revenue is aggrieved against order of Commissioner (Appeals) holding that interest of Rs. 2,64,279 received by assessee-company was not assessable. 2. assessee-company was setting up sugar mill during accounting year under consideration ending 31-3-1978. It had borrowed funds from Industrial Finance Corpn., Indian Overseas Bank, U.P. State Sugar Corpn., etc., on which during relevant accounting year it paid interest of Rs. 9,13,380. part of fund so received was deposited in short-term deposits with banks on which assessee earned interest of Rs. 2,64,279. assessee claimed that said interest receipts should be set off against interest payments made by assessee and, therefore, no interest income was assessable in hands of assessee-company. ITO, however, rejected this contention holding that interest of Rs. 2,64,279 earned by assessee was assessable under head 'Income from other sources' and only expenditure laid out or expended wholly or exclusively for purposes of making or earning such interest income was allowable as deduction against interest income. He then analysed sources of bank deposits and observed that (a) no deduction was allowable in respect of capital contribution collected by assessee and deposited with bank. (b) Out of loans from U.P. State Sugar Corpn. and Industrial Finance Corpn. ITO noted that only part of said loans was deposited with bank as loans were taken for purposes of establishing sugar factory and not for making deposits with banks. ITO relied on CIT v. New Central Jute Mills Co. Ltd. [1979] 118 ITR 1005 (Cal.) where it was held that purpose of loan was not to utilise amount for earning interest from bank and, therefore, expenditure by way of paymet of interest on loans taken by assessee was not incurred solely and wholly for earning interest by making deposits with bank and, therefore, was not allowable as revenue expenditure. ITO, accordingly, assessed interest receipt of Rs. 2,64,279 as assessee-company's income from undisclosed sources. 3. Commissioner (Appeals) deleted addition holding that only net amount of interest payable against loans taken for installation of plant and machinery was includible in total cost of construction and as assessee had paid interest on borrowed funds part of which had been deposited with bank, only net result in interest account should be seen. Commissioner (Appeals) distinguished Tribunal's decision in assessee's case for assessment year 1977-78 which was first year of construction period and when no loans from financial institutions had been obtained and interest was earned on shares subscription money. 4. department is in appeal before us. learned departmental representative relied on Tribunal's order in assessee's case for assessment year 1977-78 as also on Addl. CIT v. Madras Fertilisers Ltd. [1980] 122 ITR 139 (Mad.), CIT v. United Wire Ropes Ltd. [1980] 121 ITR 762 (Bom.) and New Central Jute Mills Co. Ltd.'s case (supra). 5. learned counsel for assessee relied on decisions of Tribunals, Special Bench namely, Arasan Aluminium Industries (P.) Ltd. v. First ITO [1982] 1 ITD 10 (Mad.) (SB), Nagarjuna Steel Ltd. v. ITO [1983] 3 ITD 796 (Hyd.) and Addl. CIT v. Indian Drugs & Pharmaceuticals Ltd. [1983] 141 ITR 134 (Delhi) and Addl. CIT v. Rewari Electric Supply & General Industries [1983] 32 CTR (Dehli) 338. 5.1. We have considered submissions of both parties. We hold that interest income of Rs. 2,64,279 is assessable in hands of assessee- company. Decisions relied on by revenue fully support our findings - Madras Fertilisers Ltd.'s case (supra) dealt with similar case where assessee had borrowed funds were deposited in bank on which interest was earned and Madras High Court held that interest earned was assessable but interest paid on borrowings was not allowable deduction. Similar view was taken by Bombay High Court in United Wire Ropes Ltd.'s case (supra) where it was held that loans raised by assessee and kept as bank deposit due to restriction on remittance and interest earned thereon was not connected with interest paid on foreign exchange loan and, therefore, interest paid could not be set off against interest receipt. 6. Calcutta High Court in New Central Jute Mills Co. Ltd.'s case (supra) held that interest earned on loan obtained on interest from Government for erection of chemical plant could not be set off against interest paid on loan raised from Government and that while interest paid was to be utilised and added to cost of plant, interest earned was assessable and purpose of loan raised was not to utilise amount for earning interest from bank and, therefore, interest payment was not for earning interest from bank and could not be allowed as revenue expenditure. 7. Bombay High Court in Smt. Zubedabai v. CIT 1983 Tax LR 1518 held that for claiming deduction under section 57(iii) of Income-tax Act, 1961 ('the Act') nexus between expenditure and income has to exist. 8. Madhya Pradesh High Court in M. P. State Industries Corpn. Ltd. v. CIT [1968] 69 ITR 824 held that interest earned on deposit of share money with bank was assessable under head 'Income from other sources'. 9. Delhi High Court in Indian Drugs & Pharmaceuticals Ltd.'s case (supra) held that receipts from sale of tender forms and supply of water and electricity to contractor engaged in construction and on account of sale of trees, grass, stones were not receipts from independent source unrelated to business but were inextricable linked with process of setting up business and were directly related to capital structure of business and were, therefore, of capita nature. However, at pare 138 in line 8 they observed, "it is from this point of view that these receipts are distinguishable from interest on deposits or surplus money. Interest was realised by utilisation of surplus money and utilisation created separate independent source". 10. Thus, High Courts are unanimous that interest earned on surplus money created independent source and was assessable and interest paid on borrowed money was not allowable deduction. 11. It is true that two decisions of Tribunal Special Bench in Arasan Aluminium Industries (P.) Ltd.'s case (supra) and Nagarjuna Steel Ltd.'s case (supra) are in favour of assessee but in view of unanimous decisions of High Courts, we are unable to follow said decisions of Special Bench. We have already noted that in assessment year 1977-78, Tribunal had taken same view as we are taking now. 12. Under these circumstances, we accept revenue's appeal and vacate order of Commissioner (Appeals) and restore that of ITO. assessee's cross-objection supports Commissioner (Appeals)'s action. assessee did not press before us other grounds taken in cross-objection regrding non-disposal of some grounds of appeal before Commissioner (Appeals). 13. In result, revenue's appeal is allowed and assessee's cross- objection is dismissed. *** INSPECTING ASSISTANT COMMISSIONER v. CHANDPUR SUGAR CO.