7. The appellant, however, relied upon the decision of this Court in, Tuticorin Alkali Chemicals and Fertilizers Ltd. v. Commr. Of Income-tax, (1997 AIR SCW 4292) (supra). That case dealt with the question whether investment of borrowed funds prior to commencement of business, resulting in earning of interest by the assessee would amount to the assessee earning any income. This Court held that if a person borrows money for business purposes, but utilizes that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilized by the assessee whichever way he likes. Merely because he utilized it to repay the interest on the loan taken, will not make the interest income as a capital receipt. The department relied upon the observations made in that judgment (at Page 179) (of ITR) : at P.4296 of AIR SCW) to the effect that if the company, even before it commences business, invests 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 rented house and gets rent, such rent will be assessable to tax under Section 22 as income from house property. Likewise, the company may have income from other sources. The company may also, as in that case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable under Section 56 of the Incometax Act. This Court also emphasized the fact that the company was not bound to utilize the interest so earned to adjust it against the interest paid on borrowed capital. The company was free to use this income in any manner it liked. However, while interest earned by investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with setting up of the capital structure of the assesseecom-pany. They must, therefore, be viewed as capital receipts going to reduce the cost of construction. In the case of, Challapalli Sugars Ltd. Vs. Commissioner of Income-tax, A.P. (1975) 98 ITR 167( AIR 1975 SC 97), this Court examined the question whether interest paid before the commencement of
