2005 (4) TMI 15

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....o tax?" The present reference relates to the assessment year 1984-85. Briefly stated, the facts giving rise to the present reference are as follows: The respondent-assessee is a co-operative society having as its object the manufacture and sale of sugar. In order to attain its object, it had commenced erection of building and installation of machinery for the sugar mills. For making the capital investment of building, plant and machinery, etc., it had approached financial institutions, banks and accordingly obtained loan of a little over Rs. 3.81 crores. The Industrial Finance Corporation of India (hereinafter referred to as "IFCI") is one of the major financial institutions which had advanced loan facilities vide agreement dated May 11,....

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....respondent-assessee that the interest so earned could not be allowed to be set off against the capital cost of construction. The Tribunal, however, accepted the plea of the respondent on the ground that but for the insistence by the IFCI to open a special bank account, the assessee would not have opted for it. Therefore, the earning of the interest was entirely incidental to the terms and conditions specified by the IFCI. According to the Tribunal, it was wrong to hold that the interest was earned on idle money kept in deposit with the bank. It was further held that since the special bank account represented the loan amount drawn from the IFCI, which was available and utilised only for the purpose of construction, erection of building, plan....

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....be said that the respondent had deposited the money for earning interest and the interest earned on the amount would go to reduce the capital cost of construction. We find that the interest had been earned during the stage of construction and installation of the machinery. Business had not yet commenced. The apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 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 the heads under which the company's income is liable to be asses....