The interest earned on application money deposited in short-term accounts does not accrue to the assessee until the allotment process is completed, as per the provisions of the Companies Act.

R.Jayasimha Babu, J.

Question referred to us is 'whether the Tribunal was right in law in holding that the interest earned on short-term deposits of share application money by the assessee did not accrue to the assessee during the assessment year 1992-93'.

2. The assessee is a Public Limited Company which came out with a public issue of shares on 29.1.1992 and the issue was closed on 3.2.1992. The application money received by the company was deposited with collecting banks or the bankers of the company, to which the amounts were transferred, for 46 days. The interest earned on such deposits was sought to be taxed by the Assessing Officer as income for the assessment year 1992-93. The assessee's contention was that the application money which had been received from the applicants for the allotment of shares was required to be and was kept in a separate bank account as required by section 73(3) of the Companies Act and that the interest earned on those moneys could not have been treated as income accrued to the company even before the allotment process was completed. The allotment process was completed only in the following assessment year after receipt of approval for listing the company's shares in Madras, Delhi, Ahmedabad and Bombay Stock Exchanges such approvals having been received on 27.4.1992, 8.5.1992, 21.5.1992 and 6.7.1992 respectively.

3. The Assessing Officer, though he had some doubt as to when the interest was credited to the account whether before or after 31.3.1992, counted the period of 46 days from the date of deposit and on that basis, held that the amount of interest accrued for the period prior to 31.3.1992 was liable to be taxed under the head, 'Income from other sources' as the assessee had not commenced business in that year.

4. On appeal, the Commissioner of Income-tax (Appeals) concurred with the view of the assessing officer and held that the interest that had accrued on the application money which had been kept in short-term deposits belonged to the assessee and was liable to be taxed in the hands of the assessee on the basis of accrual.

5. The Tribunal, on further appeal by the assessee,upheld the assessee's view and set aside the orders of the Commissioner as also the Assessing Officer.

6. Section 73 of the Companies Act,1956 deals with allotment of shares and debentures to be dealt with on stock exchange. Sub-section (1) thereof provides that every company, intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. Sub-section (2) thereof provides that where the permission has not been applied under sub-section (1) or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus and if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay the money with interest at such rate not less than four per cent and not more than fifteen per cent as may be prescribed having regard to the length of the period of delay in making the repayment of such money. Rule 4-D of the Companies (Central Government's) General Rules & Forms, 1956 prescribes 15 per cent as rate of interest.

7. Sub-section (2A) of section 73 provides for the refund of application money received in excess of the value of shares allotted in a similar period of eight days, failing which the company shall pay interest at such rate not being less than 4% and not exceeding 15% as prescribed by Rules.

8. Sub-section (3) of section 73 reads thus:-

"All