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2017 (11) TMI 1815 - AT - Income TaxChargeability of interest income on deposits to tax - whether CIT-A was justified in confirming the addition made on account of interest income on deposits earned by the assessee? - HELD THAT:- It is not in dispute that the business of setting up of a steel plant had not commenced during the year under appeal. It is not in dispute that the assessee had received share capital from its shareholders and also term loans from banks for the purpose of its business of setting up of a steel plant. The unutilized portion of the said funds were invested in short term deposits with banks and interest income derived thereon by the assessee. We are unable to sustain the view taken by the CIT-A by placing reliance on Tuticorin Alkali Chemicals [1997 (7) TMI 4 - SUPREME COURT] . The interest income derived by the assessee in the sum of ₹ 3,50,47,844/-, being the amounts invested in deposits out of share capital, would be capital receipt and would go to reduce the project cost of steel plant as it is inextricably linked with the setting up of the power plant. Following the same judgement, we hold that the interest income derived in the sum of ₹ 18,88,559/- from deposits invested out of borrowed funds, would be liable to tax under the head income from other sources, which would be in line with the decision of the Hon’ble Apex Court in the case of Tuticorin Alkali Chemicals. Deposits were invested with bank for obtaining Bank Guarantees in favour of Customs Department which is inextricably linked with the business of setting up of steel plant of the assessee. Hence the ratio laid down in the decisions in the case of CIT vs Bokaro Steel Ltd [1998 (12) TMI 4 - SUPREME COURT] ; CIT vs Karnal Co-operative Sugar Mills Ltd [1999 (4) TMI 7 - SUPREME COURT]; and Bongaigaon Refinery & Petrochemicals Ltd vs CIT [2001 (7) TMI 4 - SUPREME COURT] would be squarely applicable to the instant case and hence the interest income derived thereon would only go to reduce the project cost of steel plant and hence had to be construed as capital receipt. Accordingly, the grounds raised in this regard by the assessee are allowed
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