Banana Ltd is a new infrastructure company , having paid up capital of Rs 10crores, has taken certificate of incorportion but no business activity was started duting the financial year 2007-08, the Company has made fixed deposit of Rs 10 cr in bank and had interest income.
In the return of income , these interest income has been shown under business head by deducted the normal business expenses. But now Assesing Officer disallowing these expenses, treating them as preliminary expenses and taking these interest income under the head income from other source and asking for further tax
Is AO is correct? Is there any case related to above?
30 November 2009
As per my understanding the findings of the ITO is correct. Why because the Bombay high court in the cae of Shree Krishna Polyster Ltd Vs. Dy.CIT (2005) 274 ITR 21 ruled that interest earned by the assessee, by investing surplus money recived in public issue in bank deposits shall be assessable as income from other sources. Regarding deduction of expenses Supreme court in CIT Vs. Dr. V P. Gopinathan (2001) 248 ITR 449 ruled that interest received from the bank on a fixed deposit is income and there could not be no deduction therefrom unless there is a law permitting such deduction.
02 December 2009
HI similar type of judgement is given in
Tuticorin alkali chemicals and fertilizer ltd.
Befor the commercial prodution, all the interest in nature on capital , hence should be capitalised,
and any interest on the deposit, is will pe taxable under the head of other source,
however the in thd judgement also provide that once the commercial production is strated than you may claim the interest payment as deduction from the interest earned,
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