Isaac, J. -
(1.) THIS is a reference made by the Madras Bench of the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, on the application of the assessee. The questions referred are :
" 1. Whether, on the facts and in the circumstances of the case, the interest income and the share transfers were rightly assessed under other sources ?
(2.) WHETHER, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of the expenses amounting to Rs. 34,139?"
2. This reference relates to the assessment year 1962-63 for which the previous year is the financial year 1961-62. The assessee is a public limited company which was incorporated on February 5, 1960. The objects of the company were, inter alia, manufacture and sale of all types of electric wires, cables, etc. The company obtained the certificate of commencement of business on July 30, 1961. It had a collaboration arrangement with a Canadian company, called Wireco Engineering Ltd. On September 24, 1962, there was a meeting of the shareholders of the assessee-company in which the directors submitted their report for the year ended March 31, 1962. It was stated in that report, among other things, that the Kerala Government have issued orders for the acquisition of 46 acres of land for the use of the company, that the collaborating company had commenced preliminary work on the project, that it was expected that the plans and specifications for the building would be ready soon, that the preparation of the design and blueprint for the machinery had been taken on hand, that it was expected that the machinery could be obtained within a year and that the company would go into production before the end of 1963. The assessee had collected share capital; and the amount was deposited by it in banks. In the year ended March 31, 1962, it earned a sum of Rs. 68,013 as interest on the deposits, and also received a sum of Rs. 100 and odd, on account of share transfer and splitting fees. The total amount thus received by the assessee during the year came to Rs. 68,134. The assessee incurred during the same period an expenditure of Rs. 34,139 by way of salary and wages to its employees, printing, stationery, postage, travelling and other expenses. Article 3 of the memorandum of association of the assessee-company enumerated its objects; and Clause (v) thereof reads as follows:
" To invest and deal with the funds of the company not immediately required upon such securities and in such manner as may from time to time be determined. "
The assessee-company claimed that the deposit of the share capital made by the company in banks was a business carried on by the company, as empowered by the aforesaid clause in its memorandum of association, and that the interest earned thereby was income from business. This claim was rejected by the Income-tax Officer who held that the amounts received by the company as interest and by share transfer and splitting fees were income from other sources. There was no dispute that, if this was income from business, the expenditure of Rs. 34,139 was an allowable deduction. The assessee-company contended that, even otherwise, it was entitled to deduct the said expenditure under Section 57 of the Income-tax Act. This claim was also rejected by the Income-tax Officer. The order of the Income-tax Officer was upheld by the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal.
The learned counsel for the assessee contended before us that the amount received by the assessee as interest on the share capital deposited in banks was income from business, as the deposits were made in the course of its business and as they were authorised by its memorandum of association. We are unable to agree. The fact that the assessee-company obtained the commencement certificate on July 20, 1961, only empowers the company to commence business from that date. The clause in the memorandum of association relied on by the learned counsel only empowers the company to invest and deal with the funds of the company not immediately required on such securities and in such manner as may from time to time be determined. It may, therefore, be open to the company, if it so decided, to carry on a business of investing and dealing with the funds of the company upon securities or otherwise. But the short question for decision in this case is whether, as a matter of fact, the company carried on such a business during the accounting year concerned. All that it did was to deposit in banks the share capital received by the company instead of keeping it in its own safe. This was done, because the company had not commenced business, and the amounts were not immediately required for any business. The receipt of income by interest was only incidental or consequential on the deposit. It can hardly be contended that, if an individual, who carries on any business other than a business of banking or dealing in money, deposits his surplus funds in a bank and receives interest thereon, the interest thus received would be income from business. The position cannot at all be different, if the assessee happens to be an incorporated company instead of an individual. On the facts of this case, the finding of the Tribunal that the deposit of the share capital by the company in banks was not a business carried on by the company is perfectly right. The learned counsel for the revenue brought to our notice a decision of the Madhya Pradesh High Court in Madhya Pradesh State Industries Corporation Ltd. v. Commissioner of Income-tax.,  69 I.T.R. 824. This decision fully supports the view we have expressed above.
(3.) THE learned counsel for the assessee also contended that the expenditure of Rs. 34,139 incurred by the assessee would fall under Clause (iii) of Section 57 of the Act. It reads as follows:
"57. Deductions.--THE income chargeable under the head 'income from other sources' shall be computed after making the following deductions, namely:--...
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. "
A reading of the above provision is sufficient to repudiate the contention that the expenditure incurred by the company during the accounting year was incurred for the purpose of making or earning the interest received by the company on the deposit of the share capital. Office and establishment expenses unconnected with the earning of the company or keeping the company alive are not permissible deductions under Section 57 of the Act: vide the decision of the Calcutta High Court in Commissioner of Income-tax v. Bihar Spinning & Weaving Mills Ltd.,  24 I.T.R. 108.;