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TMI Blog1982 (1) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived the said amount of Rs. 6 crores on 22nd July, 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 dt. 1st Nov., 1976 it resolved on two points as follows. (i) The government's contribution received by the assessee company shall now be made available to Gujarat State Fertilizer Co. Ltd., co-promoter with the Government of Gujarat to meet the expenditure on execution of new fertilizer project. (ii) In the event Gujarat State Fertilizer Co. Ltd., is not required to utilise immediately the contribution received from government, and if any portion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 CIT(A), the as' s argument was two-fold: (a) The second resolution dt 1st Nov., 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 Commr. (A) on the ground that after payment of Rs. 6 crores to the assessee company the government had no right over the money which belonged to the assessee-company. (b) That the government had an over-riding title in respect of the income on the deposit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were later on modified by a subsequent resolution. 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 He has also argued that before the allotment the government could have withdrawn the amount paid to the assessee- company and therefore it was free to impose the condition with regard to the payment of interest which then became binding on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 ld. deptl. rep has urged that the money in question having been paid to the assessee-company belonged to it, that the short term deposits were in the name of the assessee company and that therefore, the income of interest on those deposits belonged to the assessee-company making it liable to tax thereon. What the assessee company did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1977 and that under the Capital Issue Control Act no company can issue capital in excess of Rs. 50 lacs without the consent of the Central Government. The Letter of the Gujarat Government asking the assessee company to pay interest amount on the short term deposit to the State Government is dated 13th Jan., 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 overriding title has been stated by the Supreme Court in CIT vs. Tranvancore Sugars and Chemicals Ltd. 1973 CTR (SC) 49 : (1973) 88 ITR 1 (SC). In that case the promoters of the assessee company had entered into an agreement with the Government of Travancore, whereby the assets of the sugar compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his money, inter alia invest the money in short term deposit and earn interest thereon. Therefore from the beginning when the amount was contributed there was 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-company to place and utilise the money on short term deposits. All that it did by the combined effect of resolution dt. 1st Nov., 1976 and the subsequent letter dt. 13th Jan., 1977 was to ask the assessee that if money was placed on short term deposits the interest thereon was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have been deducted while computing the capital for the purpose of relief under s. 80J of the IT Act, 1961. Upto 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 amount 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 assessee. The amounts had been paid for a specific purpose and could be returned only if the shares were not allotted. The decision clearly shows that the court was concerned with the question whether that amount received was a loan and it was in that context the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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