RAINBOW DYESTUFF LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) 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 :

(2.) 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 CIT v. R. Tolat and Co. : [1980]126ITR551(Guj) . 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 and Co. : [1980]126ITR551(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.

(3.) OUR attention has been drawn to the decision of this court in the case of CIT v. Alembic Glass Industries Ltd. : [1976]103ITR715(Guj) 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 CIT v. Prithvi Insurance Co. Ltd. : [1967]63ITR632(SC) and again approved by the Supreme Court in the case of Produce Exchange Corporation Ltd. v. CIT : [1970]77ITR739(SC) . By following the said principle, the Division Bench found the necessary criteria for finding the 'same business'.