G.T.N. Textiles Ltd. vs Deputy Commissioner of Income Tax

C.N. Ramachandran Nair, J.—The appellant has raised three questions as arising from the orders of the Tribunal for our decision. During the previous year, relevant for the assessment years 1993-94, the assessee went for public issue for raising capital. The expenditure incurred for raising capital was claimed as deduction. In fact the assessee had made short-term deposit of the application money and share allotment money which earned interest of Rs. 37,26,359. Out of this Rs. 31,67,754 was assessed as income from other sources and the balance Rs. 6 lakhs and odd was granted deduction because the Assessing Officer accepted this as expenditure incurred in relation to the shares allotted to the appellant from the subsidiary company, namely, Patspin India Ltd. Disallowance on Rs. 107.78 lakhs towards expenditure claimed for raising share capital was confirmed by the Tribunal following the judgment of the Supreme Court in Brooke Bond India Limited Vs. Commissioner of Income Tax, West Bengal-III, Calcutta, . In view of the decision of the Supreme Court, the appellant''s claim of expenditure for raising share capital cannot be allowed as it is a capital expenditure. Following the judgment of the Supreme Court we answer this question against the assessee. So far as the second question is concerned, the issue is covered by a catena of decisions including the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras, case and several decisions of this court. So long as the assessee is not engaged in financing, interest on short-term deposit is rightly assessed as income from other sources and, in our view, the Tribunal rightly confirmed the assessment. We, therefore, answer this question in favour of the Revenue and against the assessee. So far as the last question is concerned, Sri P. Balakrishnan, counsel appearing for the assessee advanced a detailed argument. According to him, expenditure incurred for investment in another company in the way of purchase of shares is not a capital expenditure and even the Assessing Officer allowed part of the claim which, according to him, is attributable to the actual number of shares allotted to the assessee during the previous year. Counsel for the assessee contended that the entire expenditure for acquiring shares of Rs. 475.42 lakhs was spent in the previous year relevant for this year, even though shares allotted were for Rs. 55 lakhs during this year. According to him, the entire expenditure claimed should have been allowed as this is not hit by the decision of the Supreme Court in Brooke Bond India Limited Vs. Commissioner of Income Tax, West Bengal-III, Calcutta, . The standing counsel appearing for the respondent submitted that the officer in fact has not allowed any deduction but has only set off interest earned on short-term deposit attributable to the amount invested in the subsidiary company towards share capital by the appellant. We also notice that factually the Assessing Officer only has reduced the interest income by a little over Rs. 6 lakhs by treating that as expenditure incurred for raising capital for investment in the shares of a subsidiary company. In principle, we do not find any difference between the share capital raised for the capital expansion of the company and the share capital raised and utilised for acquiring shares of a subsidiary company because in either case expenditure is for raising capital. Therefore, in our view, the appellant is not entitled to deduction for the expenditure incurred for investment in the shares of a subsidiary company.

Consequently, we uphold the order of the Tribunal and dismiss the appeal.