TMI Blog1988 (11) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... an financial institutions and International Finance Corporation, Washington. The estimated project cost was of the order of Rs. 79 crores in 1981 out of which Rs. 20 crores was to be raised by the company and Rs. 59 crores by the Consortium. Several works of the plant started in October, 1981 and the first consignment of machinery arrived in January 1982, the erection of which was complete by March 1984. In the previous year ending on 31-12-1982 relevant for the assessment year 1983-84, limestone quarrying for raw material was launched. The impugned amounts represent the interest and commitment charges payable to International Finance Corporation, Industrial Bank of India, M/s. ICICI, M/s. IFC and Unit Trust of India. The claim was made by the assessee under sec. 36(1)(iii) even though the amounts were not debited to the profit and loss account. 3. The Inspecting Assistant Commissioner took the view that these expenses were incurred for the cement manufacturing unit which was under erection and as the unit had not commenced production, he disallowed the deduction as claimed by the assessee. In the first appeal, the Commissioner of Income-tax (Appeals) upheld the claim of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. There was one capital for the whole business, whether fertilizer or cement. Even if the borrowing was made specifically for the cement unit, it was the responsibility of the company on the whole for making repayment and all its assets and liabilities are offered as security for the borrowing. There was common administration, common staff and common control. Thus, both the activities are interlinked, interdependent and interlaced with each other. Hence, the manufacture of fertilizer and the manufacture of cement cannot be treated as two separate businesses but would constitute the same business of the assessee. There is one profit and loss account and one balance sheet covering both the activities. Therefore, the ratio of the decision of the Supreme Court and other High Courts cited supra would squarely apply to the facts of the case and hence the CIT (Appeals) has rightly allowed the claim of the assessee. 6. Sri Radhakrishna Murty in reply submitted that in the majority of the cases relied on by the assessee, the issue was about the carry forward of business loss and the decision was rendered in that context. On the other hand, there is a direct decision of the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns thus holding that a company having a distillery and dealing in shares was doing the same business. Again, in B.R. Ltd.'s case, which was a case where an import business was closed and export in cotton textiles commenced in the next year, the question was whether the import and export business constituted the same business and whether the loss in import business can be set off against profit in export business. In that case also, the Supreme Court affirmed its earlier decisions and held that in view of common management and common control of businesses, the appellant was entitled to carry forward the loss in the import business and set it off against the profits of the export business. 8. Sri Radhakrishna Murty vehemently contends that these decisions were rendered in a different context, that is in the context of carry forward and set off of loss and, therefore, the ratio of the above decisions is not applicable to the facts of the case before us. We are unable to subscribe to his view. What we have to see in this case is whether the activities of the assessee viz. manufacture of fertilizer and manufacture of cement constituted one and same business because it is only with ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of the new unit and, therefore, on the principle accepted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 this interest should be treated as a capital expenditure and not as a revenue expenditure. This contention was not correct. The ratio of the decisions of the Bombay High Court in Calico Dyeing Printing Works v. CIT [1958] 34 ITR 265 and of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 is : (1) Where the borrowing is for the purpose of a business, the interest paid on such a borrowing becomes eligible for deduction contemplated by section 10(2)(iii) of the Act of 1922 or section 36(1)(iii) of the Act of 1961, (2) this would be so, whether the capital is invested in order to acquire a revenue asset or a capital asset, because the act of borrowing capital is distinct from the act of investment of the capital to acquire an asset ; (3) however, the business for which an asset of enduring nature is purchased with the borrowed capital should not be separate or distinct from the business for the purpose of which the capital is borrowed, if deduction under section 10(2)(iii) is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d raised funds on which it had to pay interest. This was disallowed by the Inspecting Assistant Commissioner on the ground that the funds were raised in connection with the cement plant which was in the process of erection. The CIT (Appeals), upon considering the application of the assessee made to the Reserve Bank of India in connection with the raising of public deposits, found that the deposits were raised for the operational requirements of the company including the requirement of working capital for the fertilizer section which was already functioning as also the capital expenditure by way of replacement of plant and equipment in the fertilizer factory at Visakhapatnam. This letter also made it clear that the assessee was setting up a cement plant but that it was not its intention to use the public deposits proposed to be raised as a source of finance for the said project. This clarification was given in response to a specific query from the Reserve Bank. Upon a consideration of the assessee's application to the Reserve Bank and also the clarifications subsequently given by the assessee, the CIT (Appeals) held that the public deposits were raised only in connection with the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
