2001 INSC 0523
                                    SUPREME COURT OF INDIA

                            Bongaigaon Refinary and Petrochemicals Ltd.

                                                      Vs.

                                      Commissioner of Income-Tax

                        (S.P. Bharucha, Y.K. Sabharwal and B.N. Kumar JJ.)

                                                 24.07.2001

                                                   ORDER

1. The order under challenge was passed on a reference to the High Court (see [2000] 245
ITR 708), under the Income-tax Act, 1961, made at the instance of the Revenue. The High
Court answered in the negative and against the assessee the following question (page 709):

        "Whether, on the facts and in the circumstances of the case, the Tribunal was justified
        in holding that the items of income derived by the assessee during the formation
        period for the main business, were not taxable income but were to be adjusted against
        the project cost for the oil refinery and petrochemicals, the main business for which
        the company was set up ?"

2. It did so based upon the decision of this court in Tuticorin Alkali Chemicals and
Fertilizers Ltd. v. CIT1.

3. That was a case in which the question related to interest earned by a company during its
formative period by investments. This court has held in CIT v. Boharo Steel Ltd.2, that it is so
confined and did not apply where the receipts were directly connected with or were
incidental to the work of construction of the assessee's plant. The decision in CIT v. Boharo
Steel Ltd.(Supra) has been followed by a two-judge Bench of this court in CIT v. Karnal Co-
operative Sugar Mills Ltd.3 and by a three-judge Bench in CIT v. Karnataka Power
Corporation4. In fact, in the latter case, it was not disputed by the Revenue that the question
that related to hire charges paid by contractors had to be answered in the light of the
judgment in Bokaro Steel Ltd.'s case . It is, therefore, not possible now to take any view
different from that taken in Boharo Steel Ltd.'s case.

4. The High Court has already held that the interest income derived by the assessee during its
formative period was taxable income. What remains for consideration is the income which
the assessee derived from house property, its guest house, charges for equipment and
recoveries from the contractors on account of water and electricity supply. These items are
covered by the decision in Boharo Steel Ltd.'s case5. To the extent that it relates to these
items, i.e., items excluding interest, the question must be, answered in the affirmative and in
favour of the assessee. The order under challenge will stand modified to that extent.

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5. Appeal allowed accordingly.

6. No order as to costs.

1[1997] 227 ITR 172
2[1999] 236 ITR 515
3[2000] 243 ITR 2
4[2001] 247 ITR 268
5[19991 236 ITR 315 (SC)

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