Interest income on share application money not taxable per Supreme Court ruling

The Commissioner of Income Tax-IV, Ahmedabad Versus M/s. Shree Rama Multi Tech Ltd.

The Commissioner of Income Tax-IV, Ahmedabad Versus M/s. Shree Rama Multi Tech Ltd. - [2018] 403 ITR 426 (SC) Issues:
- Appeal against the judgment of the High Court of Gujarat in Tax Appeal No. 235 of 2012
- Taxability of interest accrued on deposit of share application money

Analysis:

Issue 1: Appeal against the High Court Judgment
The appeal was filed against the final judgment of the High Court of Gujarat in Tax Appeal No. 235 of 2012. The Division Bench of the High Court had dismissed the appeal filed by the Revenue regarding the taxability of interest income. The Tribunal had allowed the claim of the Respondent regarding the deduction of interest income and remanded other issues back to the Assessing Officer. The High Court upheld the decision of the Tribunal, leading to the appeal before the Supreme Court.

Issue 2: Taxability of Interest on Share Application Money
The main contention revolved around whether the interest accrued on the deposit of share application money was taxable income for the Respondent. The Appellant argued that the interest income should be taxed as revenue nature income unless received as damages or compensation. However, the Respondent cited the case of Commissioner of Income Tax vs. Bokaro Steel Ltd., emphasizing that the interest earned was linked to the requirement of raising share capital and should be adjustable towards the expenses for the share issue.

The Supreme Court analyzed the facts and statutory requirements, noting that the interest earned was connected to the need to raise share capital. The Court found that the interest income was inextricably linked to the company's obligation to raise share capital and therefore could be adjusted against the expenditure for the share issue. Referring to previous judgments, the Court highlighted that if the income accrued was incidental and not the primary purpose of the act, it should be eligible for deduction. The Court concluded that the interest earned on the share application money was not liable to be taxed and could be set off against the public issue expenses, as it was related to the capital structure of the company.

In light of the above analysis, the Supreme Court upheld the decision of the High Court and dismissed the appeals. The Court found that the interest income earned from the share application money was eligible for deduction against the public issue expenses, in accordance with the statutory requirements and the purpose of raising share capital.

The parties were directed to bear their own costs, and the judgment was delivered accordingly.