TMI Blog1983 (12) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on the said deposit from the new firm was assessed under the head " Other sources " in the assessee's hands. So long as the assessee ran the business of exhibition of films in Safire theatre as its own business, the interest paid on the borrowals for the construction of the said theatre was being allowed as a deduction. However, for the assessment years 1967-68 to 1969-70, the assessee's claim for deduction as business expenditure in respect of interest paid on the borrowals referred to above was rejected by the ITO holding that the business of exhibition of films under the name of Safire theatre was not in existence during the respective years of account and, therefore, the interest on borrowals attributable to that particular business cannot be allowed as a deduction in computing the profits of the jewellery business. The assessee took the matter in appeal to the AAC contending that once the monies are borrowed and used for business, they can never lose their character, that the interest paid thereon should be allowed as a business expenditure relying on the decisions in AL. A.R. Brothers v. CIT [1928] 3 ITC 209 (Mad) and Milapchand R. Shah v. CIT [1965] 58 ITR 525 (Mad) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4 of the deed of partnership dated April 21, 1961, as amended on November 5, 1962, the firm has been authorised to carry on other businesses such as running of restaurants, cinema theatres, tourist services, travel agencies and such other business as the partners may decide from time to time, that therefore, all the businesses it may undertake should be taken to be a composite one and not separate, that as a consolidated balance-sheet was maintained in respect of the borrowals, the borrowings should be taken to be for the whole business and not for the business of exhibition of films alone and, hence, even if tile film business has been stopped, the assessee is entitled to the deduction of the interest payments under the head " Business " and not under the head " Other sources". The Tribunal on these rival contentions found that the Safire theatre was constructed by the assessee-firm and films were being exhibited therein, that the income therefrom was admitted in the assessee's returns as business income, that with effect from July 31, 1965, the business of exhibition of films in Safire theatre was transferred by the assessee to a new partnership, that for the construction of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and the deduction can be allowed in respect of the other portion of the composite business. Therefore, we proceed to deal with the question as to whether the jewellery business and the business of exhibition of films is a composite business as has been held by the Tribunal or they are separate businesses as urged by the learned counsel for the Revenue. In a recent unreported decision of this court in CIT v. Blue Mountain Estates and Industries Ltd. (T.Cs. Nos. 378 to 383 of 1978, etc.since reported in [1985] 151 ITR 616), this court, after referring to the decisions of the Supreme Court in CIT v. Prithvi Insurance Company Ltd. [1967] 63 ITR 632, Standard Refinery and Distillery Ltd. v. CIT [1971] 79 ITR 9, CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and B. R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647, had held that unity of control is not the sole and exclusive test and that even in cases where the test of unity of control is satisfied, the other tests such as interconnection, interlacing and interdependence are to be satisfied, if the various lines of businesses are taken to be the same and composite business. No doubt, in this case, since the assessee had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of the Safire theatre could or whether it should be allowed under the head "Other sources" as claimed by the Revenue, and (2) whether the investment of amounts borrowed for the purpose Of Construction of the Safire theatre after its sale which clearly amounts to a diversion of the funds and whether the interest paid on the same is to be allowed assuming that the jewellery business as well as the cinema business are one and entire. In view of our finding on the second question that the jewellery business and the cinema business are two separate businesses, the borrowings made by the assessee for the construction of the theatre cannot be allowed as a deduction under the head " Business " after the business of running the cinema theatre had been closed as a result of the sale of the theatre on July 31, 1965, as a going concern to a different firm. Once the assessee has ceased to carry on that business for which the amount was borrowed, the interest payments cannot be deducted as a business expenditure as admittedly the business had been stopped and no income accrued therefrom. Now we come to the alternative contention put forward by the Revenue that even if the two busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing a new factual position. According to him, the interest payment in respect of which deduction is claimed is on the amounts borrowed for the purpose of the jewellery business and so long as the jewellery business is continued, the assessee is entitled to claim deduction of the interest payments under the head " Business ". His submission is that the Safire theatre, was sold as a going concern to a new firm with all rights and liabilities and, therefore, the liability to pay interest on the capital borrowed for construction of the cinema theatre is on the transferee firm and that the claim made by the assessee now is only in respect of the interest payments on the borrowals made for the purpose of the jewellery business. If this were the correct factual position, then there may not be any difficulty in the assessee succeeding in his claim for deduction of the interest payments under the head " Business " for admittedly the assessee is still carrying on the jewellery business for which the borrowal is made. But the factual position put forward by the learned counsel for the assessee now before us does not seem to have any real basis at all. Right through, the assessee has been c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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