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TMI Blog1996 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... nted. We are concerned with the following questions, which were answered, in the judgment and order of the High Court at Madras (see [1985] 152 ITR 708), which is under appeal, in the negative and in favour of the Revenue (page 712) : " 1. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 36(1)(iii) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that the interest attributable to the loans borrowed by the assessee-firm for the purpose of construction of Safire theatre should be allowed under the head 'Business' especially when the theatre complex was sold as a going concern on July 31, 1965, and the business of exhibition of cinematographic films stopped on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Commissioner allowed the deduction as claimed by the assessee. The Income-tax Appellate Tribunal noted the facts aforementioned and found that there was no dispute that for the construction of the said theatre the assessee had made heavy borrowings and the interest on such borrowings had been allowed by the Revenue as a deduction as the assessee was running the said theatre as its own business. The assessee had admittedly paid the interest in question for the years under appeal in respect of the loans which had been obtained for the purpose of investing in the business of exhibition of films. The Appellate Assistant Commissioner had found that it was not disputed that the moneys were borrowed for the purposes of the business of exhibit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It, therefore, answered the second question against the assessee. In view of that answer, it held that the borrowings made by the assessee for the construction of the said theatre could not be allowed as a deduction under the head of "Business" after the business of running the cinema theatre had been closed as a result of the sale of the said theatre on July 31, 1965, as a going concern to a different firm. Once the assessee had ceased to carry on that business for which the amount was borrowed, the interest payments could not be deducted as a business expenditure as, admittedly, the business had stopped and no income accrued therefrom. The High Court relied upon the judgments that related to the benefit of carry forward losses and carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee for the purpose of constructing the said theatre shows that at the time when the loans were obtained the said theatre was a part of the business of the assessee. It was interest on these loans, borrowed for the purpose of the business of the assessee, which was being paid in the years in question and the Tribunal was, in our view, right in concluding that such interest had to be treated as a deduction under section 36(1)(iii). The loans had been obtained for the purposes of the assessee's business. The fact that the particular part of the business for which the loans had been obtained had been transferred or closed down did not alter the fact that the loans had, when obtained, been for the purpose of the assessee's busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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