Pre-production interest on invested funds is taxable income and cannot be set off against capital cost.

Interest earned on investment of funds during the pre-production period was treated as taxable income and could not be adjusted against borrowed-fund interest or deducted from capital cost. The court applied its earlier view that such pre-production interest receipts do not form part of capitalisation and held the reliance on the cited prior decision inapplicable on the facts. The question was answered in favour of the Revenue and against the assessee, confirming that the interest receipt could not reduce the project's capital cost for assessment year 1983-84.

---

---

Issues: Whether interest earned by the assessee-company on investment of its funds could be deducted from the capital cost for the assessment year 1983-84.

Analysis: The issue was governed by the court's earlier view that interest received on deposits during the pre-production period constitutes income of the assessee and cannot be adjusted against interest expenditure on borrowed funds and capitalised. The reliance placed on a prior decision was held inapplicable to the present facts, and the court followed its connected decision on the same point.

Conclusion: The interest receipt could not be deducted from the capital cost. The question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: Interest earned on investment of funds during the pre-production period is taxable income and is not liable to be set off against capital cost by capitalising it.

---