IN THE HIGH COURT OF KARNATAKA, BENGALURU
\nDATED THIS THE 21ST DAY OF JUNE 2018
\nPRESENT
\nTHE HON\u2019BLE DR.JUSTICE VINEET KOTHARI
\nAND
\nTHE HON\u2019BLE MRS.JUSTICE S.SUJATHA
\nI.T.A. No.690\/2017
\nBETWEEN :
\n1. THE Pr. COMMISSIONER OF INCOME
\nTAX CIT(A), 5TH FLOOR, BMTC BUILDING,
\n80 FEET ROAD, KORAMANGALA,
\nBENGALURU-560095
\n2. THE INCOME TAX OFFICER
\nWARD-1(1)(3), 2ND FLOOR,
\nBMTC BUILDING, 80 FEET ROAD,
\nKORAMANGALA, BENGALURU-560095 …APPELLANTS
\n(BY SRI K.V.ARAVIND, ADV.)
\nAND :
\nM\/s BANK NOTE PAPER MILL
\nINDIA PVT. LTD.,
\nI FLOOR, S.R.COMPLEX, No.2,
\nTAVARAKERE MAIN ROAD,
\nSG PALYA, DRC POST,
\nBENGALURU-560029
\nPAN: AAECB 3245M .\u2026RESPONDENT
\nTHIS INCOME TAX APPEAL IS FILED UNDER SECTION
\n260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
\nDATED 17.03.2017 PASSED IN ITA NO.692\/BANG\/2015, FOR
\nTHE ASSESSMENT YEAR 2011-2012, PRAYING TO I.
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n2\/11
\nFORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED
\nABOVE. II.ALLOW THE APPEAL AND SET ASIDE THE ORDERS
\nPASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,
\nBENGALURU IN ITA NO.692\/BANG\/2015 DATED 17.03.2017
\nCONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER
\nAND CONFIRM THE ORDER PASSED BY THE INCOME TAX
\nOFFICER, WARD-1(1)(3), BENGALURU & ETC.
\nTHIS APPEAL COMING ON FOR ORDERS, THIS DAY,
\nDr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
\nJ U D G M E N T
\nMr. K.V.Aravind, Adv. for Appellants – Revenue
\nThe Revenue has filed this Appeal u\/s. 260-A of
\nthe Income Tax Act, 1961 [‘Act’ for short], purportedly
\nraising certain substantial questions of law against the
\nOrder of the learned Income Tax Appellate Tribunal on
\n17.03.2017 in I.T.A. No.692\/Bang\/2015 for
\nAssessment Year 2011-12 in the case of Income Tax
\nOfficer v. Bank Note Paper Mill India Pvt. Ltd.,.
\n2. By the impugned Order, the learned
\nTribunal following the decision of the Hon\u2019ble Supreme
\nCourt in the case of \u2018Commissioner of Income Tax
\nBihar \u2013 II, Patna Vs. Bokaro Steel Limited\u2019 [236 ITR
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n3\/11
\n315], which distinguished the earlier view of the Hon\u2019ble
\nSupreme Court in the case of \u2018Tuticorin Alkali
\nChemicals & Fertilizers Vs. Commissioner of Income
\nTax\u2019 [(1997) 227 ITR 172] and held that the interest
\nincome earned by the Assessee-Company on bank
\ndeposits made out of share capital received by it from
\nthe Reserve Bank of India could not be taxed as \u201cIncome
\nfrom Other Sources\u201d as the said interest income was
\nearned prior to commencement of operations of the
\ncompany during the construction period.
\n3. The learned Tribunal also referred and relied
\nupon the Judgments of this Court in the case of
\n\u2018Commissioner of Income Tax v. Karnataka Power
\nCorporation\u2019 [247 ITR 268] and \u2018Commissioner of
\nIncome Tax v. Karnataka Urban Infrastructure and
\nDevelopment and Finance Corporation [284 ITR 582]
\nand held that such interest income would go to reduce
\nthe capital cost of the project and is on the capital
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n4\/11
\naccount and the same cannot be taxed during the
\nrelevant year in which such interest income is earned.
\n4. The relevant portion of the impugned Order
\nof the learned Tribunal in favour of Assessee is quoted
\nbelow for ready reference:
\n\u201c7. We heard rival submissions and perused
\nmaterial on record. The short issue that comes up
\nfor consideration in the present appeal is whether
\ninterest income earned by the assessee during
\nthe construction period on bank deposits made
\nout of share application money received by it, is
\ntaxable as \u2018income from other sources\u2019 or it
\nshould go to reduce capital cost of the plant which
\nis being set up by the assessee-company.
\nUndisputedly, facts are that the said interest
\nincome was earned by the assessee-company on
\nbank deposits made out of share capital received
\nby it from the Reserve Bank of India. The share
\ncapital was received by the respondent-assesseecompany
\nto meet capital expenditure for setting
\nup of assessee\u2019s factory. As the funds were not
\nimmediately required, the respondent-assessee
\nmade deposits with bank on which assessee
\nearned inerest. This interest income was treated
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n5\/11
\nas abatement of capital cost of the project\/factory
\nby the assessee-company in the books of account,
\nwhereas the AO was of the opinion that the same
\nshould be treated as revenue receipt and brought
\nto tax placing reliance on the decision of the
\nHon\u2019ble Supreme Court in the case of Tuticorin
\nAlkali Chemicals & Fertilizers Ltd. (supra).
\nThe decision of the Hon\u2019ble Supreme Court in the
\ncase of Tuticorin Alkali Chemicals & Fertilizers
\nLtd. (supra) was distinguished by the Hon\u2019ble
\nSupreme Court in the case of Bokaro Steel
\nLtd. ((236 ITR 315)(SC) wherein it was held that
\nthe ratio of the decision of the Hon\u2019ble Supreme
\nCourt in the case of Tuticorin Alkali Chemicals
\n& Fertilizers Ltd. (supra) is not applicable
\nwhere interest receipt is directly connected
\nwith or incidental to working of
\nconstruction of the assessee\u2019s plant. The
\ndecision of the Hon\u2019ble Supreme Court in the case
\nof Bokaro Steel Ltd. (supra) was followed
\nsubsequently in the case of CIT vs. Karnal Cooperative
\nSugar Mills Ltd. (243 ITR 2). An
\nidentical issue had come up for consideration
\nbefore the Hon\u2019ble Jurisdictional High Court in the
\ncase of CITA vs. Karnataka State Agricultural
\nProduce Processing and Export Corporation Ltd.
\n(377 ITR 496). In that case the State Government
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n6\/11
\nCorporation earned interest on deposits
\ntemporarily kept out of grants received from the
\nState Government was taxable or not? The facts
\nare that the State Government Corporation earned
\ninterest during the construction period on the
\nfixed deposits temporarily made out of State
\nGovernment grants. The issue before the Hon\u2019ble
\nHigh Court was whether such interest income
\nwas taxable or should go to reduce the capital
\ncost of the project. The Hon\u2019ble High Court, after
\nconsidering the decisions of the Hon\u2019ble Supreme
\nCourt in the case of Bongaigaon Refinary
\nPetrochemicals Ltd. v. CIT (251 ITR 329)(SC),
\nBokara Steel Ltd. (supra), and Tuticorin Alkali
\nChemicals & Fertilizers Ltd. (supra) and its own
\ndecision in the case of CIT v. Karnataka Power
\nCorporation, (247 ITR 268) and CIT v. Karnataka
\nUrban Infrastructure and Development and
\nFinance Corporation (284 ITR 582) held that such
\ninterest income would go to reduce the capital
\ncost of the project, is on the capital account and
\nshould not be brought to tax.\u201d
\n5. Learned Counsel for the Revenue,
\nMr. K.V. Aravind has fairly submitted that in the recent
\ndecision rendered by the Hon\u2019ble Supreme Court on
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n7\/11
\n24.04.2018 in the case of \u2018Commissioner of Income
\nTax-IV, Ahmedabad v. Shree Rama Multi Tech Ltd.,\u2019
\n[(2018) 92 taxmann.com 363 (SC)], the Hon\u2019ble
\nSupreme Court has again reiterated a similar position
\nand held that such interest earned before the
\ncommencement of business operations is not liable to
\nbe taxed and is eligible for deduction against the public
\nissue expenses incurred by the Company. The relevant
\nportion of Paragraphs 12 and 13 of the said Judgment
\nare quoted below for ready reference:
\n\u201c12) The common rationale that is followed
\nin all these judgment is that if there is any
\nsurplus money which is lying idle and it has been
\ndeposited in the bank for the purpose of earning
\ninterest then it is liable to be taxed as income
\nfrom other sources but if the income accrued is
\nmerely incidental and not the prime purpose of
\ndoing the act in question which resulted into
\naccrual of some additional income then the
\nincome is not liable to be assessed and is
\neligible to be claimed as deduction. Putting
\nthe above rationale in terms of the present case, if
\nthe share application money that is received is
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n8\/11
\ndeposited in the bank in light of the statutory
\nmandatory requirement then the accrued interest
\nis not liable to be taxed and is eligible for
\ndeduction against the public issue expenses. The
\nissue of share relates to capital structure of the
\ncompany and hence expenses incurred in
\nconnection with the issue of shares are to be
\ncapitalized because the purpose of such deposit
\nis not to make some additional income but to
\ncomply with the statutory requirement, and
\ninterest accrued on such deposit is merely
\nincidental. In the present case, the Respondent
\nwas statutorily required to keep the share
\napplication money in the bank till the allotment of
\nshares was complete. In that sense, we are of the
\nview that the High Court was right in holding that
\nthe interest accrued to such deposit of money in
\nthe bank is liable to be setoff against the public
\nissue expenses that the company has incurred as
\nthe interest earned was inextricably linked with
\nrequirement of the company to raise share capital
\nand was thus adjustable towards the
\nexpenditure involved for the share issue.
