CIT vs. Henkel Spic India Ltd. (2015) 379 ITR 322(SC)
The assessee, a public limited company, came out with a public issue of shares on January 29, 1992, and the issue was closed on February 3, 1992. The application money received by the company was deposited with collecting banks or the bankers of the company, to which the amounts were transferred for 46 days. The interest earned on such deposits was sought to be taxed by the Assessing Officer as income for the assessment year 1992-93. The assessee’s contention was that the application money which had been received from the applicants for the allotment of shares was required to be and was kept in a separate bank account as required by section 73(3) of the Companies Act and that the interest earned on those moneys could not have been treated as income accrued to the company even before the allotment process was completed. The allotment process was completed only in the following assessment year after receipt of approval for listing the company’s share in Madras, Delhi, Ahmedabad and Bombay Stock Exchanges such approvals having been received on April 27, 1992, May 8, 1992 and July 6, 1992 respectively.
The Assessing Officer, though he had some doubt as to when the interest was credited to the account whether before or after March 31, 1992, counted the period of 46 days from the date of deposit and on that basis, held that the amount of interest accrued for the period prior to March 31, 1992, was liable to be taxed under the head, “Income from other sources” as the assessee had not commenced business in that year.
On appeal, the Commissioner of Income-tax (Appeals) concurred with the view of the Assessing Officer and held that the interest that had accrued on the application money which had been kept in short-term deposits belonged to the assessee and was liable to be taxed in the hands of the assessee on the basis of accrual. The Tribunal, on further appeal by the assessee, upheld the assessee’s view and set aside the orders of the Commissioner as also the Assessing Officer.
On appeal by the Revenue, the High Court held that the company is not, u/s. 73, required to keep the money in a bank account which yields interest. There is, however, no prohibition in sub-section (3) or sub-section (3A) of section 73 against the money being kept in a bank account which yields interest. The interest so earned, however, cannot be regarded as an amount which is fully available to the company for its own use from the time the interest accrued, as that interest is an amount which accrues on a fund which itself is held in trust until the allotment is completed and moneys are returned to those to whom shares are not allotted. No part of this fund, either principal or interest accrued thereon, can be utilised by the company until the allotment process is completed and money repayable to those entitled to repayment has been repaid in full together with such interest as may be prescribed having regard to the length of period of delay in the return of money to them. It is only after the allotment process is completed and all moneys payable to those to whom moneys are refundable are refunded together with interest wherever interest becomes payable, the balance remaining from and out of the interest earned on the application money can be regarded as belonging to the company. The application money as also interest earned thereon will remain within a trust in favour of the general body of the applicants until the process outlined above is completed in all respects. The prohibition contained in sub-section (3A) of section 73 against the moneys standing to the credit in a separate bank account being utilised for purposes other than those mentioned in that sub-section, is absolute and the interest earned on the amounts in such separate bank account will remain a part of that separate bank account and cannot be transferred to any other account. As the amounts of interest earned on the application money to the extent to which it is not required for being paid to the applicants to whom moneys have become refundable by reason of delay in making the refund will belong to the company only when the trust terminates and it is only at that point of time, it can be stated that amount has accrued to the company as its income.
On further appeal, the Supreme Court noted that it was not in dispute that in the year 1993-94, the assessee had shown the income on account of interest received in the income tax returns and paid the tax thereon. The Supreme Court held that there was no error in the order passed by the High Court holding that the interest income accrued only in the assessment year 1993-94 and was taxable in that year only and not in the assessment year 1992-93. The Supreme Court accordingly dismissed the appeal.
