1. In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred :
' Whether, on the facts and in the circumstances of the case, the interest received by the assessee on the deposit made with the bank was income exempt from tax under Section 10(3) of the Income-tax Act, 1961?'
2. The facts, which appear from the statement of the case, are as follows:
The assessee, India Carbon Ltd., Gauhati, is a public limited company incorporated under the Companies Act, 1956, on February 12, 1961. The company issued a prospectus dated November 16, 1961, offering for public subscription 1,18,100 equity shares of Rs. 10 each at par (out of the present issue of 3,50,000 equity shares) together with 10,000--9.3% (taxable) redeemable cumulative preference shares of Rs. 100 each. An application money of Rs. 2.50 per share was to be paid for each equity share. The subscription list was to open on the 4th day of December, 1961, and to close on the 9th December, 1961, but could be closed earlier at the discretion of the directors but not before the 6th day of December, 1961. An underwriters' commission was to be paid at 2.5% in respect of these shares. As it happened, the issue was over-subscribed and the list was closed on the 6th day of December, 1961 itself. The total application money received was Rs. 3,42,97,937.50 as against Rs. 2,95,000, due on the shares. In other words, the application money received was about 116 times of that called for. In the prospectus the following condition was mentioned with respect to such surplus money received ;
' Where an application is rejected or not accepted in full, the whole or any balance of the application money will, subject to provisions of Section 73 of the Companies Act, 1956, be refunded within eight weeks from the closure of the subscription list.'
3. Section 69 of the Companies Act requires that all moneys received from applicants for shares shall be deposited and kept deposited in a scheduled bank. The company accordingly placed the amount of
Rs. 3,42,97,937 50 in call deposit account with the bank and earned an interest of Rs. 2,45,672.65 on the deposit. The amount received in excess of the said sum of Rs. 2,95,000 was in due course refunded to the applicants in terms of the conditions of the prospectus and the provisions of Section 73 of the Companies Act, 1956, within the stipulated period, namely, during the first half of the month of February, 1962.
4. The relevant assessment year is 1963-64 for which the accounting year is the year ended June 30, 1962. In the assessment for the year 1963-64, a question arose whether the interest of Rs. 2,45,672.65 received, as stated above, and also duly credited to the profit and loss account of the company for the said accounting year was income liable to tax.
5. The assessee's contention before the Income-tax Officer was that the receipt being of casual and non-recurring nature arising in the special circumstances of the case, namely, the issue of shares being over-subscribed beyond even the wildest expectation of the company, it was exempt from tax under Section 10(3) of the Act. The Income-tax Officer rejected the contention of the assessee observing that the interest income earned by the issue of shares was not casual receipt but was clearly income which was taxable. Thus holding, the Income-tax Officer allowed on estimate an expenditure of Rs. 7,000, having been incurred for the purpose of earning such income, and brought to tax a net sum of Rs. 2,41,180 (wrongly calculated) as income liable to be assessed under the head ' Other sources '.
6. The assessee then filed an appeal before the Appellate Assistant Commissioner who held that the interest amounting to Rs. 2,45,672.65 was a receipt of a casual and non-recurring nature in the hands of the assessee and should not be taxed in its hands. The over-subscription was unanticipated and non-recurring and the interest earned on the deposit of this amount was, therefore, receipt of a casual and non-recurring nature and, although income otherwise, it was exempt from tax as being of such casual and non-recurring nature. The receipt of interest was a windfall and such a windfall was not likely to recur in the life of the company again because the first issue of shares could never be repeated. The Appellate Assistant Commissioner also held that since the income from interest on the over-subscribed money had been excluded from the assessment holding it to be of casual and non-recurring nature, the expenses claimed in connection with this affair were not allowable in the assessment.
7. The department then preferred an appeal before the Income-tax Appellate Tribunal from the order of the Appellate Assistant Commissioner. The Tribunal allowed the appeal and held that although the monies received in excess over the capital called for may be casual and non-recurring, something like a windfall, the interest received on the deposit of such
monies subsequently had nothing casual and non-recurring about it, and, therefore, the interest is not exempt from tax under Section 10(3) of the Act. The Tribunal set aside the order of the Appellate Assistant Commissioner but, at the same time, directed him to hear the appeal afresh on the question as to whether and what amount of expenditure was allowable as having been incurred for the purpose of earning such income on interest, which was liable to tax.
8. In its judgment the Tribunal held :
'(1) The over-subscription of the share capital issued had nothing to do with the actual earning of the income by way of interest.
(2) The deposit of the amount received by way of application money, though in excess, was the direct source of the income earned by way of interest.
(3) The relevant provisions of the Companies Act merely prescribed conditions for dealing with the application monies received from the intending shareholders.
(4) So long as the company could lawfully hold such monies, it alone was the owner of the monies. The interest earned, therefore, on such monies deposited with the bank was interest earned by the company (There is also no dispute about this).'
9. On the above facts, the above question of law has been referred.
10. Section 10(3) of the Income-tax Act, 1961, as it was at the relevant time, is as follows :
' 10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--......
