ORDER
R. Gururajan, J.
1. These petitions are directed against the order of Settlement Commission, dt. 30th Nov., 1998.
2. Petitioner was incorporated on 30th Nov., 1984, as a private limited company for manufacturing alkaloids based medicines for curing cancer, and hypertension. Petitioner-company was converted into public limited company on 22nd Nov., 1988. Out of the authorised capital of 15 crores, petitioner issued shares to the tune of Rs. 3.30 crores to the resident and non-resident Indians in November, 1992. Petitioner is the third largest producer of anti-cancer drug in the world. The public issue was oversubscribed by about 30 times and petitioner garnered about Rs. 109 crores from the investors in the primary market. Consequently petitioner earned interest on the excess share application money in respect of public issue of Rs. 2,04,80,212, Petitioner claimed expenditure to the tune of Rs. 1,50,79,666. The net surplus of Rs. 54,00,546 was treated as capital reserve by the petitioner-company. Respondents initiated action against the petitioner under Section 132 of the IT Act. Petitioner thereafter filed an application under Section 245C of the Act before the first respondent. Petitioner offered Rs. 54,00,546 being the excess of interest over expenses relatable to the excess share application money. First respondent directed that interest earned on the excess share application money relating to the public issue of Rs. 2,04,80,212 has to be brought to tax as income from other sources for the asst. yr. 1993-94 and the expenses to the tune of Rs. 1,50,79,666 is to be. amortised over a period of 10 years under Section 35D of the Act. Insofar as asst. yr. 1994-95 is concerned, it was held that gross interest income of Rs. 19,44,425 should be assessed under the head 'income from other sources' and the same was amortised in accordance with Section 35D of the Act. Annexure-A is the order. Petitioner has challenged the same on various grounds.
3. Heard the learned counsel for the parties.
4. Sri Sarangan, learned senior counsel for the petitioner, essentially contends that the Settlement Commission is wrong in its approach inasmuch as according to him taxing the entire interest income for the asst. yrs. 1993-94 and 1994-95, without allowing the related expenditure is unjustified. According to the learned counsel, the excess share application money is received by the petitioner, never formed capital of the petitioner inasmuch as it remained with the petitioner temporarily as permitted by the Companies Act, 1956. The said money was refunded to respective share applicants, It is neither the borrowed capital nor funds of the petitioner-company. Learned counsel further would say that Section 35D has been wrongly understood and wrongly applied to the facts of this case. Learned counsel would say that Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT : [1997]227ITR172(SC) has to be understood in a manner providing for relief to the petitioner. At the time of arguments, counsel relies on subsequent judgment of the Supreme Court in CIT v. Bokaio Steel Ltd. : [1999]236ITR315(SC) . Per contra, learned counsel for the Department would say that the jurisdiction of this Court is very limited in this matter in view of the judgment of this Court in N. Krishnan v. Settlement Commission and Ors. : [1989]180ITR585(KAR) . Insofar as the facts of this case are concerned, learned counsel would say that the Settlement Commission is fully justified in passing the impugned order.
5. After hearing the learned counsel, I have carefully perused the material on record. From the material on record, what is clear to this Court is that the petitioner did show a sum of Rs. 40,36,698.89 as excess of income over expenses in respect of public issue. Interest earned on share application money in respect of public issue is Rs. 2,04,80,212.37 and the public issue expenses are Rs. 1,64,43,513.48. The excess of income over issue expenses i.e., Rs. 40,36.698.89 is to be treated as capital reserve and the same is shown in Sch. 2. At the time of hearing, the petitioner's representative worked out that interest earned on the share application money has to be taken to P&L; a/c and the public issue expenses should be written off over a period of ten years. Thus, the net profit of the applicant would increase by Rs. 1,88,35,861,02 and the income-tax on the interest income amounting to Rs. 1,64,86,570 has to be provided. The AO for the asst. yr. 1993-94 observed that the share issue expenses could not be adjusted against the interest earned on share application money, which should be assessed only as income from other sources and not as business income. He opined that the share issue expenses could not be written off over a period of ten years or in the alternative, the share issue expenses could be adjusted against the income admitted by the applicant and the balance alone could be exempt under Section 108. According to the petitioner, the interest on the share application money resulting from public issue is capital in nature as the share application money has the character of money held on trust by the bankers on behalf of the share applicants, This argument was repelled by Settlement Commission by holding that in terms of the judgment of the Supreme Court in : [1997]227ITR172(SC) (supra), the Supreme Court has approved the decision of the Madras High Court in CIT v. Seshasayee Paper & Boards Ltd. : [1985]156ITR542(Mad) which in turn has ruled that the interest earned on investment of share capital in call deposits even before the commencement of production should be assessed separately as the income from other sources. Settlement Commission however, ruled that the interest of Rs. 2,04,80,212 earned on the share application money relating to the public issue shall be assessed as the applicant's income from other sources for the asst. yr. 1993-94. The public issue expenses of Rs. 1,64,43,513 shall be amortised over a period of ten years as per Section 35D of the IT Act. For the asst. yr. 1994-95, as per Note 15 of the Notes to the accounts in Schedule 14, the applicant had received interest of Rs. 15 lakhs from Citibank and Rs. 4,44,425 from the Bank of Baroda totalling to Rs. 19,44,425. After deducting the public issue expenses of Rs. 87,599 it had taken the excess income at Rs. 18,56,826 to Capital Reserves. According to the Settlement Commission, Rs. 19,44,425 is to be taxed as income from other sources and the public issue expenses is to be amortised as per Section 35D of the Act. Assessee contends that the order is bad in law and the Revenue supports the same.
