2024 (9) TMI 654 - HC - Income Tax

Additional ground of appeal as raised by the Assessee - Justification on raising of new plea in an appeal - Nature of receipt - interest income earned on compulsory deposits of share application money or subscription money - HELD THAT - We may observe that in National Thermal Power Company Ltd. 1996 (12) TMI 7 - SUPREME COURT the Supreme Court considering the provisions of Section 254 of the Act has observed that the object of proceedings before the Taxing Authorities is to assess correctly the tax liabilities of an assessee in accordance with law. Illustratively, it was observed that as a result of a judicial decision being rendered while the Appeal was pending before the Tribunal, if it was found that a non-taxable item is taxed or a permissible deduction is denied, there was no reason why the assessee should be prevented from raising a question on such issue, before the tribunal for the first time, so long as the relevant facts are on record in respect of such item. It was observed that there is no reason to restrict the power of the Tribunal u/s 254 only to decide the grounds which arise from the order of Commissioner (Appeals). It was held that the Tribunal could not been prevented from considering the questions of law arising in assessment proceedings although not raised earlier. There was no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. Significantly, the Court observed that there may be several factors justifying the raising of new plea in an appeal and each case has to be considered on its own facts. However, the Appellate Authority was required to be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. In these circumstances, it was observed that what was expected was that the Appellant Authority exercises its discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reasons. The law as laid down in Jute Corporation of India Ltd. 1990 (9) TMI 6 - SUPREME COURT was held to be applicable even in such situations arising before the Tribunal. The Supreme Court held that it would not be appropriate for the Tribunal to take narrow view of the matter. In considering the aforesaid clear position in law, certainly we are quite surprised as to how the revenue could raise the question of law 4.1 and 4.2. Accordingly, such question of law clearly tilts in favour of the assessee. Set-off the interest income earned on compulsory deposits of share application money or subscription money against the share issue expenses and other cost of capital assets - As decided in Shree Rama Multi Tech Limited 2018 (4) TMI 1374 - SUPREME COURT Supreme Court in dismissing the revenue s appeal held that the Share Application Money as was received was deposited in the Bank being a statutory mandatory requirement, hence the accrued interest was not liable to be taxed and was eligible for deduction against the public issue expenses. It was further observed that the issue of share relates to capital structure of the company and hence expenses incurred in connection with the issue of share are to be capitalized, for the reason that the purpose of such deposit is not to make some additional income but to comply with the statutory requirement, an interest accrued on such deposit is merely incidental. It was thus observed that the High Court was right in holding that the interest accrued on such deposit of money in the bank was liable to be set off against the public issue expenses. Decided in favour of the assessee.

Summary

Issues:
Appeal filed by revenue challenging Tribunal's order - Questions of law raised: 1) Tribunal's authority to decide issues not raised by respondent, 2) Tax treatment of interest income on deposits, 3) Set-off of interest income against share issue expenses.

Analysis:

Issue 1: Tribunal's Authority to Decide Unraised Issues
The appellant raised questions challenging the Tribunal's authority to decide issues not raised by the respondent. Referring to the decision in National Thermal Power Company Ltd., the Supreme Court emphasized the objective of assessing tax liabilities correctly. The Court held that the Tribunal has the power to consider legal issues not previously raised if relevant facts are on record. Citing the Jute Corporation of India Ltd. case, the Court reiterated that appellate authorities have discretion to allow additional grounds if raised bona fide. In this context, the Court found in favor of the assessee, dismissing the revenue's challenge.

Issue 2: Tax Treatment of Interest Income on Deposits
The second issue pertained to the tax treatment of interest income earned on compulsory deposits of share application money. The Supreme Court's decision in Commissioner of Income Tax - IV Ahmedabad Vs. Shree Rama Multi Tech Limited was cited, where it was held that interest accrued on such deposits, made to comply with statutory requirements, is not taxable income but eligible for deduction against expenses. The Court emphasized that the purpose of such deposits is not additional income but compliance, making the interest incidental. Consequently, the High Court ruled in favor of the assessee, allowing the set-off of interest income against public issue expenses.

Issue 3: Set-off of Interest Income Against Share Issue Expenses
The final issue revolved around the set-off of interest income against share issue expenses. The Tribunal allowed the claim for deduction on interest income and remanded other matters to the Assessing Officer. The Supreme Court's decision supported the Tribunal's decision, stating that interest accrued on mandatory deposits for share applications is not taxable and can be set off against expenses. The Court emphasized the connection between interest earned and the company's need to raise share capital, allowing for adjustment against share issue expenses. Consequently, the High Court upheld the Tribunal's decision, dismissing the revenue's appeal.

In conclusion, the High Court dismissed the revenue's appeal, citing the authoritative pronouncements of the Supreme Court in favor of the assessee. The questions of law raised by the revenue were deemed irrelevant in light of the established legal principles.