Treatment of Interest Income during construction period

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Sudheer kumar chinta (Querist)
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12 December 2009 Hi,
Pls advise me on this:

During the period of pre production of a manufacturing company where commencement of business does not take place, the excess funds procured (thru equity) are deposited as FD, and interest income is earned.

Should that interest income be treated as Income from other sources (sec.56) or as Income from Business(sec.28) ?

Pls give me the case law if any, if it that could be treated as Income from Business.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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12 December 2009 To be included and assessed under the head'income from other sources'.
Citation:- 1) Traco Cable company Ltd Vs. CIT (1969)72 ITR 503(Ker).
2) CIT Vs. Modi Rubber Ltd (1994)208 ITR 379 (Delhi).

CA Balram Sharma

CA Balram Sharma (Expert)
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12 December 2009 Income should be treated as other source u/s 56

and no deduction will be allowed in this income for the interest paid by you to bank,

interest on loan should be capitalized,
and interest on FD should be taxable U/H other source

case

Tuticorn Alkali chemical & fertilizer (SC)

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