\n13) In view of the forgoing discussion, we
\nare of the view that the High Court was right in
\nupholding the decision of the Tribunal dated
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n9\/11
\n21.10.2011 that the interest income earned
\nout of the share application money is liable
\nto be set off against the public issue
\nexpenses. The judgment passed by the Division
\nBench of the High Court in remanding the matter
\nto the Tribunal on other issues requires no
\ninterference.\u201d
\n6. In view of the said legal position with regard
\nto aforesaid issue, we are satisfied that no substantial
\nquestion of law arises in the present case and the
\nAppeal filed by the Revenue is without merit and liable
\nto be dismissed.
\n7. The Appeal is accordingly dismissed.
\n8. We express our concern and anguish at the
\ntendency of the Revenue Department to file unnecessary
\nappeals u\/s. 260-A of the Act even though the issues
\nare ex facie covered by the decision of the jurisdictional
\nHigh Courts or even the Hon\u2019ble Supreme Court of
\nIndia. The substantial question of law essentially means
\nthat a question of law which is not already settled by
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n10\/11
\nthe Constitutional Courts can only fall within the ambit
\nof Section 260-A of the Act and therefore repetitive filing
\nof such appeals by the Tax Department who are
\nexpected to be serious and bonafide litigants in the
\nConstitutional Courts is a matter of concern. It is
\nexpected of the concerned Authorities who approve filing
\nof such appeals u\/s. 260-A of the Act, to bonafide apply
\ntheir mind to such aspects of the matter and only after
\nrecording appropriate reasons for need to file such
\nappeals and need to get substantial question of law
\ngenuinely arising from the Order of the Tribunal
\ndetermined by Constitutional Courts, that they should
\napprove the filing of such appeals and the High Court
\nu\/s. 260-A of the Act. But, the present Appeal filed by
\nthe Revenue is certainly not one of that kind and
\ntherefore we record our note of caution for the Revenue
\nAuthorities concerned in this regard.
\nDate of Judgment 21-06-2018, ITA No.690\/2017
\nThe Pr. Commissioner of Income Tax CIT(A) & another Vs.
\nM\/s Bank Note Paper Mill India Pvt. Ltd.
\n11\/11
\nCopy of this Order shall be sent to the
\nRespondent-Assessee, as well as to the Chief
\nCommissioner and Central Board of Direct Taxes,
\nMinistry of Finance, Department of Revenue, New Delhi,
\nfor aforesaid needful action.
\nSd\/-
\nJUDGE
\nSd\/-
\nJUDGE
\nAN\/-<\/p>\n","protected":false},"excerpt":{"rendered":"
We express our concern and anguish at the tendency of the Revenue Department to file unnecessary appeals u\/s. 260-A of the Act even though the issues are ex facie covered by the decision of the jurisdictional High Courts or even the Hon\u2019ble Supreme Court of India. The substantial question of law essentially means that a question of law which is not already settled by the Constitutional Courts can only fall within the ambit of Section 260-A of the Act and therefore repetitive filing of such appeals by the Tax Department who are expected to be serious and bonafide litigants in the Constitutional Courts is a matter of concern.<\/p>\n