Interest Income is capital receipt only if it is inextricably linked with project

Issue under Consideration

Common appeal is raised by the revenue against the order of CIT (A) relating to assessment year 2007-08, 2008-09 & 2009-10 as CIT (A) deleted the addition of Rs. 17, 28, 644/- without considering the fact that Interest expenditure cannot be allowed as deduction against the interest income during the construction period.

Brief of the case

In the Case of ACIT vs. Z Square Shopping Mall Private Limited, ITAT Lucknow held that the interest earned on FDR, Gains from investment of Mutual Fund is not inextricably linked or connected with the construction activities, Therefore it should be treated as revenue receipt and taxable under the head income from other source. Further for Income from sale of wastage assessing officer is instructed to verify the nature of transaction. If transaction is inextricably linked with the construction activity then it would be treated as capital receipt and will reduce the cost of project otherwise it would be revenue receipt.

Facts of the case

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