BOKARO STEEL LIMITED Vs. COMMISSIONER OF INCOME TAX NO 2

JUDGEMENT

(1.) THESE are two references under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act"). They relate to the assessment year 1972-73. Taxation Case No. 41 of 1978 is at the instance of the assessee and Taxation Case No. 42 of 1978 is at the instance of the Revenue. The Income-tax Appellate Tribunal was seized of fourteen appeals bearing Nos. 1537 to 1543 (Pat) and Nos. 1463 to 1469 (Pat) of 1973-74. They were all disposed of by a common judgment. Those appeals gave rise to fourteen references to this court which were numbered as Taxation Cases Nos. 34 to 47 of 1977. Taxation Cases Nos. 34 to 40 of 1977 were at the instance of the Commissioner of Income-tax, Bihar-II, Patna, while the other cases were at the instance of the assessee. Those references were disposed of by a Bench of this court presided over by S.K. Jha and A.K. Sinha JJ., [1988] 170 ITR 522 (supra). All the questions referred to in those references were answered in favour of the assessee and against the Revenue. In the present references, all except one are common to the eaflier cases disposed of by the earlier Bench by judgment dated August 7, 1987. For that purpose, I must set out the questions referred to us. A consolidated reference has been made to us, at the instance of the Revenue as well as the assessee. The questions referred at the instance of the assessee are the following :

(2.) THE questions referred at the instance of the Revenue are the following :

(3.) THE assessee is a Central Government undertaking wholly owned by the Government of India. It received sums from Government. Those sums used to be deposited in banks on short-term deposits and earned interest thereon. THE question is will it be income or not ? Learned senior standing counsel for the Income-tax Department contended that it would clearly be income liable to tax. He relied upon Madhya Pradesh State Industries Corporation Ltd. v. CIT, 1968 69 ITR 824. THE assessee in this case was Madhya Pradesh Industries Corporation Ltd., a Government private limited company. It was incorporated on April 11, 1961, for taking over and running certain concerns of the Government of Madhya Pradesh. THE shares of the company were held by the Government of Madhya Pradesh, the Madhya Pradesh Electricity Board, and the Director of Industries, Madhya Pradesh Government. During the assessment year 1962-63, the accounting year of which ended on March 31, 1962, the Company did not actually carry on any business; there was also no production. That was a period of capital expenditure and installation of machinery and plant. THE share money which the company received from the Madhya Pradesh Government being not immediately required by it, was deposited in call-deposits in certain banks. On these deposits, the company received during the accounting year a total amount of Rs. 20,763-92 as interest. THE company showed this amount of interest as " cash and bank balances " in its accounts. In the profit and loss account, the amount was shown as " interest on deposits". In the return of income for the assessment year in question, the assessee showed a total loss of Rs. 15,110. Before the Income-tax Officer the assessee contended that being a newly established undertaking, it did not have income liable to tax, and that further the interest receipts should be assessed as income from business as it was authorised to do money-lending business also under Clause 13 of the memorandum of association. THE Income-tax Officer held that though the company was authorised to do money-lending business, the interest received by it on deposits from the banks was not income received from money-lending business. He treated the interest income as income from " other sources " under Section 56 of the Act. No doubt, he allowed deduction of a part of the expenses incurred in earning this interest income. In those circumstances, the question referred to the High Court was as follows :