2004 (9) TMI 8

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....?" Briefly stated the facts giving rise to the present reference are as follows: The reference relates to the assessment year 1978-79. The applicant is a public limited company incorporated under the provisions of the Companies Act, 1956. It is a Government company. It was incorporated in the year 1974. It is engaged in the business of manufacturing sugar by vacuum pan process. During the accounting year under consideration ending on March 31, 1978, the applicant which was in the process of setting up a sugar mill had borrowed funds from the Industrial Finance Corporation, Indian Overseas Bank, U.P. State Sugar Corporation, etc. on which it had paid interest of Rs. 9,13,380. A part of the funds so received was deposited in short-term depo....

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....at the applicant was in the process of setting up a sugar mill for which purpose it had borrowed funds from various financial institutions, corporations and banks. In order to use the idle money so as to minimize the cost of construction by reducing its liability towards interest, as a prudent person the applicant had invested this surplus and idle funds in short-term deposits with the banks on which it had earned interest. The amount of interest so earned is to be deducted from the amount of interest which the applicant had to pay on its borrowings and, therefore, there was no income. The Tribunal had committed an error in holding it to be assessable under the head "Income from other sources". In support of his aforesaid submission he rel....

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.... the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172 has held that the interest earned on surplus funds kept in short-term deposits is chargeable under section 56 of the Act. The apex court has held as follows: "The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business or profession is only one of heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences ....