Godavari Fertilizers and Chemicals Ltd. vs Commissioner of Income Tax

P. Venkatarama Reddi, J.—The following question has been referred u/s 256(1) of the Income Tax Act, 1961, for the decision of this court :

"Whether, on the facts and in circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the interest of Rs. 4,36,103 earned by the assessee-company on investment of its funds not be deducted from the capital cost for the assessment year 1983-84 ?"

In a similar case, R.C. No. 108 of 1983 Commissioner of Income Tax Vs. Derco Cooling Coils Ltd., , in which judgment is being delivered today, we have taken the view that the interest receipt on account of share money deposit during the pre-production period constitutes income of the assessee and it cannot be set off against the interest expenses incurred on borrowed amounts and then capitalised. In that case, the Tribunal had taken the view in favour of the assessee following a Special Bench decision of the Tribunal. As noticed by us in R.C. No. 108 of 1983 Commissioner of Income Tax Vs. Derco Cooling Coils Ltd., , the Special Bench decision in Arasan Aluminium Industries (P.) Ltd. v. First ITO [1982] 1 ITD 10 (Mad) must be deemed to have been overruled by the jurisdictional High Court, namely, the Madras High Court, in the decision reported in Commissioner of Income Tax Vs. Seshasayee Paper and Boards Ltd., .

Learned counsel for the assessee in this case, Mr. Y. Ratnakar, advanced identical arguments as were put forward by counsel for the assessee in the connected R.C. No. 108 of 1983 Commissioner of Income Tax Vs. Derco Cooling Coils Ltd., . Sri Ratnakar, in particular, has placed strong reliance on the observation in the judgment of this court in Commissioner of Income Tax Vs. Nagarjuna Steels Ltd., . As explained by us in our judgment in R.C. No. 108 of 1983, the principal of the said decision cannot be extended to the situation obtaining in the present case. Hence, following our judgment in R.C. No. 108 of 1983 Commissioner of Income Tax Vs. Derco Cooling Coils Ltd., , we uphold the decision of the Tribunal and answer the question in the affirmative, i.e., in favour of the Revenue and against the assessee. The reference is accordingly disposed of. No order as to costs.