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Issues involved:
The judgment addresses the following Issues: 1. Treatment of interest income as income from other sources. 2. Reduction of interest from capital expenditure. 3. Allowance of expenses claimed by the assessee from the interest income. Issue 1: Treatment of interest income as income from other sources: The case involved a limited company incorporated in 1981, which earned interest income of Rs. 20,785 on bank deposits. The Commissioner of Income-tax (Appeals) allowed the interest income to be reduced from the capital cost of assets. However, the Tribunal determined that the interest income should be treated as income from other sources. The Tribunal also noted that specific provisions under section 35D covered the expenses claimed by the assessee, and therefore, the interest income could not be adjusted against these expenses. The Tribunal's decision was supported by precedents such as CIT v. Rajasthan Land Development Corporation and CIT v. Manglam Cement Ltd. Issue 2: Reduction of interest from capital expenditure: The Tribunal correctly held that the interest income should not be reduced from capital expenditure. The business activity of the assessee was not operational during the relevant period, and the interest income had to be treated as income from other sources. The Tribunal reasoned that the expenses claimed by the assessee were covered under section 35D and could not be adjusted against the interest income. Issue 3: Allowance of expenses claimed by the assessee: The Tribunal found that the expenses claimed by the assessee, including project report expenses and pre-operative expenses, were covered under section 35D. Since the business had not commenced during the period in question, these expenses could not be deducted from the interest income. The Tribunal concluded that the interest income should be treated separately as income from other sources, and the expenses claimed by the assessee could not be adjusted against it. In conclusion, the High Court of Rajasthan upheld the Tribunal's decision, ruling in favor of the Revenue and against the assessee. The interest income was deemed as income from other sources, and the expenses claimed could not be offset against it.
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