JUDGMENT

Sen, J.-M/s. Tuticorin Alkali Chemicals and Fertilisers Limited (formerly) known as Tuticorin Alkali Limited) was incorporated on 3.12.1971 for the purpose of, inter alia, manufacturing heavy chemicals such as ammonium chloride and soda ash. The trial production of the factories of the Company commenced on 30.6.1982. For the purpose of setting up of the factories, the Company had taken term loans from various banks and financial institutions. That part of the borrowed funds which was not immediately required by the Company was kept invested in short-term deposits with banks. Such investments were specifically permitted by the Memorandum and Articles of Association of the Company.

2. The Company had also deposited certain sums with the Tamil Nadu Electricity Board. It had also given interest-bearing loans to its employees to purchase vehicles. Upto the assessment year 1980-81, interests earned by the Company from the various loans given by the Company and also from the bank deposits were shown as income and was taxed accordingly.

3. For the accounting year ending on 30.6.1981, (assessment year 1982-83), the assessee received a total amount of interest of Rs. 2,92,440/-. In its