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TMI Blog1982 (1) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 6 crores towards the payment of its contribution in respect of share capital of the assessee-company. Pursuant to this, the assessee-company received the said amount of ₹ 6 crores on 22-7-1976. However, the State Government later on noted that it was the GSFC who as co-promoter with the Government was actually implementing the project of setting up of a fertilizer plant of the assessee-company. Therefore, by resolution dated 1-11-1976, it resolved on two points as follows: 1. The Government's contribution received by the assessee-company shall now be made available to Gujarat State Fertilizers Co. Ltd., co-promoter with the Government of Gujarat, to meet the expenditure on execution of new fertilizer project. 2. In the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as there was an overriding title in favour of the Government of Gujarat in accordance with the resolution referred to above. The ITO rejected this claim and included it in the income of the assessee-company on the ground that the interest income actually accrued to the assessee and the subsequent payment to the Government was only an application of income. 2. Before the Commissioner (Appeals) the assessee's argument was two-fold: 1. The second resolution dated 1-11-1976 imposed an obligation of payment of interest on short-term deposit as a condition for the Government to subscribe to the share capital of the assessee-company. This argument has been negatived by the Commissioner (Appeals) on the ground that after the payment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the same is expenditure incurred for the purpose of earning that interest income. He has argued that the terms of the first resolution by which the Government agreed to subscribe to the share capital of the assessee-company were later on modified by a subsequent resolution and there was no demur by the assessee-company regarding the modifications. He has also argued that before the allotment the Government could have withdrawn the amount paid to the assessee-company and, therefore, it was free to impose the condition with regard to the payment of interest which then became binding on the assessee-company. On behalf of the revenue, the learned departmental representative has urged that the money in question having been paid to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, our attention has been drawn to the letter dated 22-9-1980 to the Commissioner (Appeals) wherein it has been stated that the sanction of the Central Government for the issue of share capital was given to the assessee-company by the Government's letter dated 21-1-1977 and that under the Capital Issues Control Act, 1947, no company can issue capital in excess of ₹ 50 lakhs without the consent of the Central Government. The letter of the Gujarat Government asking the assessee-company to pay the interest amount on the short-term deposit to the State Government is dated 13-1-1977. i.e., prior to the grant of permission for the issue of capital by the Central Government. 5. The legal position regarding the claim of over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 6 crores was made by the Government of Gujarat for contributing to the share capital of the company, in order that shares may be allotted to it for that amount. Therefore, there was never any understanding that the assessee company could make any other use of this money, inter alia, invest the money in short-term deposits and earn interest thereon. Therefore, from the beginning when the amount was contributed there was a restriction on the assessee-company with regard to the use of the money. The next stage is with regard to the right of the Government to collect the interest earned by the assessee-company if that money was put to any other use. It should be noted that Gujarat Government did not specifically permit the assessee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka High Court in the case of Bangalore Soft Drinks. The decision in that case, however, was in a different context. The question there was whether the sum received towards allotment of shares to a non-resident shareholder constituted a liability and, therefore, was a debt and should have been deducted while computing the capital for the purpose of relief under section 80J. Up to the end of the accounting period the permission of the Reserve Bank of India was not received and so the allotment of shares could not be made. The High Court held that the amounts having been paid for the purpose of allotment of shares, it cannot at all be considered that the amounts were paid by way of loan or that there was any amount of borrowing by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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