2020 (6) TMI 512 - HC - Income Tax

Interest income earned from the deposits - Whether share application money is not liable for tax under the head income from other sources when the interest earned was revenue nature - Whether the tribunal was correct in holding that the interest income earned from deposits is liable to be setoff against the expenses incurred towards public issue ? HELD THAT - Revenue fairly submitted that he does not intend to press the first substantial question of law as the same does not arise in the fact situation of the case. Further, it is fairly submitted that the second substantial question of law is answered against the revenue by the Supreme Court in 'COMMISSIONER OF INCOME TAX-IV, AHMEDABAD Vs. SHREE RAMA MULTI TECH LTD.' 2018 (4) TMI 1374 - SUPREME COURT In view of the aforesaid enunciation of law, the second substantial question of law is answered against the revenue and in favour of the assessee.

Summary

Issues:
1. Interpretation of interest income earned from deposits made by the assessee with share application money under the head income from other sources.
2. Setoff of interest income earned from deposits against expenses incurred towards public issue.

Analysis:
1. The appeal under Section 260-A of the Income Tax Act, 1961, was filed by the revenue, raising substantial questions of law regarding the tax liability of interest income earned from deposits made by the assessee with share application money. The first question pertained to whether the interest income, being of revenue nature, is taxable under the head income from other sources, citing the case law of Tuticorin Alkali Chemicals Vs. CIT 227 ITR 172. However, the revenue conceded that this question was not applicable to the case. The second question raised was about setting off the interest income against expenses incurred towards a public issue, with the revenue arguing that the interest earned was of revenue nature, while the expenditure was of capital nature. The Supreme Court precedent in 'COMMISSIONER OF INCOME TAX-IV, AHMEDABAD Vs. SHREE RAMA MULTI TECH LTD.' [(2018) 92 TAXMANN.COM 363 (SC)] was cited, leading to the rejection of the revenue's argument.

2. The learned counsel for the revenue acknowledged that the first substantial question of law was not relevant to the case, and the second question was answered against the revenue by the Supreme Court precedent. Consequently, the second substantial question of law was decided against the revenue and in favor of the assessee. As a result, the appeal was dismissed by the court based on the submission made and the prevailing legal position.