( 1 ) THE Tribunal, New Delhi, has referred the following question of law under Section 256 (1) of the IT Act, 1961 (hereinafter referred to as "the Act"), for opinion of this Court : "whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the interest earned on the amounts kept in special deposit account was a capital receipt and accordingly not liable to tax ?" ( 2 ) THE present reference relates to the asst. yr. 1984-85. ( 3 ) BRIEFLY stated, the facts giving rise to the present reference are as follows : respondent-assessee is a co-operative society having its object of manufacture and sale of sugar. In order to attain its object, it had commenced erection of building and installation of machinery for the sugar mills for making the capital investment of building plant and machinery, etc. It had approached financial institutions, banks and accordingly obtained loan of little over Rs. 3. 81 crores. The Industrial Finance Corporation of India (hereinafter referred to as "ifci") is one of the major financial institutions which had advanced loan facilities vide agreement dt. 11th May, 1982. This agreement specified the manner of utilisation of the loan. This agreement also provided the manner in which the loans could be drawn and the manner in which the drawn amount should be kept in bank accounts. One of the clauses provided that the loan that is drawn should be kept in a special bank account with the scheduled bank which was duly approved by ifci. All the deposits in this special bank account were subject to the scrutiny by the officer of ifci or any other person authorised by it. The agreement required the assessee to obtain letter from the scheduled bank foregoing its right to set off or lien on such account. The assessee in compliance with the terms of loan agreement kept the money drawn on loan account in the said special bank account. The bank credited the account of the assessee with the interest earned on such special deposit account. Before the assessing authority it was contended on behalf of the respondent-assessee that such deposit account had been opened at the instance of the IFCI and, therefore, the interest earned on such special deposit account could not be said or treated as interest earned on idle funds during construction. Before the assessing authority it was contended on behalf of the respondent-assessee that such deposit account had been opened at the instance of the IFCI and, therefore, the interest earned on such special deposit account could not be said or treated as interest earned on idle funds during construction. The assessing authority rejected the contention of the respondent-assessee on the ground that whatever may be the circumstances, it was interest earned during the period of construction and, therefore, it was taxable as income from other sources. The assessing authority also rejected the contention of the respondent-assessee that the interest so earned could not be allowed to be set off against the capital cost of construction. The tribunal, however, accepted the plea of the respondent on the ground that but for the insistance by the IFCI to open a special bank account, the assessee would not have opted for it. Therefore, the earning of the interest was entirely incidental to the terms and conditions specified by IFCI. According to the Tribunal, it was wrong to hold that the interest was earned on idle money kept in deposit with the bank. It was further held that since the special bank account represented loan amount drawn from IFCI, which was available and utilised only for the purpose of construction, erection of building, plant and machinery, etc. , the earning of the interest on such special deposit account is entirely related to the compliance of the terms and conditions of the loan and would go to reduce the capital cost of construction. The amount of Rs. 86,537 representing interest earned on this special deposit account was held as not taxable as revenue income but deductible from the cost of construction. ( 4 ) WE have heard Sri S. Chopra, learned standing counsel for the Revenue, and Sri Vikram gulati, learned counsel for the respondent-assessee. ( 5 ) LEARNED counsel submitted, as the respondent had kept the amount of loan disbursed by IFCI in special bank account and had earned interest during the stage of construction and installation of the sugar mill, it was rightly treated as income from other sources by the assessing authority. The view of the Tribunal that to open account under the agreement, interest earned would go to reduce the cost of construction is incorrect. The view of the Tribunal that to open account under the agreement, interest earned would go to reduce the cost of construction is incorrect. In support of his aforesaid contention he relied upon the decision of the apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997 ]227 ITR172 (SC ), JT1997 (6 )SC 129 , 1997 (4 )SCALE447 , (1997 )6 SCC117 , [1997 ]supp1 SCR528. ( 6 ) LEARNED counsel for the assessee submitted that the respondent was obliged under the compulsion of the agreement entered into by it with IFCI to open loan deposit account with the bank to be approved by IFCI and not to create any liability on the said amount. He further submitted that account was not opened on its free will. It cannot be said that the respondent had deposited the money for earning interest and the interest earned on the amount would go to reduce the capital cost of construction. We find that the interest had been earned during the stage of construction and installation of the machinery. Business had not yet commenced. The apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CTT (supra) has held as follows : "the basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business or profession is only one of the heads under which the companys income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head "capital gains". Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under Section 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under Section 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under Section 56 of the Act. The company may also, as in this case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable under Section 56 of the Act. " ( 7 ) IN the present case, we find that the respondent had kept the amount of loan in bank account. Free will is immaterial. If assessee has earned the interest on the said amount, it is taxable under the head of income from other sources and, therefore, Tribunal has committed error in holding that the amount of interest is not taxable and shall go to reduce the cost of construction. We may mention here that this Court in IT Ref. No. 41 of 1985, Chandpur Sugar Co. Ltd. v. CIT decided on 28th Sept. , 2004 has followed the aforesaid decision of the apex Court and has held that interest earned from other sources was rightly held income from other sources. ( 8 ) RESPECTFULLY following the aforesaid decision, we answer the question referred to us in the negative, i. e. , in favour of the Revenue and against the assessee. However, there shall be no order as to costs. . .