Can interest income can be set off against business loss

yes you can set off

You can setoff provided your business is neither of:

1.Speculation Business

2.Business Specified under Section 35AD of Income Tax Act,1961.

I think it is not possible to set off of Business loss by Interest Income . According to I.T. Act "Because business loss can be adjusted only against business income" .  But if you had taken loan from bank  and the same has been given to

some other party the earned interest may can adjust to interest paid to bank.  If not you are doing money lending

business by your own funds it should be fully taxable.

Yes you can claim the business loss (not speculative) in the current year with the income under the head other sources. There's no doubt in it.  

Inter Head Adjustment is permissible only in the first year in which loss was generated. That means, if u have any business loss (Other than speculative or specified business loss), it can be adjusted with interest income or any income other than salary of that Asst Year.