TMI Blog1979 (6) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated July 5, 1967, with his wife. According to the agreement, the assessee was to pay to his wife a sum of Rs. 3,50,000 and the wife was to construct the cinema theatre, to equip it fully, for being used for the exhibition of films and to allow the assessee to use the theatre on rental basis and the rent payable was required to be adjusted out of the deposit so made in the manner indicated in the agreement. In terms of the agreement the assessee paid the sum of Rs. 3,50,000 to his wife having borrowed the said amount on payment of interest. During the assessment year 1969-70, he claimed the deduction of interest of Rs. 42,846 paid on the borrowed money. The ITO disallowed the deduction claimed on the ground that the money borrowed and paid under the agreement for construction of the theatre and its equipment was not for the purpose of business carried on by the assessee. The AAC, before whom the assessee preferred an appeal against the assessment order, confirmed the order holding that the cinema theatre came into existence only in February, 1969, and, therefore, the capital borrowed was not for the purposes of the appellant's business and the interest paid on such amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma theatre. The money so paid was required to be adjusted towards the rent payable from the date of handing over possession of the theatre in the manner provided in the agreement. The learned counsel for the revenue on being asked, stated, at the time of hearing, that deduction of interest was allowed during the assessment year 1970-71 as the exhibition of films in the theatre commenced on February 7, 1969. However, he maintained that deduction disallowed during the assessment year 1969-70 was correct as exhibition business had not commenced. On the facts of this case, there can be no doubt that the money was borrowed for the purpose of acquiring the leasehold right in a new theatre and, therefore, it was capital borrowed and invested during the relevant accounting year for purposes of business of the assessee. The fact that the theatre actually was ready and was occupied by the assessee on February 7, 1969, does not make any difference, for claiming deduction of interest paid on such capital borrowed. Under s. 36(1)(iii) of the Act, it is not necessary that the assessee must have used the business asset for doing business in the relevant accounting year; the spending of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n essence, the assessee's business was as a distributor of films. " Having said that the assessee was doing exhibition business, in the next sentence, it proceeded to state that the business of the assessee in essence was only distribution. Having said so, the Tribunal held that deduction of interest on capital borrowed for business of exhibition cannot be permitted. Obviously the Tribunal ignored the fact available from the assessment order and noticed by it that the assessee was also doing exhibition business on percentage basis, in stating that he had no exhibition business. But the uncontroverted facts disclosed from the assessment order and the order of the Tribunal themselves show that the assessee was carrying on business of exhibition also during the relevant year and the capital borrowed was for the purpose of setting up his own independent exhibition business, instead of carrying on the exhibition on percentage basis under agreements with theatre owners. Therefore, the factual basis on which the submission is made for the revenue is non-existent. Secondly, the submission lacks legal basis also. Admittedly, the assessee was a businessman during the relevant year, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed and actually spent on plantation from which the agricultural income is derived in the income of the assessee. The facts of that case were that the respondent therein, a planter, had borrowed money for the purchase of a new plantation and claimed deduction of interest paid on the borrowed money. The question that arose was whether the interest on money borrowed for the purchase of a new plantation was deductible under s. 5(e) of the Madras Act. The Supreme Court referred to various decisions interpreting s. 10(2)(iii) and (xv) of the Indian I.T. Act, 1922, which was analogous to s. 5(e) of the Madras Act, and held as follows (p. 194) : " Applying the above principles to the facts of this case, it seems to us that it is impossible to dissociate the character of the assessee as the owner of the plantation and as a person working in the plantation. The assessee had bought the plantation for working it as a plantation, i.e., for growing tea, coffee and rubber. The payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation is viewed as an integrated whole, is so closely related to the plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case, it was held that the money borrowed by the assessee was more in his character as owner of property than as a trader and, therefore, the interest paid on such borrowing was not deductible under s. 10(2)(iii) or (xv) of the Indian I.T. Act, 1922. This decision also has no relevance to this case. As pointed out by the Supreme Court in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, the expression " for the purpose of the business " is wider than the expression " for the purpose of earning profits " and in order to claim allowance, the money must have been spent for the business, by the assessee, in his capacity as a person carrying on the business. As stated earlier, in the present case, the capital borrowed was expressly for the purpose of acquiring a fully equipped cinema theatre. The capital borrowed was invested immediately by the assessee by handing over the same to his wife under the agreement dated July 5, 1967, and within a reasonable time thereafter the Possession of theatre for exhibition of films was secured on February 7, 1969. Therefore, the capital borrowed was for the purposes of business of the assessee and in his capacity as a businessman. There is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
