TMI Blog1989 (3) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,120), was not taxable as the assessee's income ?" The material facts giving rise to this reference, briefly, are as follows The assessee is a public limited company. The assessee established factory for the manufacture and production of electro-graphites and the production commenced on May 1, 1977. During the accounting year relevant to the assessment year 1978-79, the assessee derived income of Rs. 50,116 as interest on fixed deposits and interest on late payment of call money. The Income-tax Officer held that this amount was taxable as the assessee's income. Aggrieved by that order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the period of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson prior to the commencement of business would be taxable as income from other sources and that the Tribunal erred in holding that such income was not taxable. Reliance was placed on the decisions in Madhya Pradesh State Industries Corporation Ltd. v. CIT [1968] 69 ITR 824 (MP) and Traco Cable Co. Ltd. v. CIT [1969] 72 ITR 503 (Ker). In reply, learned counsel for the assessee contended that the income received by the assessee during the pre-production period has to be set off against interest expenses as required by the rules of accountancy and the Tribunal was, therefore, right in holding that the interest income was not assessable to tax. Reliance was placed on the decisions in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC), CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Tribunal, that even though a particular item of miscellaneous income is not found to be directly related to a particular item of expenditure, interest received by investing funds during the construction period should be adjusted against capital cost and cannot be taxed as income from other sources. In our opinion, in the absence of any finding that interest on fixed deposits and interest on late payment of all money was directly related to a particular item of expenditure, the Tribunal was not justified in holding that the interest income received by the assessee on fixed deposits and on late payment of call money was not taxable as the assessee's income. For all these reasons, our answer to the question reframed by us is in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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