Summary
The Supreme Court upheld set-off of interest on share application money against public-issue expenses. The money had to remain in a separate bank account until allotment, so the interest arose incidentally from a statutory requirement inextricably connected with raising share capital. It was distinguishable from interest on idle surplus invested to earn income. The Revenue’s appeals were dismissed, and remand on the other issues was left undisturbed.
Issues
- Whether interest on mandatorily segregated share application money was taxable independently or adjustable against share-issue costs.
- Whether the possibility of refunds to unsuccessful applicants altered the connection with raising capital.
Held
- The separate deposit of share application money pending allotment was a statutory requirement. Interest on that deposit was inextricably linked with raising share capital and was adjustable against the expenditure of the issue. (¶¶ 8, 9, 12)
- The possibility that some application money would be returned to unsuccessful applicants did not materially alter that connection in this case. The incidental interest still arose from the required deposit during the issue process. (¶ 9)
- Bokaro Steel and Karnal Co-operative Sugar Mills distinguished receipts directly linked to capital activity from interest earned by investing idle surplus. The Court applied that distinction to the compulsory share-application deposit, rather than exempting all bank interest received by a company. (¶¶ 10, 11, 12)
- The Tribunal’s allowance of set-off against public-issue expenses was sustained. The separate remand concerning other issues required no interference and remained in place. (¶¶ 13, 14)
Result
Revenue appeals dismissed; set-off of the share-application interest against public-issue expenses upheld and remand on other issues undisturbed. Parties to bear their own costs.