9911796707
TMI Blog1982 (1) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ived a total sum of Rs. 25,21,500 from the prospective shareholders. As this was far in excess of the company's requirements, the money was kept in short-term fixed deposits and interest of Rs. 14,232 was earned in the relevant accounting year. The assessee had also borrowed moneys from banks on overdraft and had paid interest of Rs. 20,196. Before the ITO, it was claimed that the interest of Rs. 14,232 was not a taxable receipt and in the alternative the amount should be allowed as an expenditure against its income. The ITO rejected the claim of the assessee that the income was not taxable. He, however, held that a reasonable amount of expenditure had to be allowed for earning the interest. This expenditure was estimated at 10 per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also having regard to the provisions of section 70(2)(ii) of the Income-tax Act, 1961 ("the Act"), which provides for the carry forward of capital losses, he came to the conclusion that the interest received by the assessee cannot be allowed to be set off against the capital expenditure incurred. He also held that the facts of Bharat Steel Tubes Ltd. were distinguishable from those of the assessee. He agreed with the ITO that the expenditure allowed was reasonable and dismissed the assessee's appeal. 3. Before us, the assessee raised the following contentions: 1. The assessee is engaged in the activities of raising share capital and as such all expenditure which is related to such activity should be set off against the income received. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in excess of the income earned by the assessee from short-term deposits. It was, thus, pleaded that there was no income to be assessed. In the alternative, it was urged that this income from interest only went to reduce the capital expenditure incurred by the assessee and so it was proper to set off this income against the expenditure incurred in erecting the factory and capitalising the balance. In support, Shri Shah, relied upon certain principles of accountancy which permitted set off of miscellaneous income against capital expenses incurred during the pre-production period. It was further urged by Shri Shah that this matter had been decided in the assessee's favour by the Patna Bench of the Tribunal in the case of Bihar Alloy Steel Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Smt. Padmavati Jaikrishna v. CIT [1975] 101 ITR 153. In the present case, it cannot be said that the purpose of appointing the secretary, finance manager, stenographer, etc., and incurring expenditure on advertisements, etc., was for the purpose of obtaining money far in excess of the company's requirement of share capital and to invest the excess in fixed deposits for the purpose of earning income. The expenditure incurred by the assessee prior to the commencement of the business had no immediate connection with the money earned by the assessee by investing share application money received in excess of its requirement in short-term deposits. The learned departmental representative, forcefully supported the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Jaikrishna. We agree that the arguments advanced by the learned departmental representative that there is no nexus between the earning of the interest income and the expenditure incurred by the company on its staff, and on issue of advertisements, etc. After receiving the share application money, some expenditure is incurred by the assessee in the process of depositing these moneys in the bank. It is this expenditure which is related to the earning of the income which the ITO has estimated at 10 per cent of the receipts and we do not think that the expenditure allowed by him is unreasonably low. 8. We are also in agreement with the learned Commissioner (Appeals) that the Patna Bench did not consider certain aspects of the matter. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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