SOUTHERN HERBALS LTD. Vs. SETTLEMENT COMMISSION AND ANOTHER

JUDGEMENT

(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.) 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 and Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras, (1997) 227 ITR 172 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 Commissioner of Income Tax Bihar -II Patna Vs. Bokaro Steel Limited, Bokaro, AIR 1999 SC 387 . 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. Krishan (Decd. by Legal representative, K. Badrinarayan and Others) Vs. Settlement Commission and Others, ILR (1990) KAR 404 . 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.