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TMI Blog2014 (3) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... nvested, were not taxable as 'income from other sources'?" 2. In the return filed for the assessment year 1992-93, the assessee adjusted the interest income of Rs.90,37,029/- against the pre-operative expenses relating to a project. While completing the assessment, assessing officer rejected the claim for adjustment and held that the interest was separately assessable under the head "income from other sources". He placed reliance on the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT, (1997) 227 ITR 172. The matter reached the Income Tax Appellate Tribunal (hereinafter referred as "Tribunal") which by order dated 21.03.2006 restored the same to the file of the assessing officer for an op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, provided the consultancy services for speedy engineering package, construction, supervision and commission of all utilities. Funds were also brought in by the promoters to the tune of Rs.17,88,31,000/- as share capital; Indian Petrochemicals Corporation Ltd. one of the promoters also granted a loan of Rs.50 lakhs. All these funds were invested with banks under the "portfolio management scheme" under which the banks gave an assured earning guarantee. The banks in turn invested the monies in shares and securities. Any amounts over and above the assured guarantee earned from the shares and securities were to be retained by the banks, which were also to suffer the loss in case the returns fall below the assured guarantee. On these facts the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and is clearly taxable even though the interest amount is earned by utilising borrowed capital." 6. Tuticorin (supra) also recognized that even during construction of the project and when the actual business was not commenced, a company can earn income from sources other than the business. In that case the funds were invested during the construction of the project, on which interest was earned and the Supreme Court held that such interest has to be brought to tax under the head "income from other sources". Bokaro (supra) was dealing with an entirely different set of facts. There, during the construction period the assessee received income under 5 different heads, all of them inextricably linked to the construction of the project. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervation of the Supreme Court in Tuticorin (supra) quoted above, whether the funds were borrowed or were those of the assessee itself would make no difference to the principle. In Bokaro (supra), the earlier judgment in Tuticorin (supra) was referred to and it was observed that interest earned by investing in short term deposits is an independent source of income, which is not connected with the construction activities; it is only when the investment is inextricably linked with the process of setting-up the plant and machinery that the interest will go to reduce the cost of the assets without being taxed as income. In the present case there is no such finding by any of the authorities below, including the Tribunal. As already pointed out, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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