That looks like a nice project bike. I wouldn't scrap it, that's an utter waste.
I'd spend the time to strip the frame of parts, and thoroughly clean it, there is a little surface rust there clearly, but you should be able to clean that off with minimal effort. Once you've done that I'd spray it with a clearcoat to prevent any more damage to the paint and preserver the patina.
Tidy up and clean all the parts, and consider a fixed/single speed conversion as mentioned above (that crank is practically begging for it) and the hubs are basically ready for it too.
I woudn't re-use the rims if they are stainless steel, I'd swap them out for something newer, a Halo Retro for example and re-use the hubs, new spokes throughout.
It really depends whether you want to spend any money on it, if you are able to though you'll get a really nice retro bike at the end of it.