TMI Blog1992 (2) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of its funds and also received miscellaneous receipts of Rs. 18,599. Against these receipts, the assessee incurred expenditure of various counts amounting to Rs. 95,76,696 which includes interest payments of Rs. 57,50,281. It had filed a NIL return. The ITO had brought to tax the total amount of Rs. 61,588 (Rs. 42,989 + 18,599) under the head 'other sources'. 3. The assessee went in appeal before the Commissioner of Income-tax(Appeals). It was contended before him that as commercial production did not commence, the interest and other receipts will go to reduce the expenditure to be capitalised and that there will not be any income to be taxed. The assessee relied upon the A. P. High Court's decision in the case of CIT v. Nagarjuna Stee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------------------------------------------------------- Particulars of Interest Amount and Miscellaneous receipts Rs. -------------------------------------------------------------------------------------------------------------------------------------------------- I. Interest Receipts : 1. Interest on short term deposit (i) with Canara Bank ] Out of disbursement 35,548.42 (ii) with Andhra Bank ] of IDBI term loans 4,498.70 2. Interest on public issue collection (with Bank of Baroda) 46.65 3. Interest on Margin Money Deposit (out of cash credit) 1,879.98 4. Interest on EMD 14.93 --------------- 42,988.68 II. Miscellaneous Receipts : 5. Amount received from Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st earned on such short-term deposits should be set off against the interest paid by the assessee on the loans obtained by it and the balance of the interest amount should be capitalised. Interest received on such short-term deposits is not assessable as a revenue receipt. " We are of the opinion that the interest on short-term deposits viz., Rs. 36,548.42 and Rs. 4,498.70 as well as Rs. 1,879.98 can be set-off against the interest paid by the assessee on the loans obtained by it. That means, they can be adjusted against the interest payment of Rs. 57,50,281. The interest amount of Rs. 46.65 earned on the share capital contribution, which was deposited as short-term deposit in Bank of Baroda is taxable as income from other sources. The An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank which may or may not be utilised or meant to be utilised for the purpose of setting up of the plant. This again emphasises that the interest received may not stand on the same footing as the interest incurred during the pre-production period so that one could be set off against the other. " Applying the said principle. the amount of Rs. 46.65 cannot be held to be deductible from out of interest payable by the assessee. The amount of Rs. 13,520.82 witch forms part of miscellaneous receipts, clearly show that it is the interest payable by the shareholders for late payment of call money and therefore it partakes the character of the share capital amount which was deposited in a bank. In our opinion, the decision of Andhra Pradesh C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... klet extracted by the Andhra Pradesh High Court, inter alia in their latest judgment in the case of Darco Cooling C. Oils Ltd. stated the following :-- " l7.11 : During the construction period, a project may earn income from miscellaneous sources for example, share transfer fees, interest income, income from hire of equipment or assets, and income from sale of products manufactured during the period of test runs and experimental production. It is recommended that such income should be set-off against the related items of expenditure so that only the net amount of the expenditure is capitalised or treated as deferred revenue expenditure, as the case may be. " 6. Having regard to the above, we are of the opinion that the sum of Rs. 5,078. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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