Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 2001-02 and 2002-03 - Assessee-company was incorporated in pursuance of a joint venture entered into between two corporations to set up a power project - In order to effectuate purpose for which joint venture was conceived, both joint venture partners contributed share capital which included certain amount by way of additional share capital - Assessee claimed that those funds were required for purchase of land and development of infrastructure, but due to legal entanglements with respect to title of land, same were temporarily put in fixed deposit with bank and certain interest was earned thereon - Assessee claimed that said interest was in nature of capital receipt and was liable to be set off against pre-operative expenses - However, Assessing Officer assessed said interest as income from other sources - On appeal, Commissioner (Appeals) allowed assessee's claim holding that interest earned was 'inextricably linked' with setting up of power plant - On revenue's appeal, Tribunal reversed order of Commissioner (Appeals) - Whether when in view of finding of fact returned by Commissioner (Appeals) funds infused by joint venture partners in assessee-company were inextricably linked with setting up of power plant, interest earned by assessee by parking said funds temporarily with bank could be treated as income from other sources - Held, no - Whether since income was earned in a period prior to commencement of business, it was in nature of capital receipt and, hence, was required to be set off against pre-operative expenses - Held, yes FACTS The assessee-company was incorporated in pursuance of a joint venture entered into between an Indian company and a Japanese company to set up a power project. In order to effectuate the purpose for which joint venture was conceived, both the joint venture partners contributed share capital which included a sum by way of additional share capital. The assessee stated that said funds were required for purchase of land and development of infrastructure, but due to legal entanglements with respect to title of land, they were temporarily put in fixed…

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