Share application money interest remained with the trust fund and did not accrue as company income until allotment was complete.

Share application money received on a public issue had to be kept in a separate bank account until allotment was completed or the amounts became refundable. The company could not treat the principal or the interest earned on its deposit as its own funds while the statutory process remained incomplete and refundable sums were unpaid. The interest was regarded as attached to the trust fund for the applicants, and only the balance remaining after allotment and repayment obligations could belong to the company. On that basis, the interest did not accrue as the company's income for the assessment year 1992-93 and was not taxable in that year.

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Issues: Whether interest earned on short-term deposits of share application money accrued to the company as income during the assessment year 1992-93.

Analysis: Share application money received on a public issue had to be kept in a separate bank account under section 73 of the Companies Act, 1956, until the allotment process was completed or the money became refundable. The company could not use either the principal or the interest as its own funds until the statutory process ended and all refundable amounts were repaid. The interest earned on the deposit of such money remained attached to a trust fund for the benefit of the applicants, and only the balance remaining after completion of allotment and repayment obligations could be treated as belonging to the company.

Conclusion: The interest did not accrue to the company during assessment year 1992-93 and was not taxable in that year.

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