from the stock exchanges and the Reserve Bank of India (RBI) were obtained, which occurred after 31-3-1992. The Tribunal agreed with the assessee, noting that the share application money and the interest earned on it were held in trust until the statutory requirements were met. Therefore, the interest income did not accrue to the company during the financial year 1991-92 and was not assessable for the assessment year 1992-93.

Conclusion:
The Tribunal held that the interest income of Rs. 1,83,31,363 earned on the share application money deposited in banks was not assessable for the assessment year 1992-93. The interest income accrued only after the statutory requirements for the allotment of shares were fulfilled in the financial year 1992-93. Therefore, the appeal filed by the assessee was allowed, and the assessment order dated 10-1-1996 was set aside.