TMI Blog2015 (7) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... he Challapalli (1974 (10) TMI 3 - SUPREME Court), as relied upon by Revenue holding was noticed and at the same time distinguished in the light of the previous ruling in India Cements Ltd. v. CIT [1965 (12) TMI 22 - SUPREME Court]. The important point of distinction noted by the Court in Jay Engineering (supra), to say that Challapalli (supra) was inapplicable, was that in that case the assessee had borrowed considerable sums of money for installation of plant and machinery, and interest was sought to be loaded on the cost of plant and machinery. The AO had rejected the assessee’s claim and held that interest was an important part of revenue expenditure and no depreciation could be claimed as was done in that case. The assessee’s contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted the allowable depreciation. The CIT (Appeals) confirmed the findings of the AO. The ITAT, after considering the existing business and the expansion sought to be urged by the assessee in support of its claim, that the pre-capitalization expenditure is really revenue in nature, held that there was an element of interlacing and intermingling of funds between the new or expanding venture and the existing venture, and consequently the expenses had to be treated as falling on the revenue side. 3. Learned counsel for the Revenue urges that the ITAT plainly proceeded on erroneous premise and did not properly appreciate the decision of the Supreme Court in Challapalli Sugar Ltd. v. CIT 1975 (98) ITR 167 (SC). He also urged that the setting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court found that the two businesses were composite in the sense that there was interconnection, interlacing or interdependence between the jewellery business and the cinema business. 14. On an appreciation of the law laid down by the various decisions referred to above, it is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Jay engineering (supra) itself, the Challapalli (supra) holding was noticed and at the same time distinguished in the light of the previous ruling in India Cements Ltd. v. CIT 1966 (60) ITR 52. The important point of distinction noted by the Court in Jay Engineering (supra), to say that Challapalli (supra) was inapplicable, was that in that case the assessee had borrowed considerable sums of money for installation of plant and machinery, and interest was sought to be loaded on the cost of plant and machinery. The AO had rejected the assessee s claim and held that interest was an important part of revenue expenditure and no depreciation could be claimed as was done in that case. The assessee s contention in that respect was accepted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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