TMI Blog2005 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... AWAL., RAJES KUMAR. JUDGMENT The Income-tax Appellate Tribunal, New Delhi, has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the interest earned on the amounts kept in special deposit account was a capital receipt and accordingly not liable to tax?" The present reference relates to the assessment year 1984-85. Briefly stated, the facts giving rise to the present reference are as follows: The respondent-assessee is a co-operative society having as its object the manufacture and sale of sugar. In order to attain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the IFCI and, therefore, the interest earned on such special deposit account could not be said or treated as interest earned on idle funds during construction. The assessing authority rejected the contention of the respondent-assessee on the ground that whatever may be the circumstances, it was interest earned during the period of construction and, therefore, it was taxable as income from other sources. The assessing authority also rejected the contention of the respondent-assessee that the interest so earned could not be allowed to be set off against the capital cost of construction. The Tribunal, however, accepted the plea of the respondent on the ground that but for the insistence by the IFCI to open a special bank account, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172. Learned counsel for the assessee submitted that the respondent was obliged under the compulsion of the agreement entered into by it with the IFCI to open a loan deposit account with the bank to be approved by the IFCI and not to create any liability on the said amount. He further submitted that the account was not opened on its free will. It cannot be said that the respondent had deposited the money for earning interest and the interest earned on the amount would go to reduce the capital cost of construction. We find that the interest had been earned during the stage of construction and installation of the machinery. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent had kept the amount of loan in a bank account. Free will is immaterial. If the assessee has earned the interest on the said amount, it is taxable under the head of "Income from other sources" and, therefore, the Tribunal has committed error in holding that the amount of interest is not taxable and shall go to reduce the cost of construction. We may mention here that this court in I.T.R. No. 41 of 1985, Chandpur Sugar Co. Ltd. v. CIT [2006] 280 ITR 612 (All) decided on September 28, 2004, has followed the aforesaid decision of the apex court and has held that interest earned from other sources, has rightly held income from other sources. Respectfully following the aforesaid decision, we answer the question referred to us in the negat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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