6. Material facts reveal that the petitioner approached the Settlement Commission in terms of Section 245D of the Act. Facts are not in dispute, inasmuch as the petitioner has issued shares and the same was oversubscribed. Petitioner received share capital money and the same was invested and interest was accrued. The only question that remains for consideration is as to whether the said accrual of interest on the amount deposited is to be treated as income from other sources or not and as to whether amortisation granted by the respondent is correct in law. In this connection it is pertinent to notice the two judgments of the Supreme Court.
7. Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (supra). This is a case that arose with regard to income-interest, in terms of the Act. The Supreme Court after noticing several judgments has ruled that the income of the assessee has to be classified under six heads namely, salaries, interest on securities, income from house property, profits and gains of business or profession, capital gains, income from other sources. Computation of income under each of the above six heads has to be done independently and separately. There are specific rules of deduction and allowances under each head. No deduction or adjustment on account of any expenditure can be made except as provided by the Act. The Supreme Court further noticed as under:
'The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income each one of which will be chargeable to income-tax, Profits and gains of business or profession is only one of the heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head 'capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under Section 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under Section 56 of the Act. The company may also, as in this case, keep the surplus funds in short-term deposits in order to earn interest, Such interest will be chargeable under Section 56 of the Act.
The company has chosen not to keep its surplus capital idle, but has decided to invest it fruitfully. The fruits of such investment will clearly be of revenue nature.'
8. To come to this conclusion the apex Court has relied on a judgment reported in CIT v. Shaw Wallace & Co. (1932) 2 Comp. Cas 276 (PC). The Supreme Court ruled that if the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of revenue nature and not an accretion to capital. The Supreme Court in the very same judgment noticed as under:
'Whether a particular receipt is of the nature of income and falls within the charge of Section 4 of the IT Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and the interpretation of the term 'income' given in a large number of decisions of the High Courts, the Privy Council and also of this Court. It is well-settled that income attracts tax as soon as it accrues. The application or destination of the income has nothing to do with its accrual or taxability. It is also well-settled that interest income is always of a revenue nature unless it is received by way of damages or compensation.'
In the very same judgment, the Supreme Court noticed the judgment of the Madras High Court in : [1985]156ITR542(Mad) (supra). That was a case of interest earned by the assessee on investment of share capital in call deposits even before production commenced could be assessed under the head 'Other sources'. This view of the Madras High Court was approved by the Supreme Court in the said judgment. Therefore, what is clear to me is that if interest is earned by the assessee on investment of share investors money and if that investment results in interest, the same can be termed as 'income from other sources'. The Tribunal in my view has rightly noticed these judgments and has come to a right conclusion in this regard, The Tribunal as a matter of fact has noticed both these judgments to come to a conclusion that the interest received on deposit of share money could be assessed as 'income from other sources'. This finding cannot be said to be a legal error as contended by the learned counsel for the petitioner.
9. Petitioner relies on CIT v. Bokaio Steel Ltd. (supra). That was a case in which the Government company did not start any business and it provided to the contractor and his workmen the quarters for which it charged the contractor for the use of quarters. There were also subsequent agreements with regard to certain advances made by the company to the contractor. Those advances earned interest, Similarly, plant and machinery was provided to the contractor. The question before the Supreme Court was as to whether the various amounts received by the assessee can be treated as income of the assessee for the relevant assessment year. The said case stands on a different footing than Tuticorin Alkali Chemicals & Fertilizers case (supra).
10. In the subsequent judgment : [1999]236ITR315(SC) (supra) the Supreme Court noticed as under:
'During these assessment years, the respondent-assesses had invested the amounts borrowed by it for the construction work which were not immediately required, in short-term deposits and earned interest. It has been held in these proceedings that the receipt of interest amounts to income of the assessee from other sources. The assessee has not filed any appeal from this finding which is given against it. In any case, this question is now concluded by a decision of this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT : [1997]227ITR172(SC) . Hence, we are not called upon to examine that issue.'
11. The Supreme Court after noticing Tuticorin Alkali's case (supra) has ruled that the receipt of interest amounts to income of the assessee. In the given set of facts, the nearest case available is Madras case : [1985]156ITR542(Mad) (supra). The Madras case has been approved by the Supreme Court in Tuticorin Alkali's case (supra), In these circumstances, as rightly pointed out by the learned counsel for the Department it cannot be said that the Settlement Commission has committed any error whatsoever in the given set of facts.
12. I cannot but notice and observe that the AO has not provided amortisation of expenditure which has been allowed by the Settlement Commission. Settlement Commission has granted this benefit to the petitioner in terms of the Act. Therefore, the petitioner cannot have any grievance of any substantial injustice to him, in the light of benefit in the given set of facts.
13. I must also notice the binding judgment of this Court with regard to my jurisdiction in the matter of settlement proceedings. A Division Bench of this Court in : [1989]180ITR585(KAR) (supra) has categorically ruled that this Court has to be slow in interfering with the Settlement Commission's orders. This Court has cautioned that the decision of the Settlement Commission can he interfered with only,
'(i) If grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A of the IT Act, 1961, and/or violation of the rules of natural justice are made out; or (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission. The Court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission.'
No such grounds are made out in the case on hand.
14. In these circumstances, I deem it proper to dismiss the petition in the given set of facts. Parties are directed to bear their respective costs.