This Appeal Under Section 260-A Of The Income Tax Act, 1961 (For Short ‘The Act’) Isdirected Against The Order Of The Income Tax Appellate Tribunal, Hyderabad B v. Derco Cooling Coils Limited

THE HON’BLE SRI JUSTICE DILIP B.BHOSALE AND THE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO I.T.T.A.No.44 of 2001 JUDGMENT:(per the Hon’ble Sri Justice Dilip B.Bhosale) This appeal under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) isdirected against the order of the Income Tax Appellate Tribunal, Hyderabad Benchin I.T.A.No.1402/H/97, dated 22.09.2000, for the assessment year 1992-93. By this order, the Tribunal allowed the appeal filed by the assessee holding that theissue regarding assessability of interest income of Rs.65,64,740/- received by therespondent-assessee from the deposit of share application monies in the bank,before commencement of the business, is not an issue to be decided on the basis ofa prima facie adjustment made under Section 143(1)(a) of the Act and/or isdebatable or complex one, which cannot be decided by applying the law laid downin Commissioner of Income Tax v. Derco Cooling Coils Limited. It is against this backdrop, the revenue has filed the instant appeal raising thefollowing substantial question of law: “Whether on the facts and in the circumstances of the case, the Tribunalwas justified in law in holding that the adjustments made by the AssessingOfficer are debatable, in spite of the issue being settled by the jurisdictionalHigh Court, before the date of the order passed by the Assessing Officerunder Section 143(1)(a) of the Act?” The respondent – assessee is an Export Oriented Undertaking carrying on thebusiness of manufacture of resin polylenses. The assessee - company had filed itsreturn of income for the assessment year 1992-1993 declaring ‘nil’ income. The “Sub:- Filing of return of income for the assessment year 1992-93. We are herewith filing a return of income for the Assessment Year 1992-93 disclosing Nil Income. It is submitted that the Company has not set upits business nor has commenced production and still it is in the process ofsetting up the project. During the year under consideration the companyreceived an interest income of Rs.65,64,736.30. 1) Amount received as interest on share capital Rs.20,23,874.30 2) Amount received as interest on oversubscribed amount. Rs.45,40,862.00 We are advised that the said interest is not taxable on the basis of a legalopinion obtained by us. We also would like to submit that the facts of thecase of AP High Courts decision in the case of Derco Cooling Coil is notapplicable to us. We also would like to submit that even assuming without admitting that apart of the interest is taxable, a reasonable amount of expenditure shouldbe allowed. In view of this we submit that no income is taxable. Hence, weare filing a Nil return of Income.” The Assessing Officer while processing the return of income under Section 143(1)(a) of the Act, made a prima facie adjustment and added interest amount ofRs.65,64,740/- as income of the appellant -company under the head ‘income fromother sources’. On the basis of the prima facie adjustment, the Assessing Officerlevied additional tax under Section 143(1)(a) and interest under Sections 234A and234B of the Act. The Commissioner of Income Tax (A)-V, Hyderabad, dismissed theappeal filed by the respondent – assessee vide its order dated 31.07.1997. Againstthat order, the Tribunal allowed the appeal vide order, dated 22.09.2000 holding asaforementioned. The relevant observations made by the Tribunal, while allowing theappeal, in paragraphs 8 and 11 read thus: “8. We heard both sides in detail. We are not actually concerned in thiscase with the question whether the interest income earned by theassessee-company through short-term deposits of share applicationmoney kept in bank, was taxable as income or not in the pre-productionperiod. In fact, recently, we have decided a similar issue in the case ofAsian Coffee Limited in ITA No.175/Hyd/95 by our order dated 12.07.2000.In that case we have held against the assessee, observing that the “8. We heard both sides in detail. We are not actually concerned in thiscase with the question whether the interest income earned by theassessee-company through short-term deposits of share applicationmoney kept in bank, was taxable as income or not in the pre-productionperiod. In fact, recently, we have decided a similar issue in the case ofAsian Coffee Limited in ITA No.175/Hyd/95 by our order dated 12.07.2000.In that case we have held against the assessee, observing that the interest received by the assessee-company on short term bank depositsmade out of amount collected due to over-subscription of share-capital isincome assessable to tax. To arrive at that decision, we have mainlyrelied on the decision