|COURT:||Bombay High Court|
|CORAM:||A. K. Menon J., M. S. Sanklecha J|
|SECTION(S):||28, 56, 68|
|CATCH WORDS:||bogus share capital, Business profits, interest on fixed deposit, other sources, unexplained cash credit|
|COUNSEL:||Atul Jasani, Manish Kanth, Porus Kaka|
|DATE:||January 16, 2017 (Date of pronouncement)|
|DATE:||February 6, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 68: Even if the premium at which the shares are issued defies commercial prudence, the receipt cannot be assessed as "unexplained credit" if the identity of the payer, genuineness of the transaction and capacity of the subscriber are not disputed. Interest earned on short-term fixed deposits is assessable as "profits and gains of business" and not as "income from other sources"|
(i) The Tribunal examined the applicability of Section 68 of the Act on the parameters of the identity of the subscriber to the share capital, genuineness of the transaction and the capacity of the subscriber to the share capital. It found that the identity of the subscribers was confirmed by virtue of the Assessing Officer issuing notices under Section 133(6) of the Act to them. Further, it holds that the Revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, it concludes as the entire transaction is recorded in the Books of Accounts and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held by IDFC Private Equity Fund which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC Private Equity Fund are all by public sector undertakings.
(ii) Mr.Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs.490/per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner.
(iii) The Tribunal records the fact that the three fixed deposit were for a period of 1 day, 28 days and 90 days respectively. Considering the nature of business of the assessee, the Tribunal, was of the view that the interest earned would be taxable under the head ‘business income’. In support reliance was placed by the impugned order upon the decision of this Court in CIT v/s. Indo Swiss Jewels Ltd. & another 284 ITR 389. In the context of the respondent’s business and the period of fixed deposits, the Tribunal holds the interest earned on them is taxable as business income. In fact this Court is almost similar circumstances in Indo Swiss Jewels Ltd. (supra) has held interest earned on short term deposits on the money kept apart for the purposes of business had to be treated as income earned from business and could not be treated as income from other sources. Considering the short duration in which the amounts were kept in fixed deposit awaiting use in its business operations would necessarily mean income earned on account of business following the ratio of this Court in Indo Swiss Jewels Ltd. (supra).