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TMI Blog1982 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,200 -------------- 2. The ITO found that no entry had been passed in the profit and loss account and at the time of hearing from the discussion it appeared to him that there was nothing like revenue expenses which could be allowed. The ITO did not accept the assessee's contention that the project was an extension of the existing business and ultimately rejected the claim of the assessee. 3. The Commissioner (Appeals) held that all the expenses were for establishing a new project and not for the existing business of the assessee. He, therefore, confirmed the order of the ITO. 4. Before us, the learned counsel for the assessee has drawn our attention to the objects clause of memorandum of association of the company and a letter dated 17-3-1978 from the Government of India. So far as the former is concerned, it is nobody's case that the company was doing anything outside the scope of its objects clause. The letter of 17-3-1978 is addressed to the assessee-company and there is no doubt that it was assessee-company which was given permission for setting up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al nature or of a revenue nature ? 7. As had been indicated above, the Gujarat High Court was concerned with the interest payment on borrowings and its decision is confined to that aspect covered by the special provisions of section 10(2)(iii) of the Indian Income-tax Act, 1922 ('the 1922 Act'). In this case, however, we are concerned with the expenditure other than those for interest payment and, therefore, it is a different aspect. Applying the aforesaid decision of the Supreme Court which is binding in the circumstances, we are of the view that the expenditure in question is of a capital nature and, therefore, cannot be allowed. 8. In the result, the Commissioner (Appeals)'s order is confirmed and the appeal is rejected. Per Shri K.P. Bhatnagar, Accountant Member --- I am in respectful disagreement. In paragraph 6 of his order, my learned brother has come to be of the view that the new project was merely an extension of the existing business. On facts and in the circumstances of the case, that was obviously the correct view that could be taken and I am in respectful agreement with my learned brother in respect of the same. But then, therefore, the ratio of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision of the Gujarat High Court in the case of Alembic Glass. It is common ground that the Under Secretary to the Government of India had written in March 1978 to the assessee that the Government had approved the proposal of the assessee-company for setting up of a scale industrial unit in the Kandla Free Trade Zone for the manufacture of the following items.... The assessee-company was controlling the setting up of the new unit as an extension of its business and it was being controlled from its headquarters. All the expenses in connection with the said new unit were recorded in the books of the assessee-company. This was also a factor that was considered by the Gujarat High Court in the said case. The travelling expenses have to be allowed as connected with the business. The only difficulty can, however, be in respect of expenses of Rs. 24,400 included in the first item, viz., engineering service fees. The amount was incurred by the assessee-company in connection with its obtaining a feasibility report from the experts concerned in terms of the Government of India's letter referred to earlier. However, while arguing the matter before the Commissioner (Appeals), it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber --- This appeal had come up for hearing before a Bench constituted by two members. As the members of the Bench differed in their opinion on a certain point, which is referred to hereinafter, the case was referred by the President for hearing on the same point by me. The learned members have stated the point on which they have differed as follows: "Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the deduction of the expenses of Rs. 29,200 incurred in connection with the setting up of a new unit as extension of its business ?" 2. I have considered the relevant facts and circumstances and the submissions made by both the sides and have also gone through the orders of my two learned brothers who had heard the appeal in the first instance. 3. I shall now refer to the facts which were obtained in the present case: The assessee, a limited company, is a manufacturer of metallic yarn and polyester films. For the accounting year, it had incurred a total expenditure of Rs. 29,200 in connection with a project for manufacturing of metallic yarn and polyester films at Kandla. The details of the said expenses are set out hereunder: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e items were referred in the question. 7. In view of the difference of opinion between the two members, the matter was placed before me as stated above. The learned counsel for the assessee, Shri Patel, pointed out that there was extension of existing business and both the learned members have agreed in regard to this fact. According to him, the decision in Alembic Glass case would clearly govern the controversy. That apart, the decision of Gujarat High Court reported at Bansidhar (P.) Ltd. v. CIT [1981] 127 ITR 65 also supported his claim for allowance of the impugned expenditure as revenue expenditure. The learned departmental representative on the other hand referred to the provisions of section 35D of the Act and stated that the assessee's claim was covered by the specific provision and, therefore, there was no question of considering the claim of the assessee under section 37 of the Act. Secondly, the expenditure were of capital nature as it was related to extension of business and was also related to profit-earning structure. He next pointed out that the decisions relied upon on behalf of the assessee had no application to the facts of the case. And lastly, in view of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company itself. In the application for the proposed establishment of the new unit at Bangalore made by the assessee to the Government of India on December 8, 1959, and in the application for licence submitted by the assessee to the Government, it was stated that the new unit at Bangalore was nothing but an expansion of the existing business. Thus, there was complete inter-connection, inter-lacing and inter-dependence of both the units, which is the test laid down for determining whether two lines of business constitute the 'same business' within the meaning of section 24(2), by the Supreme Court in the case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632 and again approved by the Supreme Court in Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739. Even assuming that the test for considering whether a particular unit is a separate business from the business of the other unit or not, is to see whether the closure of one unit would affect the other unit or not, as contended by the revenue, the closure of any of the two units here would surely affect the working and the business of the remaining unit. For the simple reason that a larger liability of the wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e better utilisation and more essential utilisation of its existing profit-earning apparatus that the directors of the assessee-company wanted to diversify from their existing business of manufacturing of conveyor belts, etc., and go in for the production of areal ropeways. Since there was no proposal to add to the fixed capital of the assessee-company even at a later date and all that was done was to utilise existing machinery and knowledge of the company more efficiently and in a better manner, the expenditure on foreign tour was allowable as a revenue expenditure. In coming to the above decision their Lordships observed as follows: "These are distinctions, which we have pointed out, where on the one sideline or the other the question is decided by determining whether the expenditure in question was incurred for a more efficient use or better utilisation of the existing processes and techniques employed by the company or whether the expenditure was incurred for the purpose of acquiring new machinery or new plant or addition, even though remotely or at a distant future, to the fixed capital of the company. If the expenditure fell in the first category, namely, in the category of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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