Rainbow Dyestuff Ltd. vs Commissioner of Income Tax

Susanta Chatterji, J.—The Income Tax Appellate Tribunal, Ahmedabad Bench ""C"" (hereinafter referred to as ""the Tribunal""), at the instance

of the assessee has referred the following questions for the opinion of the High Court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure by way of interest of Rs. 82,283

paid on the borrowings of funds for constructing a factory for the manufacture of dye-stuffs was not a revenue expenditure ?

It appears from the materials on record that the assessee at the material time was a dealer in dyes. The assessee set up a factory for

manufacturing dyes at different places. For the installation of the assets certain borrowing were made on which interest had been paid. The Income

Tax Officer estimated the interest attributable to borrowings in installation of assets of Rs. 82,283 and disallowed the same treating the payment as

of capital nature. Being aggrieved by this, an appeal was preferred before the Commissioner of Income Tax (Appeals) and reliance was placed on

the decision of this court in COMMISSIONER OF Income Tax, GUJARAT Vs. R. TOLAT and CO., . The Commissioner of Income Tax

(Appeals) allowed the appeal of the assessee in part, by accepting the contention of the assessee. The expenditure of interest was found to be as

deductible revenue expenditure. The Department being aggrieved by the said decision had gone before the Tribunal. The Tribunal, however, found

that the facts of the present case and the case in COMMISSIONER OF Income Tax, GUJARAT Vs. R. TOLAT and CO., were quite

distinguishable and held that the deduction claimed by the assessee was not allowable. In the background of such facts and circumstances, the

present reference has been made.

We have heard Mr. Talati, learned counsel for the applicant, and Mr. Mihir Thakore for the respondent at length.

Our attention has been drawn to the decision of this court in the case of Commissioner of Income Tax, Gujarat II Vs. Alembic Glass Industries

Ltd., wherein it was held in the facts of that case that it could not be disputed that the business organisation, administration and fund of both the

units of the assessee, namely, the unit at Baroda and the unit at Bangalore, were common. There was one company which controlled the

administration of both the units, which supplied the staff to both the units and which managed the whole of the business organisation of both the

units. The production of both the units was considered the production of the assessee company itself. In the application for the proposed

establishment of the new unit at Bangalore made by the assessee to the Government of India on November 8, 1959, and in the application for

licence submitted by the assessee to the Government, it was stated that the new unit at Bangalore was nothing but an expansion of the existing

business. It was found in that case that there was complete inter-connection, interlacing and inter-dependent of both the units. This test has been

laid down by determining whether two lines of business constitute the ""same business"" within the meaning of section 24(2) by the Supreme Court in

the case of Commissioner of Income Tax, Madras Vs. Prithvi Insurance Co. Ltd., and again approved by the Supreme Court in the case of

Produce Exchange Corporation Ltd. Vs. Commissioner of Income Tax (Central), Calcutta, . By following the said principle, the Division Bench

found the necessary criteria for finding the ""same business"".

Our attention has also been drawn to another decision in the case of B.R. Limited Vs. V.P. Gupta, Commissioner of Income Tax, Bombay,

which is a case in the context of set off of carried forward loss u/s 24(2) of the Act for the purpose of ascertaining whether two lines of business

constitute the same business. In the aforesaid case, where the company having incurred a loss in the business of import and sale of fabrics in the

calendar year 1952, which was the previous year relevant to the assessment year 1953-54, closed the business towards the end of that calendar

year and started from the commencement of the calendar year 1953, relevant to the next assessment year 1954-55, the business of exporting

cotton textiles and earned profits in the business in that year and subsequent years, it was held that in view of the common management and

common control of the businesses the company was entitled to carry forward the loss in the import business of the assessment year 1953-54 and

set it off against the profits of the export of the export business of the assessment years 1954-55 to 1956-57. While deciding that case, the

decisions in the case of Hooghly Trust (Private) Ltd. Vs. Commissioner of Income Tax, West Bengal and Andaman and Nicobar Islands, ;

SHREE RAMESH COTTON MILLS LTD. Vs. COMMISSIONER OF Income Tax, CALCUTTA., and other decisions were considered.

So far as the facts of the present case are concerned, we find that the petitioner was engaged in trading business. He started an independent

manufacturing business at a different place. The facts of each case have got to be appreciated in the proper perspective. Considering the nature of

the trading business and considering in depth the business of manufacturing since started by the assessee. The Tribunal has considered the materials

on record and found that both the businesses are not the same business and the relief sought for by the assessee will not be available. The finding of

fact of the Tribunal appears to be consistent with, the material on record. The same is neither contrary to, nor inconsistent with, the principle of law

as found by the Supreme Court and several other High Courts, as discussed above. We do not find anything wrong with the judgment of the

Tribunal. We, therefore, answer the question in the affirmative, i.e., in favour of the Revenue and against the assessee.

This reference accordingly stands disposed of with no order as to costs.