Law on non-taxing pre-construction interest good law despite s. 36(1)(iii) Proviso

NTPC SAIL Power Company Ltd vs. CIT (Delhi High Court)

The assessee was in the process of expansion of its business by setting up new units for generation of power. It borrowed funds for the project and incurred interest expenditure which was capitalized. A part of the funds were invested in temporary deposits and in deposits by way of margin or giving advances etc. for the purpose of expansion. Such deposits earned interest of Rs.331.58 lakhs. The assessee claimed, relying on Bokaro Steel 236 ITR 315 (SC) that the interest earned had to be reduced from the interest paid on the borrowings and was not assessable as “income”. The CIT(A) accepted the claim but the Tribunal rejected it on the ground that Bokaro Steel 236 ITR 315 (SC) and the other judgements on the point were not good law in view of the Proviso to s. 36(1)(iii) inserted w.e.f. 1.4.2004. On appeal by the assessee to the High Court, HELD reversing the Tribunal: