COMMISSIONER OF INCOME TAX Vs. ELECTROCHEM ORISSA LIMITED

JUDGEMENT

(1.) THE Tribunal has drawn up the statement of case on being directed by this court on an application being filed under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), to refer the following question for the opinion of the court :

(2.) THE assessee, a company, was engaged in the business of manufacture of manganese dioxide, ferro-manganese and other allied products. THE relevant assessment year is 1979-80. During the previous year, the factory of the assessee was being constructed and the assessee had deposited some money in fixed deposit and had earned interest to the tune of Rs. 30,960. THE assessee claimed that the interest earned by it should be capitalised which go to reduce the cost of setting up of the factory, as it was not a part of the business of the firm to keep money in deposit and earn interest. THE Income-tax Officer, however, did not agree with the contention of the assessee and treated the same to be income from other sources. THE assessee preferred an appeal and having lost in the appeal, preferred a second appeal to the Tribunal. THE Tribunal, relying upon the decision of the Patna Bench of the Tribunal in Bihar Alloy Steel Ltd. v. ITO, as well as the Special Bench decision of the Tribunal in the case of Arasan Aluminium Industries P. Ltd. v. ITO, came to the conclusion that as the business of the assessee was not set up and was under construction, the interest earned by the assessee by way of short-term fixed deposit would reduce the cost of the plant and, therefore, the said income has to be deleted while assessing the assessee. THE Department then moved the Tribunal for making a reference and having failed there moved this court and under the direction of this court, the Tribunal has now referred the question as stated earlier for the opinion of the court.