(3) any receipts which are of a casual and non-recurring nature, unless they are-
(i) capital gains, chargeable under the provisions of Section 45 ; or
(ii) receipts arising from business or the exercise of a profession or occupation; or
(iii) receipts by way of addition to the remuneration of an employee;,........'
11. The precise question that falls for determination is whether the interest received in this case is of a casual and non-recurring nature and, as such, it does not form part of the total income under Section 10(3) of the Act.
12. In the instant case the income is the interest that has accrued on the application money that was deposited in the bank as required under Sub-section (4) of Section 69 of the Companies Act.
13. Sub-sections (4) and (5) of Section 69 of the Companies Act read as follows:
' 69. (4) All moneys received from applicants for shares shall be deposited and kept deposited in a scheduled bank-
(a) until the certificate to commence business is obtained under Section 149; or
(b) where such certificate has already been obtained, until the entire amount payable on applications for shares in respect of the minimum subscription has been received by the company,
and where such amount has not been received by the company within the time on the expiry of which the moneys received from the applicants for shares are required to be repaid without interest under Sub-section (5), all moneys received from applicants for shares shall be returned in accordance with the provisions of that sub-section.
In the event of any contravention of the provisions of this sub-section, every promoter, director or other person who is knowingly responsible for such contravention shall be punishable with fine which may extend to five thousand rupees.
(5) If the conditions aforesaid have not been complied with on the expiry of one hundred and twenty days after the first issue of the prospectus, all moneys received from applicants for shares shall be forthwith repaid to them without interest; and if any such money is not so repaid within one hundred and thirty days after the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of six per cent. per annum from the expiry of the one hundred and thirtieth day ;
Provided that a director shall not be so liable if he proves that the default in the repayment of the money was not due to any misconduct or negligence on his part.'
14. It is thus found that the statutory direction to a company is that all moneys received from applicants for shares shall be deposited and kept deposited in a scheduled bank. In the instant case the application money was deposited in a scheduled bank in call deposit account. Under Sub-section (5) if the conditions laid down therein are not fulfilled, all moneys received from applicants for shares shall be repaid to the applicants without interest. So the application money received by the company has to be deposited in a scheduled bank in its name in any account it chooses. In the instant case the company decided to deposit the application money in call deposit account in which interest accrues. The amount received in excess of the amount due on shares was refunded in due course to the applicants in terms of the conditions of the prospectus and the provisions of Section 73 of the Companies Act within the stipulated period. The interest that has been earned by the deposit of the application money in the call deposit account cannot be said to be casual,
15. In Chambers' Twentieth Century Dictionary the meaning of the word 'casual' has been shown as--accidental, unforeseen, occasional. In the Pocket Oxford Dictionary the meaning of the word 'casual' has been given as due to chance, undesigned, random, not regular or permanent or calculable.
16. When some money is kept deposited in a bank account whether it is a savings bank account or call deposit account as in the instant case, it is known to all concerned that the money will bear interest according to rules of the bank concerned. It is not an unknown thing to the company that if some money is kept deposited in call deposit account it will bear interest. So this accrual of interest on the money kept deposited in the instant case cannot be said to be due to any chance or undesigned. It is also known to the company from the provisions of Section 69 and Section 73 of the Companies Act that the refund of the moneys to the applicant was to be made without interest. Thus, we find that when the money in question was deposited with the bank on call deposit account, the assessee had the idea of earning interest which will go to the assessee inasmuch as the money refundable to the applicants was to be refunded without interest. Thus, the interest that accrued on the money deposited with the bank on call deposit account cannot in our opinion be said to be casual or due to chance or undesigned. The income to be exempted under Section 10(3) has to be casual and non-recurring. The idea of non-recurring is incompatible with the interest on moneys deposited with the bank in an interest carrying account. Whenever money is kept deposited in an interest carrying account interest will accrue according to rules governing the particular account in a regular way without leaving anything to chance. Thus, we find that the income by way of interest in the instant case is neither casual nor non-recurring as contemplated under Section 10(3) of the Income-tax Act.
17. The Tribunal has correctly observed that the excess receipt of application money due to over-subscription may be casual or unforeseen. But we are to deal not with the receipt of the excess amount but we are to consider the interest that has accrued on the excess amount that has been deposited in call deposit account in terms of the provisions of the Companies Act. In our considered opinion the cases of B. Malick v. Commissioner of Income-tax : 67ITR616(All) , Pangal Nayak Bank Ltd. v. Commissioner of Income-tax : 52ITR915(KAR) and Commissioner of Income-tax v. Dr. P.N. Beh : 84ITR125(Delhi) have no application to the facts and circumstances of the present case inasmuch as the decisions in those cases are based on facts and circumstances which are quite distinguishable from the facts and circumstances of the present case.
18. In the result we find that, on the facts and in the circumstances of the
case, the interest received by the assessee on the deposit made with the
bank is income not exempt from tax under Section 10(3) of the Income-tax
Act, 1961. Accordingly the question referred is answered in the negative
and against the assessee.
D.M. Sen, J.
19. I agree.