Assessee-company adjusted interest earned on bank deposits against project/pre-operative expenses, contending that deposits were made out of funds earmarked for acquisition of technical know-how, land, plant and machinery. Assessing Officer treated deposits as surplus funds and assessed interest as income from other sources. Commissioner (Appeals) held that deposits were directly linked with setting up of project and deleted addition. Tribunal reversed the order of the Commissioner (Appeals), holding that interest was taxable as income from other sources. On appeal, the Court held that funds in the instant case were not lying as surplus, but the same were earmarked to facilitate balance payment for plant and machinery etc. for which advances were made by the assessee and therefore, it could be said that funds were inextricably linked to setting up of business of assessee. Therefore, interest earned thereon was liable to be adjusted against pre-operative expenses instead of being taxed as income from other sources.  (AY. 1993-94, 1994-95)