TMI Blog1990 (12) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was not entitled to deduction of the bank guarantee commission and the expenses incurred on maintaining offices at Varanasi and Durgawati ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the addition on account of interest on the fixed deposit ? " The assessee-company was incorporated under the provisions of the Companies Act, 1956, on July 11, 1969. From the memorandum of association of the company, it transpires that this company was established, inter alia, with the object of (i) carrying on business of manufacturing vanaspati products, ghee, etc., and (ii) for purchasing, taking on lease or acquiring otherwise mines and quarry mineral rights and/or sale and deal in coal, etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,041 and Rs. 23,966 for maintenance of its offices during the relevant assessment years. It may also be relevant to state here that, as stated above, the company had deposited Rs. 5 lakhs with the Bank of Baroda for securing the guarantee but since there was no fixed period for the said deposit and the rate of interest was dependent on the period of deposit, the interest accrued on these deposits was not construed as income during these two years by the company. While making the assessment, the Income-tax Officer disallowed the expenditure relating to the two offices and the bank guarantee commission on the ground that these are capital expenses and added the accrued interest on the aforesaid fixed deposit to the income of the two years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition." Since the bank guarantee commission in question was paid for the purpose of acquiring the plant, it has to be treated as an integral part of its cost. Learned counsel for the company has placed reliance on a decision of the Madras High Court in the case of Sivakami Mills Ltd. v. CIT [1979] 120 ITR 211 in support of his contention that the bank guarantee commission is a revenue expenditure. In this case, the assessee-company had purchased some machinery on deferred payment terms and had obtained guarantee from a bank in favour of the sellers of the, machinery, in lieu whereof the bank charged certain commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a capital asset are always related to the conduct of the business, none the less such expenses are capital in nature. In the present case, the bank guarantee commission was paid as an unavoidable incidence of bringing into existence the plant in question ; therefore, this is necessarily an integral part of the cost of the capital asset in question. A similar view has been taken by the Gujarat High Court in the case of CIT v. Vallabh Glass Works Ltd. [1982] 137 ITR 389. With respect, I entirely agree with this view. Consequently, I hold that the instant bank guarantee commission is a capital expenditure and is not admissible under section 37 (1) of the Act. So far as office expenses are concerned, in my view, these have been wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " In the case of Produce Exchange Corporation Ltd v. CIT [1970] 77 ITR 739 (SC), it has been held that the nature of two businesses is not the decisive test for determining whether the two lines of businesses constitute the same business or not. Applying these tests, I have no hesitation in holding that the two ventures constitute the same business because there is common management, common books of account, common funds and common place of business. These factors clearly establish an interconnection, interdependence and unity embracing the ventures. Therefore, the expenses incurred in connection with the offices at Durgawati and Varanasi are revenue expenses which are allowable in computing the income of the assessee. So far as questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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