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TMI Blog1983 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was justified in disallowing the rebates and allowances relating to the service department ?" The facts and circumstances which gave rise to this reference may briefly be stated : The assessee is a private limited company carrying on business as distributors of the products of M/s. Rayala Corporation. In the course of the assessment for the year 1971-72, the assessee claimed sum of Rs. 30,000 being the agency commission paid to Smt. Sarada Rajam for the alleged use of the rights accrued to her under an agreement dated March 11, 1966, with M/s. Rayala Corporation Private Limited. The ITO, following his own order for the assessment year 1967-68, disallowed the claim and that was confirmed in appeal by the AAC. The identical issue in respect of the very same assessee came up for consideration before this court in T.C. Nos. 1082 to 1085 of 1977 and by a judgment dated February 22, 1983-India Manufacturers (P.) Ltd. v. CIT [1985] 155 ITR 770, this court has held that the payments made to Smt. Sarada Rajam by way of commission at the rate of Rs. 2,500 per month cannot be said to have been made for business purposes and that the mode of giving such an agency commission was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the same. Once the Tribunal finds that the expenditure has been incurred for extra-commercial considerations, the disallowance of the same should be upheld. Therefore, we find that as a result of the findings given by the Tribunal, that part of the alleged finance commission was paid for non-business considerations, which is factual, we have to answer the second question in the affirmative and against the assessee. It is accordingly answered. In the course of the assessment, the assessee claimed a sum of Rs. 7,500 being the retrenchment compensation paid to the employees of the service department as an allowable deduction since the business of service department was closed down though the other business, distributors of the products of Rayala Corporation, is being carried on. The ITO, however, held that the retrenchment compensation has been paid after the closure of the business of service organisation and, as such, the retrenchment compensation paid cannot be allowed as an expenditure incurred in carrying on the business. When the matter was taken up before the Tribunal, the Tribunal sustained the disallowance holding that the retrenchment compensation paid to the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of one of its businesses and the write-off of its outstanding dues as bad debts in the other were allowable deductions under ss. 37 and 36(1)(vii), respectively. The question is whether the principle laid down in that decision will apply to the facts of this case. For the said decision to apply to the facts of this case, it has to be established by the assessee that the business that was closed was not an independent business but an integral part of the main business carried on by the assessee. Whether two or more lines of business may be regarded as the same business or different businesses depends not upon the special methods prescribed by the I.T. Act for computation of the taxable income, but upon the nature of the business, the nature of their organisation, management, source of capital and fund utilised, the method of book-keeping used and other related circumstances which stamp them as same or distinct. Thus, the test is whether one of the businesses can be closed without affecting the conduct of the other business. In this case, though an attempt was made by the assessee before the AAC to show that the business of servicing typewriters and the trading activities in type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eatres acquired by the assessee from time to time on lease or otherwise were run independently of one another and with separate identifiable books and that the opening of a new theatre or closure of another did not affect the working of the remaining theatre. When the matter came before the Supreme Court, the Supreme Court also took the view that the venture of Prakash Talkies which was closed was not a part of the general business of exhibiting films carried on by the assessee and, therefore, the sum of Rs. 92,240 was not an allowable deduction in computing the assessee's business income and that from the mere circumstance that the result of the accounts of the different ventures was entered in the accounts maintained at the head office, no inference is possible that the exhibition of films in different theatres constituted the same business. The following extract from the judgment of the Supreme Court contains the reasons for their decision (p. 642) : " It is true that the appellants were conducting cinema theatres in Ahmedabad and Bombay, and the result of the accounts of the different ventures was entered in the accounts maintained at the head office, but from that circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rically ruled that where there are two separate and independent businesses carried on by the same assessee, if the assessee chose to close one business and carried on the other business, the retrenchment compensation paid as a result of the closure of one business cannot be claimed as an allowable deduction as against income from the other business which is being carried on by the assessee. Such a claim for deduction can be upheld only if it is shown by the assessee that both the business are interconnected and interdependent and not independent. In this view of the matter, in the absence of material to indicate that the business that was closed was part of the business that was being carried on, question No. 3 has to be answered in the affirmative and against the assessee. Coming to the fourth question relating to the disallowance of a sum of Rs. 13,703 said to be the rebate and allowances pertaining to the service department, it in seen from the order of the Tribunal that there is absolutely no evidence or material to show that the said sum of Rs. 13,703 represented rebate and allowances portion of the service charges withheld by the various customers of the assessee for the un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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