GODRAJ SOAPS LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has referred the following questions to this Court at the instance of assessee as well as the revenue for our consideration arising out of the ITA No. 3820/Ahd/93 in relation to assessment year 1990-91, for its opinion. Question referred at the instance of assessee.

(2.) Facts in nut shell for disposal of the present Reference are that the assessee company is a public limited company and assessment year under consideration was 1990-91 ending on 31-1-1990. The business of the assessee company was being set up and the plants and machineries were under installation for the manufacturing of Alpha Glafin Sulphanate fractionated and hydrogenerated fatty Acid and also fractionated Eatty Alcohol for the manufacture of vegetable oils and its by-products during the assessment year under consideration. During the assessment proceedings, the Assessing Officer observed from the perusal of Schedule - 4 as under: incidental expenditure during the construction period ending capitalization" that the company had received the following income:- <FRM>JUDGEMENT_355_TLGJ0_2006Html1.htm</FRM> It was submitted by the assessee company that assessee company received short term capital gains of Rs. 9,18,500/- out of purchase and sales of units and further received interest Income of Rs. 15,52,309/- out of deposits. The Assessing Officer was of the opinion that the above income of interest and short term capital gains is to be treated as income from other sources and he called upon the assessee as to why it should not be treated as such. It was the contention on behalf of the assessee that in the year under consideration, financial charge of Rs. 57,48,093/- were shown in the schedule 4 of the Balance sheet and out of that, the amount of Rs. 24,70,809/- the interest income and that of short term capital gains should be adjusted. The Assessing Officer was of the opinion that the amount of interest income and short term capital gains referred to above, were taxable in the hands of the assessee company as income from other sources.

(3.) Being aggrieved by and dissatisfied with the order passed by the Assessing Officer, the assessee preferred the appeal before the CIT (Appeals) contending that the assessee company had collected Rs. 30.89 crores towards debentures, Rs. 20 crores from IDBI towards Bridge loan and Rs. 32.47 crores from paid up equity capital by end of assessment year 31-3-1990 and the said funds were raised to set up the plants at Valia. It was further contended that the amount of Rs. 57,49,093/- was incurred towards financial charges in raising the above funds and the amount received by assessee company on account of interest and short term capital gains was to be set off against these financial charges. It was further contended that total expenditure incurred in the project in the end of the assessment year under consideration was Rs. 9,15,46,252/- out of which Rs. 24,70,809/- earned by assessee by way of interest and income on investment had to be reduced and rest was to be capitalized and it will result to lesser depreciation to assessee company in future assessment year. The CIT (Appeals) did not accept the said contentions and dismissed the appeal. Being aggrieved by and dissatisfied with the order passed by the CIT (Appeals), the assessee went in appeal before the Income Tax Appellate Tribunal. The short question was before the Income Tax Appellate Tribunal was, whether the amount of interest income of Rs. 15,52,309/- and short term capital gains of Rs. 9,18,500, were to be treated capital receipts and accordingly to be reduced from the financial charges which were capitalized or whether the receipt of Rs. 24,70,809/- (interest income of Rs. 15,50,309/- plus short term capital gains of Rs. 9,18,500/-) was to be treated as income from other sources. The learned Income Tax Appellant Tribunal held against the assessee that the the amount of interest by the assessee on deposits of utilized amount of share capital or amount of short term gains, arose on investment of share capital shall be treated as income taxable under the head "income from other sources". However, the Tribunal held that the amount of interest on deposits or short term capital gains, arose on investment of borrowed funds, shall be subject to be set off out of financial charges or expenses allegedly incurred by the assessee on installation of plant and machinery in the year under consideration.