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2014 (7) TMI 1005 - HC - Income TaxInterest earned on Short term deposits – Security for obtaining letters of credit – Nature of expenses – Capital receipt or not - Whether the interest earned on the short term deposits (FDRs) made for the purpose of providing security for obtaining the letters of credit (LC's) to be opened for import of plant and machinery was assessable as income under the head "income from other sources” and whether it is liable to be adjusted against the pre-operative cost of the plant and machinery – Held that:- Source of investment is not relevant, whether it has come from the share application money or from other sources, but certainly money has not come from the production as during the assessment year, the production had not started - assessee has kept the available funds in the FDRs for a short period and earned the interest – the deposit was made under the compulsion for having the letter of credit - Without letter of credit/bank guarantee, plant and machinery cannot be imported and without plant and machinery, factory cannot be established - any income earned on such deposit is incidental acquisition of assets for setting up of the plant and machinery – Relying upon CIT Vs. Karnal Co-operative Sugar Mills Ltd. [1999 (4) TMI 7 - SUPREME Cour] – thus, the claim of the assessee is allowable - The interest earned on the short term deposit, felicitate the letter of credit/bank guarantee, is to be treated as pre-operative expenses – Decided in favour of Assessee.
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