Interest on letter-of-credit deposit for buying plant and machinery treated as capital receipt, not "other sources" income

Interest earned on money deposited to open a letter of credit for purchase of plant and machinery raised the issue whether such income was taxable as "income from other sources" or was a capital receipt linked to acquisition of capital assets. The SC held that the deposit was inextricably connected with procurement of machinery for setting up the plant; therefore, any interest earned was merely incidental to the acquisition/installation process and bore the character of a capital receipt, attracting the principle in Bokaro Steel rather than Tuticorin Alkali. The appeal was dismissed.

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The Supreme Court held that interest earned on money deposited to open a letter of credit for purchasing machinery is incidental to acquiring assets for setting up a plant. The case is not about surplus share capital money deposited for earning interest. The decision in CIT v. Bokaro Steel Ltd. is more relevant than Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT. The appeal was dismissed with no order as to costs.

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