1983 PLP 343 (PTD)

Income Tax ‑ Business expenditure ‑‑ interest on capital borrowed ‑ Assessee manufacturing dyestuff‑Started a new project far manufacture of dye. (Intermediates) which were hitherto purchased in market ‑ Project under installation during relevant year‑New project viz. dyes (intermediates) not separate and entirely new undertaking, a totally independent venture, unconnected with the existing business‑Interest paid on capita? borrowed for the new project, held, allowable deduction. Calico Dyeing and Printing Works v. C. I. T. (1958) 34 I T R 265 (Bom.) R A Joshi with S. Y: Naik and L. K: Chattrrjee for the Commissioner. Y H. Paul for the Assessee. S. K. DESAI, J.‑In this reference, which is at the instance of the Commissioner of Income‑tax and made by the Income‑tae Appellate Tribunal Bombay Bench "D", the following question of law stands referred to us "Whether, on the fads and in the circumstances of the case, the Tribunal erred in allowing deduction of Ra. 21,117, being the interest paid by the assessee on the capital borrowed by it for the Thana project in computing the income of the assessee for the assessment year 1968‑69 ?" The a company is a private limited company engaged in the manufacture of dyestuffs. We arc concerned with the assessment year 1968‑69 for which the corresponding accounting year is the year ended 31st March, 1968. The assessee-Company had started a new industrial undertaking (hereinafter described as "Thana Project for manufacture of dyes (inter mediates) for which purpose it had already purchased land at Thana. The factory building was under construction and the machinery was uncle‑ installa tion. The new project was for the purpose of manufacture of dyes (interme diates) required for the manufacture of dyestuff's. Them intermediates were hitherto purchased by the assessee‑Company in the market. In the reference we are concerned with an amount of Rs. 21,117 pal as interest by the assessee to the Bank of Baroda. It was admitted before the I. T.‑0. that the Thana project had not gone into production. The I. T.‑O. accordingly held that the "intermediates" business had not yet started. A Accordingly, the I. T . O. disallowed the interest paid to the Bank of Baroda The assessee carried the matter to the A. A. C. and relied on the decision o this Court in Calico Dyeing mid Printing Works v. C. I. T ((1958) 34 I T R 265). The A. A. C was of the opinion that the said case had no application. The A. .1,. C opined that the assessee was setting up a new industrial undertaking which could not be considered a part and parcel of the original business of the assessee. It was an independent venture. Accordingly, he confirmed the order of the I. T. O. and dismissed the appeal. The assessee, thereafter, came in second appeal to the Tribunal. The Tribunal observed that the facts of the present case wee; fully covered by the decision in Calico Dyeing's case. In our opinion, the view taken by the Tribunal is correct. It is not possible to hold that this is a separate and entirely new undertaking which is to be regarded as something different‑a totally independent venture unconnected with existing business of the assessee. It is clear that the A. A. C. had totally misunderstood the ratio of the decision of this Court in Calico Dyeing's case. Accordingly, the question referred to us is answered as follows :‑‑ In our opinion, the Tribunal was right in allowing the deduction of Rs. 21,

117. The answer is accordingly in favour of the assessee. Parties to bear their own costs of the reference. Question answered in the negative.