2017 (5) TMI 903 - ITAT HYDERABAD

Charging of tax on the interest received from the temporary fixed deposits from the escrow account out of the barrowed funds committed for project implementation - whether the assessee business has been set up or commenced? - Held that:- The preoperative expenditure was to be capitalized to the assets and Assessee was eligible for depreciation on the value of assets. Therefore in the given facts of the case, we hold that Assessee has only setup the business but has not commenced the business, therefore, the claim of revenue expenditure is not allowable as the provisions of Sec. 28 of the IT Act does not apply.

The Hon'ble jurisdictional High Court in the case of CIT Vs. Rasi Cement Ltd.[1998 (4) TMI 132 - ANDHRA PRADESH High Court] has answered similar questions involved in favour of the Revenue as held that such interest has to be separately treated as income from other sources and cannot be taken as part of the capital structure following the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., Vs. CIT [1997 (7) TMI 4 - SUPREME Court]. It was categorically held that interest earned on surplus funds deposited in banks during installation of company, prior to commencement of business, has to be brought to tax as ‘income from other sources’ u/s. 57. Respectfully following the jurisdictional High Court decision also, the contentions of assessee that this amount has to be adjusted towards capital account cannot be accepted. - Decided against assessee.