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TMI Blog2022 (9) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... ding Counsel for Income Tax Department appearing for Ms. K.Mamata Chowdary, learned counsel for the respondent/revenue. 3. I.T.T.A.No.138 of 2004 arises out of I.T.A.No.1261/Hyd/97 for the assessment year 1995-96, whereas I.T.T.A.No.9 of 2005 arises out of I.T.A.No.1262/Hyd/97 for the same assessment year 1995- 96, both disposed of by the Income Tax Appellate Tribunal, Hyderabad Bench 'B', Hyderabad (Tribunal), vide the common order dated 09.04.2003. 4. I.T.A.No.1261/Hyd/97 arises out of the rectification order passed by the assessing officer under Section 154 of the Income Tax Act, 1961 (briefly, 'the Act' hereinafter), whereas I.T.A.No.1262/Hyd/97 arises out of the assessment order passed under Section 143(3) of the Act. However, issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Expenses incurred on public issue was one such expenditure. Earning of interest on the money in deposit with the banks was independent of the expenses incurred on public issue. Therefore, setting off the said interest against expenses on public issue was found to be not acceptable. In this regard, assessing officer relied upon the decision of the then composite Andhra Pradesh High Court in CIT v. Derco Cooling Coils Ltd. (1992) 198 ITR 375 (AP), and that of the Delhi High Court in CIT v. Modi Rubber (1994) 208 ITR 379 (DELHI). In the above two decisions it was held that interest earned on share capital money prior to commencement of business was liable to income tax. Therefore, the aforesaid interest income earned was added to the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest accrued on account of deposit of share application money is taxable income at the hands of the assessee? 14. The above question was framed on the following factual background. Respondent/assessee is engaged in the manufacture of multi-layer tubes and other specialty packaging and plastic products. For the assessment years under consideration, respondent/assessee claimed set off under the head of interest on share application money. This was partly allowed by the assessing officer whereafter respondent/assessee went in appeal before the Commissioner of Income Tax (Appeals), which was allowed by the first appellate authority by directing the assessing officer to grant certain reliefs. In the meanwhile, reassessment proceedings wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome accrued is merely incidental and not the prime purpose of doing the act in question which resulted into accrual of some additional income then the income is not liable to be assessed and is eligible to be claimed as deduction. Putting the above rationale in terms of the present case, if the share application money that is received is deposited in the bank in light of the statutory mandatory requirement then the accrued interest is not liable to be taxed and is eligible for deduction against the public issue expenses. The issue of share relates to capital structure of the company and hence expenses incurred in connection with the issue of shares are to be capitalized because the purpose of such deposit is not to make some additional in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income which resulted into accrual of some additional income, then such income is not liable to be assessed; eligible to be claimed as deduction. Applying the above ratio, Supreme Court held that if the share application money received is deposited in the bank in the light of statutory mandatory requirement then the accrued interest is not liable to be taxed and would be eligible for deduction against public issue expenses. On the above basis, Supreme Court held that interest income earned out of the share application money is liable to be set off against the public issue expenses. 17. On thorough consideration of all aspects of the matter, we are of the view that the above decision of the Supreme Court in Shree Rama Multi Tech Ltd., (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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