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TMI Blog1987 (1) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Rs. 74,870 though the other conditions mentioned in section 35C were not satisfied even if it was held that the assessee was an industrial company? " The assessee, Navabharath Enterprises Private Ltd., Hyderabad, is engaged mainly in processing and export of tobacco. It has since been held that it is an " industrial company " as defined in section 2(7)(d) of the Finance Acts of 1966 and 1967 entitled to the concessional rate of tax provided thereunder. It acquired certain waste lands, took "medium and short-term agricultural loans " for developing them and employed the necessary man power including a few agricultural science graduates as also a person holding a doctorate in agriculture. On a part of the land, tobacco seedlings were raised and upon the remaining land, different crops like cotton, banana, vegetables, paddy, chillies, etc., were raised. The total expenditure on these farming operations was said to be Rs. 9,62,000, interest whereon in the accounting year relevant to the assessment year concerned herein came to Rs. 1,04,155. The assessee claimed the said interest as deduction by way of business expenditure under section 37 of the Incometax Act. According to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application. (There was another item of Rs. 1,40,400 claimed as deduction under section 35C, which too was negatived by the Commissioner, while allowing a small portion thereof under section 37. We are not concerned with this item since it is not referred to us). On further appeal, the Tribunal referred in the first instance to the fact that this very assessee has been held to be an " industrial company " as defined in section 2(7)(d) of the Finance Acts, 1966 and 1967. Relying then upon the decision of the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and that of this court in Addl. CIT v. Challapalli Sugars Ltd. [1979] 116 ITR 255, the Tribunal held that the claim for deduction relating to Rs. 1,04,155 representing interest on borrowings is allowable, though the borrowed moneys were utilised for the purpose of raising tobacco. So far as the assessee's claim under section 35C is concerned, the Tribunal observed that this deduction was claimed by the assessee both under section 37 as well as section 35C, whereas both the sections are mutually exclusive. The Tribunal, accordingly, set aside the orders of the lower authorities and remanded the matter to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited to the agricultural section of the assessee. The interest payable on the said loan was claimed as a deduction by way of business expenditure. It was disallowed by the Income-tax Officer and the first appellate authority. On further appeal, however, the Tribunal held that it is permissible deduction, which was affirmed by this court on reference. This court found that the cultivation of sugarcane and the manufacturing of sugar constitute one single indivisible business and that since the borrowing of money and payment of interest is a mere commercial transaction of the assessee, deduction has rightly been allowed. It was also observed that merely because the amount borrowed was utilised by the assessee in cultivating and producing sugarcane, it cannot be said that the expenditure incurred by way of payment of interest on such borrowings has any connection with, or was attributable directly to the agricultural operations. This was so observed because it was not possible to dissociate the agricultural operations from the manufacturing operations. Similar is the decision of the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. In that case, the question aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an illustration. Suppose, the assessee herein had raised only paddy or cotton upon all the lands (i.e., crops other than tobacco). Can we still apply the ratio of Maharashtra Sugar Mills' case [1971] 82 ITR 452 (SC) or Challapalli Sugar Mills' case [1979] 116 ITR 255 (AP)? We think not. It would neither be reasonable nor realistic to say in such a case that the agricultural operations of the assessee are so integrally connected with the business operations as to constitute a single indivisible operation. There may be any number of assessees engaged in both agricultural and business/manufacturing operations. By dint of that fact alone, both the operations do not constitute one single indivisible activity-even if the assessee chooses to maintain one set of accounts for both the operations. There must be such intimate and real connection between both the operations as was found in the case of the sugar mills in the aforesaid decisions. Unless it is found as fact that both the operations are so indivisibly connected as to constitute a single activity, it is not possible to apply the principle of the aforesaid cases. Now, as we have stated above, the Tribunal has not recorded specific f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section for any assessment year, no deduction shall be allowed in respect of such expenditure under any other provision of the Act for the same or any other assessment year. It would be evident from the above analysis that if any amount is spent by the assessee for developing his/its own land, or for improving seeds or providing modern or better techniques for its own purposes, deduction cannot be allowed, because the section contemplates goods, services or facilities being provided to another person, and not by the assessee to himself/itself. It may, however, happen that though the agricultural operations are carried on its own land, yet the land may be used for providing better seeds to other agriculturists, or for dissemination of information to them, or the land may be used as a demonstration farm for application of modern techniques or methods of agriculture, etc., for the benefit of other agriculturists engaged in raising tobacco. In such case, deduction would be permissible. If deduction is granted under this provision, deduction under any other provision of the Act, including section 37, cannot be granted either for the same assessment year, or for any other a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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