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TMI Blog2012 (11) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, be considered to be the income of the assessee. Mere fact that in the earlier year, the assessee had treated such income differently, or that in the year under consideration, initially had paid advance tax on such basis, would not be conclusive of the nature of the income. Income was of the Government of Gujarat and not of assessee, therefore, it cannot be taxed in the hands of the assessee - In the result, the appeal is allowed. The judgement of the Tribunal dated 16.12.1999 is set aside to that extent - in favour of the assessee and against the revenue. - TAX APPEAL NO.99 OF 2000 - - - Dated:- 26-6-2012 - AKIL KURESHI AND MS. HARSHA DEVANI, JJ. J.P. Shah for the Appellant. Sudhir M. Mehta for the Respondent. JUDGMENT 1. This appeal is filed by Gujarat Power Corporation Ltd. (hereinafter to be referred to as "the assessee") challenging the judgment of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated 16.12.1999 rendered in I.T.A. No.1088 of 1994. 2. At the time of admission of the appeal, a question of law was framed. However, with the consent of the learned advocates for the parties, we re-frame such question as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer, further pointed out that the assessee showed such amount under the head of "current liabilities" and such annual accounts were also approved by the Board of Directors in its meeting held on 22.9.1992. 8. The Assessing Officer, however, was not convinced. He held that such interest income was that of the assessee and should, accordingly, be taxed in the hands of the assessee itself. His grounds for forming such a belief were as under: i. That there was no condition when the share application money was given by the Government to the assessee that interest accruing on such amounts should be paid to the Government. The Assessing Officer noted that the letter dated 17.9.1992 from the Government of Gujarat was received after the end of the financial year. ii. That there is no provision in the Companies Act authorizing the share holder or promoter to ask for payment of interest on the share application money. iii. The company had paid advance tax on such income. It was only latter on that the company had an after-thought. In the opinion of the Assessing Officer, this was to avoid payment of income tax. iv. The Assessing Officer relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotted. The assessee relied on the Government's letter dated 17.9.1992 and also placed heavy reliance on the Tribunal's decision in case of Gujarat Narmada Valley Fertiliser Co. Ltd. ( supra ). 12. The Tribunal, however, did not accept the contentions of the assessee and proceeded to allow the revenue's appeal. The Tribunal was of the opinion that undisputedly, the fund received from the State of Gujarat towards allotment of share capital was utilized by the company for making short term deposits with the schedule banks, from which it earned interest income of Rs.53.92 lakhs. The Tribunal was of the opinion that once the promoter made its contribution towards share capital, there was no provision under the Companies Act that any income earned on such contribution, even prior to the issuance of the share certificates, would belong to the shareholder. In the opinion of the Tribunal, the provisions of the Companies Act mandatorily require the company to issue share certificates and deliver the same to the shareholders within the time specified in section 113 of the Companies Act. Any default in doing so would result into penal consequences. Non-issuance of share certificates wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee changed its stand. 15. Counsel relying on sections 41, 113 and 208 of the Companies Act, contended that under the Companies Act, there was no provision whereby a promoter can claim interest on a share money paid to the company. He submitted that any payment of such interest is expressly barred under section 208 of the Companies Act. 16. Having thus heard the learned counsel for the parties, we may peruse the admitted facts more closely. The assessee company was promoted by the State of Gujarat and the G.E.B. to augment power generating capacity in the State of Gujarat. The Government of Gujarat sanctioned a sum of Rs.1 crore in its resolution dated 11.12.1990 for the purpose of government share capital contribution in the assessee company. Correspondingly, such amount was placed at the disposal of the assessee company under a communication dated 11.1.1992 in which the Government wrote to the assessee company that the Government has sanctioned such amount of Rs.1 crore towards equity share capital. Such shares may be issued in the name of the Government of Gujarat. Share certificates when ready be sent to the State Bank of Saurashtra, Bhavnagar for safe custod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposal of the assessee company for allotment of shares, such sum was not utilized for the purpose for which the same was transferred. As per the understanding between the assessee and the Government of Gujarat, pending allocation of shares, whatever interest was earned, should be paid over to the State of Gujarat. The suggestion that the corporation should pay interest on such amount to the State of Gujarat was not found workable. Instead, the Government staked its claim over the interest earned by the Government on such sum of money transferred by the Government to the corporation for allotment of shares. 20. To our mind, the assessee was justified in contending and claiming that such interest cannot be treated as income in the hands of the assessee and that the same, therefore, cannot be taxed accordingly. When the Government of Gujarat placed such funds at the disposal of the corporation, the specific stipulation was that the same should be utilized for the purpose of allotment of shares. If for whatever reason the assessee could not immediately allot the shares, the amount which remained with the corporation, must be held to have been held by the corporation in trust for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of any work or building, or the provision of any plant, which cannot be made profitable for a lengthy period, the company may pay interest on so much of that share capital as is for the time being paid up, for the period and subject of the conditions and restrictions mentioned in sub-sections (2) to (7) of the said section. Sub-section (2) of section 208 in particular provides that no such payment shall be made unless it is authorized by the articles or by a special resolution. Sub-section (3) of section 208 provides that no such payment be made without the previous sanction of the Central Government. 24. In the present case, section 208 of the Companies Act has no application. The said section governs a situation where the company has already issued shares and the activity of the company cannot be made profitable for a lengthy period. In such circumstances, subject to restrictions provided under the said section, it would be open for the company to pay interest on such paid up share capital. In the present case, the question arises with respect to payment of interest on money received for allotment of shares, which shares could not be allotted on account of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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