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TMI Blog1993 (7) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... 56(2) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act" only) for examining the following questions of law, which relate to the assessment year 1972-73: " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting Rs. 3,13,014 for the assessment year 1972-73 as income from other sources on account of interest as determined by the ITO and confirmed by the AAC in appeal ? 2. Whether, on the facts and in the circumstances of the case, interest earned, taxable as income from the other sources, is subject to deduction towards the construction of the factory?" 2. The assessee is a limited company. It was incorporated on 17-9-1965, inter alia, to carry on business of iron founders. In May 1971, the company offered its shares for subscription by the public, which were heavily subscribed. The money so received was much in excess of the assessee's immediate business needs. Accordingly the surplus money was deposit- ed with the banks on short-term deposits whereby the amount of Rs. 3,08,978 was received as interest. In addition to this, the assessee also deposited money with the supplier of steel and these de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of interest received on deposits with the bank is not liable to income-tax under the Act because taxability of a receipt under the Act is not dependent on its subsequent application. His further submission was that under section 57( iii ) of the Act, deduction from income charge-able under the head "Income from other sources" can be made only in respect of such expenditures, which are not capital in nature and have been laid out or expended wholly and exclusively for the purpose of making or earning such income, which is not the situation here. In support of his submissions, he has placed reliance on the decision in the case of CIT v. United Wire Ropes Ltd. [1980] 121 ITR 762 (Bom.) and Addl. CIT v. Madras Fertilisers Ltd. [1980] 122 ITR 139 (Mad.). 6. Shri Pawan Kumar, the learned counsel appearing for the assessee, has strenuously argued that the view taken by the Tribunal is in conformity with the decision of this Court in the case of CIT v. Bokaro Steel Ltd. (No. 1) [1988] 170 ITR 522 (Pat.) and, as such, the same should be affirmed. According to him, in the case like the present one, the Brochure (study on expenditure during construction period) issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, tax under the Act is leviable on the total income of the previous year to be computed in accordance with the provisions of the Act. 10. The inclusive definition of "income" as set out under section 2( 24 ) of the Act takes within its sweep various profits and receipts. In the case of Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 at page 242, it has been held by the Privy Council that, "anything which can properly be described as income is taxable under the Act unless expressly exempted". 11. Keeping in view the facts and the meaning of 'income' as discussed above, it needs no further elaboration to hold that the bank interest received in this case is an "income from other source" within the meaning of section 56 of the Act since income is not chargeable under any other head of income specified in section 14 of the Act. If that be so, the assessee will be entitled to deduction from this income only if the conditions laid down under section 57( iii ) of the Act are satisfied which reads as under: "57. The income chargeable under the head 'Income from other sources' shall be computed after making the following deductions, namely: ( iii )any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned through any source is applied in construction or acquisition of capital assets. 15. Under the scheme of the Act, application of income per se does not affect its taxability except for specific provisions in this regard. Inciden-tally, I may also notice here that in view of the law laid down by the Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167, interest paid on amounts borrowed by the assessee for acquisition and installation of plant and machineries, before commencement of production, forms part of the "actual cost" of the asset to the assessee and, as such, it is capital expenditure. Accordingly, interest paid by the assessee in the present case being capital in nature cannot be allowed as deduction in computing the income of the assessee. 16. The submissions of Mr. Pawan Kumar that since the brochure of the Institute of Chartered Accountants, referred to above, provides that the interest income earned during the construction period may be set off against expenses incurred during the said period, therefore, the same principle should be applied for computing the taxable income, needs to be considered now. By referring to Challapall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. In the present case, it is not necessary to individually deal with all the decisions cited at the Bar because in my opinion so far as this Court is concerned, the issue is now no more res integra since a similar question has been specifically dealt with a Bench of this Court in the case of Bokaro Steel Ltd. (No. 1) ( supra ). In this case the assessee had received sums from the Government for the construction of its plant. The unutilised part of sums so received used to be deposited in the bank as short-term deposit and earned interest thereon. On this fact, the question which had fallen for consideration before this Court was as to whether the interest so received was liable to be assessed as income of the assessee or such interest should reduce the cost of construction of the assessee and, therefore, would not constitute its income. This is question No. 4 at page 547 of the said report. This Court, after considering various authorities on the issue, answered the question against the assessee by holding that the interest so received constitutes the income of the assessee. 19. In the above view of the matter, both the questions referred to us are answered in the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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