Law:

Section:

Section 5 of the Income-tax Act, 1961, read with section 73 of the Companies Act, 1956 - Income - Accrual of (Interest on share application money) - Assessment year 1992-93 - Assessee opened a public issue of shares in financial year 1991-92 - Application money received from intending subscribers were kept in bank upon which interest was accrued - Shares were allotted in financial year 1992-93 - Assessing Officer taxed interest income in assessment year 1992-93 as money was received in financial year 1991-92 - Whether interest income has accrued only in assessment year 1993-94 and was taxable in that year only and not in assessment year 1992-93 - Held, yes [Para 5] [In favour of assessee] FACTS â–  The assessee opened a public issue of shares in financial year 1991-92. Application money received from intending subscribers were kept in bank upon which interest was accrued. The assessee allotted shares in financial year 1992-93. â–  The Assessing Officer taxed interest income in assessment year 1992-93 on ground that money was received in relevant financial year, i.e., 1991-92. â–  The assessee argued that interest had accrued to it only on the allotment of shares as before that the amount was kept in trust by it which belonged to the applicants. Hence, interest income was taxable in assessment year 1993-94. â–  On appeal to the Supreme Court: HELD â–  The contention of the assessee has been accepted by the High Court in the following manner: - The company is not, under section 73, required to keep the money in a bank account which yields interest. There is, however, no prohibition in sub-section (3) or (3A) of section 73 against the money being kept in a bank account which yields interest. The interest so earned, however, cannot be regarded as an amount which is fully available to the company for its own use from the time the interest accrued, as that interest is an amount which accrues on a fund which itself is held in trust until the allotment is completed and moneys are returned to those to whom shares are not allotted. No part of this fund, either principal or interest accrued thereon, can be utilized by the company until the…

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