Direct Taxes Case Laws - For May / Nov 2019 CA Final Exams - Part 2

harishseasky , Last updated: 02 April 2019
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3. CIT v/s Multi-Tech Ltd [2018] 403 ITR 426 (SC)

Background:

Assessee Company deposited Share Application Money in a bank.
He earned interest on such deposited money.

Issue: Whether the interest received is Taxable Income under the head Income From Other Sources or, can be set off against public issue expenses and not taxed at all?

Assessee: My lord, it is a statutory requirement to keep share application money in a separate account, till the completion of allotment of shares.
In addition, part of share application money has to be returned, to applicants, to whom, shares are not allotted.

Earning interest is not the purpose of the deposit.

Hence, it is not taxable under the head Income From Other Sources

AO: Your Honour, in my opinion, it is a taxable income, and is taxable as Income From Other Sources

Judge: Silence.

Normally, surplus money is deposited into a bank.
The purpose is to earn interest.
In the course of normal business, when interest accrues,
it is taxable as Income From Other Sources.

Share application money was deposited in a bank.
To make additional income, was not the purpose.
Money was deposited to comply with the Statute.
Interest Accrued is merely incidental.
An issue of Shares relates to Capital Structure of the company.

Expenses incurred in connection with Issue of Shares, like public issue expenses, are not revenue in nature.
Being capital in nature, are to be Capitalised.

Similarly, in this case, interest accrued is inextricably linked with the requirement of raising share capital.

It's not revenue in nature.

As it is inextricably linked with the requirement of raising share capital, it becomes, capital in nature.