RAINBOW DYESTUFF LTD. VS COMMISSIONER OF INCOME-TAX.
1997 P T D 846
[213 I T R 560]
[Gujarat High Court (India)]
Before Susanta Chaterji and Rajesh Balia, JJ
RAINBOW DYESTUFF LTD.
Versus
COMMISSIONER OF INCOME TAX
Income Tax Reference No. 186 of 1982, decided on 19/10/1994.
Income-tax---
----Capital or revenue expenditure ---Assessee engaged in trading business-- Interest on loan for construction of manufacturing unit at a different place-- Capital expenditure---Indian Income Tax Act, 1961, S.37.
The assessee at the material time was a dealer in dyes. The assessee set up a factory for manufacturing dyes at a different place. For the installation of assets certain borrowings were made on which interest had been paid. The Income Tax Officer estimated the interest attributable to the borrowings for the installation of the assets at Rs.82,283 and disallowed the same treating the payment as of capital nature. This was upheld by the Tribunal. On a reference:
Held, that the assessee was engaged in trading business. He started an independent manufacturing business at a different place. Considering the nature of the trading business and considering in depth the business of manufacturing since started by the assessee, the Tribunal had arrived at the conclusion that the two businesses were not the same. This was a finding of fact consistent with the material on record. The Tribunal was right in holding that the expenditure by way of interest of Rs.82,283 paid on the borrowings for constructing the factory for the manufacture of dyestuffs was not revenue expenditure.
B.R. Limited v. Gupta (V.P.), CIT (1978) 113 ITR 647 (SC); CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj.); CIT v. Prithvi Insurance Co. Ltd. (1967) 63 ITR 632 (SC); CIT v. R. Tolat & Co. (1980) 126 ITR 551 (Guj.); Hooghly Trust (P.) Ltd. v. CIT (1969) 73 ITR 685 (SC); Produce Exchange Corporation Ltd. v. CIT (1970) 77 ITR 739 (SC) and Shree Ramesh Cotton Mills Ltd. v. CIT (1967) 64 ITR 317 (Cal.) ref.
H.M. Talati for the Assessee.
Mihir Thakore for Messrs M.R. Bhatt & Co. for Commissioner,
JUDGMENT
SUSANTA CHATTERR, 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 question 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 is of Rs.82,283 paid on the borrowings of funds for constructing a factory for the manufacture of dyestuffs 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 borrowings were made on which interest had been paid. The Income fax Officer estimated the interest attributable to borrowings to installation of assets at 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 CIT v. R. Tolat & Co. (1980) 126 ITR 551. 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 CIT v. R. Tolat & Co. t 19801 126 ITR 551 (Guj.) 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. Tatati, learned counsel for the applicant, and qtr. Mihir Thakore: for the respondent at length.
Our attention has been drawn to the decision of this Court in the case of CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715, 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 01 the business organization of both the units. The production of both the unit, was considered the production of the assessee-company itself, the application for the proposed establishment of the new unit at Bangalore made by the assessee to the Government of India on December 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 interconnection, interlacing and inter-dependence 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 CIT v. Prithvi Insurance Co. Ltd. (1967) 63 ITR 632 and again approved by the Supreme Court in the case of Produce Exchange Corporation Ltd. v. CIT (1970) 77 ITR 739. 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 v. VP. Gupta, CIT (1978) 113 ITR 647 (SC), which is a case in the context of set off carried forward loss under section 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 business of the assessment years 1954-55 to 1956-57. While deciding that case, the decisions in the case of Hooghly Trust (P.) Ltd. v. CIF (1969) 73 ITR 685 (SC), Shree Ramesh Cotton Mills Ltd. v. CIT (1967) 64 ITR 317 (Cal.) 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 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 cost.
M.B.A./119/FCOrder accordingly.