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TMI Blog2006 (8) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... ts equity shares at a premium on which it incurred expenditure of Rs. 4,20,11,473 during the previous year relevant to the assessment year under appeal. Share application money received in response to the public issue was deposited with the bank which fetched interest amounting to Rs. 51,55,446 to the assessee. The assessee had initially set off the aforesaid interest income against public issue expenses amounting to Rs. 4,20,11,473 and cones-quently adjusted the remaining amount of public issue expenses against share premium account. Thus, interest income was not shown in the Profit Loss Account. On being questioned by the Assessing Officer at the original assessment stage, the assessee submitted that interest paid to the extent of Rs. 39,27,117 on the bridge loan taken by the assessee for the purpose of public issue should be set off which was accordingly set off and the remaining amount of interest (Rs. 12,28,318) was taxed as "income from other sources" in the original order of assessment. On appeal, the original assessment order was set aside in its entirety and consequentially the Assessing Officer was directed to make the entire assessment de novo. In the second round of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the public issue expenses then the interest expenditure forms an integral part of the public issue expenses and is certainly not allowable being a capital expenditure. Moreover, the appellant had not established by leading the necessary evidence in the reassessment proceedings that the afore-mentioned interest expenditure was incurred for the business purpose of appellant. In these circumstances, it has to be concluded that the interest expenses were not incurred for the business purpose of the appellant. While pursuing the regular assessment order I had come across the ultimate utilization of public issue funds and it is noticed that an amount of Rs. 18.30 lakhs is utilized for making investments in shares and to meet the issue expenses another amount of Rs. 3.56 crores was utilized. Thus the substantial part of public issue funds was not utilized for the business purpose of the appellant but was utilized for making investments and for meeting the public issue expenses. In these circumstances, in view of the above facts, it is difficult to concur with the argument of the appellant s AR that the bridge loan was utilized for business purposes. Therefore, in the absence of any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC), it has been held that interest earned by the assessee on investment of share capital in call deposit is assessable as income from other sources under section 56. The assessee, being well aware of the aforesaid legal position, has not agitated the taxability of interest income under the head "Income from other sources" either before the Departmental authorities, namely, the Assessing Officer and CIT(A) or before us. The treatment of interest income as income from other sources under section 56 has never been res controversa either before the Assessing Officer or CIT(A) or this Tribunal. Thus the assessment of interest income under the head income from other sources under section 56 is fairly settled qua both the parties. The only grievance of the assessee, as evident from the grounds of appeal taken by it, is that it should be allowed deduction for a sum of Rs. 39,27,117 being interest paid on bridge loan utilized for meeting the share issue expenses against interest income or, alternatively, the set-off interest income against share issue expenses. Since interest income has been taxed under section 56, the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be adjusted under section 57( iii ) against interest income. For similar reasons, interest paid on bridge loan taken for meeting the share issue expenses is also capital expenditure and hence cannot be adjusted against the interest income. In this view of the matter, the claim of the assessee for setting-off share issue expenses as also interest paid on bridge loan for meeting the share issue expenses against impugned interest income is rejected. The claim of the assessee has to be rejected for another reason also. Section 57( iii ) further requires, apart from prohibiting the deduction of capital expenditure, that the expenditure for which deduction is sought should have been laid out or expended wholly and exclusively for the purpose of making or earning the income chargeable under the head "Income from other sources". In other words, there should be a direct and clear nexus between the expenditure incurred and the income sought to be earned. In the case before us, the admitted position is that interest has been paid on bridge loan, which has been utilized for meeting the share issue expenses. Likewise, share issue expenses have been incurred for raising the share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was formed by the reconstruction of an already existing printing business." 12. Briefly stated, the facts of the case are that the assessee was engaged, during the previous year relevant to the assessment year under appeal, in the business of printing and publication of magazines relating to Stock Market, conducting seminars at different places, sale of publications etc. The claim of the assessee for deduction under section 80-IA was initially rejected by the Assessing Officer on the ground that the assessee could not prove the extent of manufacturing or production activities carried out by the assessee itself. It was found by the Assessing Officer at the original assessment stage that the Plant and Machinery along with the factory building had been placed at the disposal of a sister concern namely, Dalal Street Press Ltd., against a lump sum interest-free deposit of Rs. 50,00,000 which was refundable upon termination of agreement. The Assessing Officer also found that all the activities relating to the printing and publication of the various journals containing information about stock market were carried out by Dalal Street Press Ltd. on job work basis. The assessee could als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of any article or thing, not being any article or thing specified in the list in the Eleventh Schedule to the Income-tax Act as also that the business of the industrial undertaking must neither be formed by splitting up, or the reconstruction, of a business already in existence nor by the transfer to a new business of machinery or plant previously used for any purpose. Deduction under section 80-I has been denied to the assessee by the CIT(A) on the ground that the so-called business of the industrial undertaking of the assessee was formed through reconstruction of an existing business. In our view, the learned CIT(A) has not examined the aforesaid issue in the light of the provisions of section 80-I(2) read with the Explanations thereto. He has not specified in his order the conditions as also the relevant clauses of section 80-I(2) containing those conditions which are not fulfilled by the assessee and how they are not fulfilled. He has also not examined the applicability of Explanations to section 80-I(2) to the case of the assessee. Learned authorized representative for the assessee fairly submitted that the issue would need to be sent back to the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factually incorrect. In this view of the matter, the order of the CIT(A) is confirmed. Ground No. 5 is dismissed. 17. Ground No. 6 reads as under : "6. The ld. CIT(A) has erred in law and on the facts of the case in not giving any findings in respect of an additional ground filed by the appellant in respect of interest charged by the Assessing Officer under section 234B without mentioning thereof in the body of the assessment order." 18. We have heard the parties. Levy of interest is mandatory and automatic. It is not the case of the assessee that the Assessing Officer has not actually charged the interest under section 234B in the IT assessment form (ITNS-150) which has been held to be a part of the assessment order : Kalyankumar Ray v. CIT [1991] 191 ITR 634 (SC). However, levy of interest in consequential. In this view of the matter, we direct the Assessing Officer to re-compute the interest chargeable under section 234B on the income finally determined. Ground No. 6 is dismissed subject to the aforesaid directions. 19. In view of the foregoing, the appeal filed by the assessee is partly allowed in terms of the aforesaid directions. - - TaxTMI - TMITax - In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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