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TMI Blog1989 (9) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... arat Vijay Mills Ltd. (1981) 128 ITR 633 (Guj), International Instruments (P) Ltd. vs. CIT (1981) 130 ITR 315 (Kar) and CIT vs. Indian Molasses Co. (P) Ltd. (1989) 77 CTR (Cal) 112 : (1989) 176 ITR 473 (Cal). He has also cited the Special Bench decision of the Tribunal in the case of Geoffrey Manners Co. Ltd. 3 SOT 40. We find that the point involved looks debatable but the Bombay Benches of the Tribunal have been almost consistently following the Tribunal's Special Bench decision in Geoffrey Manners Co. Ltd. Accordingly Department's this ground of appeal is rejected. 3. Next ground of appeal is directed against the excess bonus of Rs. 6,750 being allowed as deduction. On this point also, the Bombay Benches of the Tribunal have been taking a view against the Department primarily by citing the Supreme Court decisions in the case of Mumbai Kamghar Sabha vs. M. Abdullabai AIR 1976 SC 455 and Shahzada Nand Sons vs. CIT (1977) CTR (SC) 246 : (1977) 108 ITR 358 (SC). Of course, we have the Kerala High Court decision in CIT vs. Veeriah Reddiar (1976) CTR (Ker) 341 : (1977) 106 ITR 610 (Ker) and the Madras High Court decision in CIT vs. Sivanandha Mills Ltd. (1985) 156 ITR 629 (Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for preparing project report Rs. 15,374. For this purpose, it would be necessary to have the factual background first. The assessee is an Indian company and it was engaged in the business of manufacture and sale of wire cloth at Nasik in Maharashtra. This item of wire cloth is used mainly in the manufacture of paper. It was a single project company and in the previous year relevant to this appeal it decided to explore the possibility of diversification. To be precise, it wanted to start a speciality paper mill in the State of Himachal Pradesh. In that connection it incurred expenditure of Rs. 15,374 in respect of professional charges paid to three different experts in connection with the preparation of project and feasibility and related consultancy services, etc. Similarly, foreign travelling expenditure was incurred for Shri R.C. Kothari and Shri H.J. Silverson in connection with setting up of that new project. The ITO disallowed the same and observed that the said items may be covered by s. 35D but cannot be allowed as items of revenue nature. The CIT (A) upheld the disallowance by distinguishing there decisions cited on behalf of the assessee and noted by him at the end of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jump but it was only a sort of exploration. 11. On behalf of the Department, seven High Court and Supreme Court decisions are cited to say that it was altogether a new line of business being established at a far distant place for which new industrial licence and new loans were taken. It was submitted that upto the point of time of starting the production, the expenditure cannot be regarded as on revenue account against the business income of the existing unit. 12. We have very carefully considered the rival submissions. First case cited on behalf of the assessee is of the Madras High Court decision in CIT vs. S.S.M. Ahmed Hussain (1986) 54 CTR (Mad) 327 : (1987) 164 ITR 525 (Mad) and our specific attention is invited to certain observations on page 531 of the Report. Actually, we find that this decision does not help the assessee because that decision was rendered in the context of set-off of loss of a branch of business which stood closed down. It was held that the test to be applied was of inter-connection, interlacing, interdependence and unity alongwith the tests of common management, common business organisation, common administration, common fund and common place of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp the assessee. 16. This bring us to the Tribunal's decision in ITA No. 3119/Bom/85 dt. 9th May, 1985 in the case of Dr. Beck Co. (India) Ltd. for asst. yr. 1979-80. We find that the operative part is contained in para 15 and really determinative aspects are taken note of in the following terms: "15. The assessee was already a manufacture of insulating chemicals at Pimpri. It wanted to expand its business in the same line for producing further insulating chemicals known as synthetic wire enamel. As no land was available near the Pimpri Factory, land was acquired at Ankleshwar in Gujarat and the expansion programme was put into effect. On those facts, the CIT(A) found that it was not a case of new business but only a case of expansion of the existing business. In this view of the matter, he had allowed the claim of the assessee in the earlier year. Subsequently, the matter went to the Tribunal who, in paragraph 24 of their order. dt. 23rd May, 1984, agreed with the CIT(A) and upheld these findings. Shri B.K. Khare, relied on the said order. He also produced before us the application for financial assistance given to the Gujarat Government, wherein it has been stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control were from the head office of the company, the new business undertaken by the assessee could not be taken to have any connection with the earlier business in tea and coffee. Further, fertilizers could not be said to be one of the commodities in which the company dealt with in the ordinary course of business in coffee or tea. It was not the case of the assessee that the manufacture of fertilisers was undertaken to meet its own needs. There was a clear diversity or distinction or separateness in regard to the fertilizers qua the other trading activities of the company such as the sale of coffee or tea. Accordingly, the deduction under the heads of managing agency commission, sitting fees and head office expenses should be restricted with reference to the income earned in the business carried on in tea and fertilizers and the deduction under those heads could not given in relation to the expenses incurred in connection with the business in coffee." 20. Department has also relied on the Kerala High Court decision in CIT vs. K. Ravindranathan Nair (1984) 43 CTR (Ker) 95 : (1985) 152 ITR 138 (Ker). Therein question was of retrenchment compensation relating to one unit which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Department are relevant. In particular, the Gujarat High Court decision in CIT vs. Shri Digvijay Cement Co. Ltd., Andhra Pradesh High Court decision in Vazir Sultan Tobacco Co. Ltd., Kerala High Court decision in K. Ravindranathan Nair, Madras High Court decision in Blue Mountain Estates and Industries Ltd. and Calcutta High Court decision in Binani Printers (P) Ltd. go to reasonably support the Department's case. Therefore, on this point, we would reject the assessee's pleas and uphold the view taken by the CIT(A) in asst. yr. 1981-82. For asst. yr. 1981-82, assessee's appeal is also dismissed. 25. This brings us to the Department's appeal for asst. yrs. 1982-83. As already mentioned in regard to the proposed new undertaking for manufacturing speciality papers in the State of Himachal Pradesh, the assessee had staked a claim of Rs. 14,38,830. It may be noted that the new unit did not start atleast during the previous year relevant to the asst. yr. 1982-83. It would be beneficial to have a look on the analysis of this claim of Rs. 14,38,830 which is as follows: (i) salaries to project engineers and others Rs. 2,06,127 (ii) foreign tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on the borrowings which were utilised for establishing the new unit should be allowed as revenue expenditure even when the new unit had not commenced production. It was, inter alia, held that the act of borrowing capital is distinguished from the act of investment of the capital to acquire as an asset and, hence, even if, the capital borrowed is invested in the acquisition of a capital asset, the interest is allowable as deduction. The facts of that case are distinguishable on two important aspects. Firstly, the line of business in this case is totally different and at any rate this decision would not cover any other item except that of interest shown at serial No. (iv) above. We would hold that since the line of business was different, even interest would not be allowable as a deduction. We may mention that the Punjab Haryana High Court decision in Oswal Spg. Wvg. Mills. Ltd. is cited on behalf of the assessee but even in that case only registration charges for loans taken for the new unit were allowed as deduction while the interest on the loans taken for establishing another new unit was capitalised. The ratio of that decision on this point of interest is against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given as loans to the sister concern should be treated as coming out of the assessee's own cash generated during these years. It was further submitted that though the loans were forwarded in the previous year relevant to the asst. yrs. 1979-80 and 1980-81 no disallowance of this sort was made by the Department in any of the earlier years. On the basis of these submissions the CIT(A) deleted the addition and the Department is in appeal before us. On behalf of the Department, Allahabad High Court decision in Triveni Engg. Works Ltd. vs. CIT (1987) 167 ITR 472 (All) is cited. On behalf of the assessee, it is submitted that that decision is distinguishable and in fact the Calcutta High Court decision in Indian Explosives Ltd. vs. CIT (1984) 147 ITR 393 (Cal) would be applicable. 30. We have considered the rival submissions. There is quite some substance in assessee's submissions that there were cash accruals which should be regarded as available to the assessee for being utilised and it cannot be presumed that the money given was directly from the bank loans only. It is common knowledge that the business houses have over draft accounts and those very amounts are utilised for all tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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