of the Hon’ble Supreme Court in Tuticorin Alkaliescase (227 ITR 172). But, in this case, the question whether such interestreceived by the assessee-company was taxable as income or not, is notthe issue for consideration before us. The issue really involved in this caseis whether such income could be brought to tax as income, by way ofprima-facie adjustment, contemplated under S.143(1)(a). In the casementioned by us, decided by the Tribunal in Asian Coffee Limited (ITANo.175/Hyd/95), the Tribunal had to examine and discuss the issue atlength. It had extensively discussed the issue in the light of various case-laws on analogous concepts, including the decisions of the Hon’bleSupreme Court in Tuticorin Alkalies (227 ITR 172), Bokaro Steel Limited(236 ITR 315) and Challapalli Sugar Works (98 ITR 167), and thedecisions of the jurisdictional High Court in Derco Cooling Coils Limited(supra). It is only on such an elaborate discussion, that the Tribunal hascome to a conclusion in that case that interest income received by acompany during pre-production period on short-term bank deposits madeout of excess subscription money on issue of share capital, is assessableas income under the head ‘income from other sources’. The detailedexamination of the matter made in that case, clearly shows that the issueinvolved is a complex one, and cannot be straightaway decided byapplying a particular case law available on the subject. One has toexamine the real nature of the receipt, in the light of the facts andcircumstances of the case. This position itself declares that the issuecannot be decided conclusively on the basis of a decision, without firstresorting to examination of the facts of the case leading to the proposition.Therefore, at the outset itself, we feel that the issue is a highly debatableone. 11. In the circumstances, in the light of the above discussion, we find thatthe issue of taxability of interest received by the assessee-company,which is subject to appeal, is not an issue to be decided by the assessingofficer through a prima facie adjustment made under S.143(1)(a) of theAct. In order to treat the interest amount as income liable to tax, theassessing officer has to examine the facts of the case, along with thealternative submission of the assessee for allowance of incidentalexpenses, in the light of the available case laws. In this view of the matter,we find that the addition made by the assessing officer through prima facieadjustment, treating the interest received by the assessee, as incomeliable to tax, has to be deleted. Consequently, the additional tax andinterest in relation to that addition also have to be deleted. We accordinglyset aside the orders of the lower authorities on this issue, accepting thecontentions of the assessee in this appeal.” From a bare perusal of facts and in particular covering letter of the respondent –assessee, reproduced while narrating the facts, would show that the respondent –assessee had admitted that during 1992-1993, they had received an interest incomeof Rs.65,64,736.30 and they also gave its break up as follows: (1) the amountreceived as interest on share capital Rs.20,23,874.30, and (2) the amount received as interest on the over subscription amount of Rs.45,40,862/-. From a bare perusal of facts and in particular covering letter of the respondent –assessee, reproduced while narrating the facts, would show that the respondent –assessee had admitted that during 1992-1993, they had received an interest incomeof Rs.65,64,736.30 and they also gave its break up as follows: (1) the amountreceived as interest on share capital Rs.20,23,874.30, and (2) the amount received as interest on the over subscription amount of Rs.45,40,862/-. It is thus clear that the nature of the receipts in the form of interest was not at all indispute. The Tribunal, therefore, erred in observing that one has to examine the realnature of receipts, in the light of the facts and circumstances of the case. Thefindings recorded by the Tribunal to hold that the issue involved is a complex oneand it requires long drawn process for determining the nature of receipts, is wrongand deserve to be set aside. Hence, we allow this appeal answering the question in favour of the revenue andagainst the assessee. We make it clear that we could have decided the issue raisedbefore the Tribunal also but in the absence of the assessee we do not feel it properto do so and hence we remand the matter to the Tribunal for its consideration afresh,in the light of the judgments relied upon by the revenue after giving an opportunity ofbeing heard to the respondent – assessee. No order as to costs. Consequently, miscellaneous petitions, if any, also stand disposed of. __________________ DILIP B.BHOSALE,J Dt:15.04.2015 ______________________ A.RAMALINGESWARA RAO,J GJ