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<h1>Interest on letter-of-credit deposit for buying plant and machinery treated as capital receipt, not 'other sources' income</h1> 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 ... Interest earned on deposits incidental to acquisition of capital assets - interest on deposits made to secure a letter of credit - distinction between deposits of idle share capital and deposits linked to capital asset acquisition - inapplicability of the ratio in Tuticorin Alkali Chemicals and Fertilizers Ltd. - applicability of the principle laid down in CIT v. Bokaro Steel Ltd.Interest earned on deposits incidental to acquisition of capital assets - distinction between deposits of idle share capital and deposits linked to capital asset acquisition - inapplicability of the ratio in Tuticorin Alkali Chemicals and Fertilizers Ltd. - applicability of the principle laid down in CIT v. Bokaro Steel Ltd. - Whether interest earned on money deposited to open a letter of credit for purchase of machinery is taxable as income or is incidental to acquisition of capital assets - HELD THAT: - The Court held that the deposit was made specifically to open a letter of credit for purchase of machinery required for setting up the plant; the interest earned arose on that deposit and was directly linked to the acquisition of plant and machinery. This situation differs from a case where surplus share capital lying idle is deposited in a bank to earn interest. Because the deposit was incidental to the acquisition of assets, the income earned on it is incidental to the capital expenditure for setting up the plant. Accordingly, the ratio in Tuticorin Alkali Chemicals and Fertilizers Ltd., which is concerned with income from idle capital, does not apply; the factual and legal approach of CIT v. Bokaro Steel Ltd. is more appropriate and governs the present case.Interest earned on the deposit made to open a letter of credit for purchase of machinery is incidental to acquisition of capital assets and not taxable as income in the circumstances; appeal dismissed.Final Conclusion: The appeal is dismissed; the interest on the deposit made to secure the letter of credit is treated as incidental to the acquisition of machinery and governed by the principle in CIT v. Bokaro Steel Ltd., not by the Tuticorin Alkali ratio. 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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