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Issues:
1. Assessment of interest and miscellaneous receipts as income under the Income-tax Act, 1961. Analysis: The High Court of GUJARAT was presented with the issue of whether interest and miscellaneous receipts received by a co-operative society during the assessment years 1976-77 and 1977-78 should be assessed as income under the Income-tax Act, 1961. The assessee, in this case, had not yet commenced production but had received interest income and miscellaneous income. The Income-tax Officer initially held that these amounts were taxable as income. However, the Commissioner of Income-tax (Appeals) raised the deduction of expenditure, and the Tribunal eventually ruled in favor of the assessee, considering the receipts as a reduction in project cost rather than income. The High Court referred to a similar case decided by the Supreme Court, Tuticorin Alkali Chemicals and Fertilizers Ltd. vs Commissioner of Income-tax [1997] 227 ITR 172, where it was held that interest income generated from borrowed funds for business purposes is considered income from other sources and should be taxed accordingly. The Supreme Court emphasized that such income, regardless of its utilization to repay loans, remains taxable. The High Court determined that the interest and miscellaneous receipts in the present case fell under the category of "Income from other sources" as per section 56 of the Income-tax Act. Therefore, the Tribunal's decision to not assess these receipts as income was deemed erroneous and contrary to the Supreme Court's ruling. Consequently, the High Court answered the question referred to it in the negative, favoring the Revenue and ruling against the assessee. The reference was disposed of with no order as to costs. This judgment underscores the principle that income generated, even if used for specific purposes, remains taxable under the Income-tax Act, and accounting practices cannot override the provisions of the law.
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