R.K.Agrawal, J. - (1.) The Tribunal, New Delhi, has referred the following question of law under Section 256(1) of the IT Act, 1961, hereinafter referred to as the Act, for opinion to this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that interest of Rs. 2,54,279 was assessable as assessee's income for asst. yr. 1978-79 ?"
(2.) Briefly stated the facts giving rise to the present reference are as follows : The reference relates to the asst. yr. 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 31st March, 1978, the applicant which was in the process of setting up sugar mill had borrowed funds from 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 deposits with the banks on which the applicant earned interest of Rs. 2,64,279. The applicant claimed that the said interest receipts should be set off against the interest payments made by it and, therefore, no interest income was assessable in its hands. The ITO, however, rejected the claim by holding that the interest of Rs. 2,64,279 earned by the applicant was assessable under the head 'Income from other sources' and only the expenditure laid out or expended wholly or exclusively for the purposes of making or earning such interest income was allowable as deduction against the interest income. In the appeal preferred by the applicant, the CIT(A) had deleted the addition by holding that only net amount of interest payable against loans taken for installation of plant and machinery was includible in the total cost of construction and as the assessee had paid interest on the borrowed funds a part of which had been deposited with the bank, only the net result in the interest account should be seen. The Revenue preferred an appeal before the Tribunal. The Tribunal had reversed the order passed by the CIT(A). It had held that this amount of interest in question was assessable under the head 'Incomes from other sources'.
(3.) We have heard Sri Vikram Gulati, learned counsel for the applicant, and Sri A.N. Mahajan, learned standing counsel appearing for the Revenue.;