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TMI Blog2016 (12) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Govt. along with the interest. Therefore, the interest income derived by the assessee is also the income of the Govt. and not of the assessee and hence it ought to have been allowed to be set off against the pre-operative expenses. The interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. See Indian Oil Panipat Power Consortium Ltd.case [2009 (2) TMI 32 - DELHI HIGH COURT ] - ITA No.587/Hyd/2016 - - - Dated:- 21-12-2016 - Smt. P. Madhavi Devi, Judicial Member AND Shri S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration that the company completed construction of the compound wall, 10 work sheds, culverts etc and that the project is under progress. Further, from the balance sheet of the company, the AO observed that the assessee had shown a sum of ₹ 2,07,88,824 as pre-operative expenditure pending allocation. On perusal of the schedules enclosed to the balance sheet, the AO found that the assessee company has netted off the pre-operative expenses with interest income of ₹ 11,06,816 received during the year on fixed deposits out of the grants received. Observing that the project is still under progress, the AO was of the opinion that the expenses prior to set up of business cannot be said to be incurred for the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income from other sources and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us. 5. The learned Counsel for the assessee placed reliance upon the submissions made by the assessee before the CIT (A) which are reproduced by the CIT (A) in his order at Para 5.1. He also distinguished the facts of the assessee s case from the facts of the case of M/s. Kakinada SEZ Private Ltd for the A.Y 2007-08 on which the CIT (A) has placed reliance upon to confirm the disallowance of the claim of the assessee. 6. Learned DR, however, supported the orders of the authorities below. 7. Having regard to the rival contentions and the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Supreme Court in Tuticorin Alkali Chemicals (supra) is that if funds have been borrowed for setting up of a plant and if the funds are surplus and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head income from other sources . On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd. (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise inextricably linked to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. 5.1 The test, therefore, to our mind is whether the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure - then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, in as much as, the interest earned from the bank would have a hue different than that of business and be brought to tax under the head income from other sources . It is well-settled that an income received by the assessee can be taxed under the head income from other sources only if it does not fall under any other head of income as provided in Section 14 of the Act. The head income from other sources is a residuary head of income. See S.G. Merca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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