1997 (4) TMI 53 - HC - Income Tax

Delhi High Court: Share allotment funds as deposits under Income Tax Act

The High Court of Delhi ruled in favor of the Revenue in a case related to the assessment year 1978-79. The court held that money received for share ... Deposit within the meaning of section 40A(8) - disallowance of 15 per cent. interest under section 40A(8) - capital employed for deduction under section 80J - treatment of depreciable assets (actual cost versus written down value) - application of Supreme Court precedent in Lohia Machines Ltd.Deposit within the meaning of section 40A(8) - disallowance of 15 per cent. interest under section 40A(8) - Sums received for allotment of shares but retained by the company without allotment amount to deposits attracting disallowance under section 40A(8). - HELD THAT: - The assessee itself treated the amounts retained for allotment of shares as deposits and paid interest to the applicants. Having treated and dealt with the receipts as deposits, the Tribunal's conclusion that those receipts fall within the ambit of deposits envisaged by section 40A(8) and that 15 per cent. of the interest payable thereon is disallowable is supported by the facts and circumstances recorded. The Court therefore upholds the view that the retained sums are deposits for the purposes of section 40A(8) and the statutory disallowance applies.Affirmed for the Revenue; disallowance under section 40A(8) sustained.Capital employed for deduction under section 80J - treatment of depreciable assets (actual cost versus written down value) - application of Supreme Court precedent in Lohia Machines Ltd. - Whether actual cost of depreciable assets is includible in capital employed for computing deduction under section 80J instead of written down values - held that written down values, not actual cost, are to be used. - HELD THAT: - The Court applied the binding decision of the Supreme Court in Lohia Machines Ltd., which reversed earlier contrary High Court views. In view of that precedent, the actual cost of depreciable assets is not to be substituted for written down values when determining capital employed for the purposes of section 80J. The Court therefore rejects the assessee's contention and adheres to the Supreme Court's ruling that written down values are the proper measure.Answered against the assessee and in favour of the Revenue; written down values govern capital employed for section 80J.Final Conclusion: Both questions referred are answered in favour of the Revenue: (i) retained sums for allotment of shares are deposits within section 40A(8) attracting the 15% disallowance of interest; and (ii) capital employed for section 80J is to be computed using written down values of depreciable assets in accordance with the Supreme Court's decision in Lohia Machines Ltd. The High Court of Delhi ruled in favor of the Revenue in a case concerning the assessment year 1978-79. The court held that sums of money received for share allotment, which remained with the company without shares being allotted, constituted deposits under section 40A(8) of the Income-tax Act. The court also determined that the actual cost of depreciable assets, not just the written down values, should be included in the capital employed in the industrial undertaking under section 80J. The judgment was based on the assessee's treatment of the amounts as deposits and the Supreme Court's decision in Lohia Machines Ltd. v. Union of India.