1998 (3) TMI 108 - HC - Income Tax

Deduction of Interest on Business Loan Upheld by Tribunal

The Tribunal allowed the deduction of interest on a loan from Grindlays Bank for the assessee's coal mines business, based on evidence of continued ... Interest, Borrowed Capital, Same Business Issues Involved: The judgment addresses the following issues: 1. Allowance of interest on a loan from Grindlays Bank. 2. Deduction of interest on loan from Grindlays Bank in relation to the coal mines business of the assessee-company.Issue 1 - Interest on Loan from Grindlays Bank: The assessee, a colliery owner, incurred liabilities towards interest expenditure to Grindlays Bank during assessment years 1975-76, 1977-78, and 1978-79. The company claimed that the interest liability arose from an agreement with the bank and legal proceedings in the High Court. The Assessing Officer initially rejected the claim, but the Commissioner of Income-tax (Appeals) accepted it based on evidence of the company's continued activities in boring business alongside mining. The Commissioner noted common management, accounts, and fund intermingling, directing the allowance of interest. The Tribunal affirmed this decision, emphasizing the commonness of management and funds even post-nationalization, citing the Supreme Court's stance in Veecumsees v. CIT [1996] 220 ITR 185, that interest on loans for business purposes remains deductible despite closure of a specific business line.Issue 2 - Deduction for Coal Mines Business: The Tribunal found that the assessee engaged in boring activities alongside mining pre-nationalization, with no organizational changes post-nationalization. The commonality of funds, payments, and receipts for both activities was evident. Relying on the Supreme Court's decision in B.R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647, and Veecumsees v. CIT [1996] 220 ITR 185, the Tribunal held that interest on loans for the assessee's business purposes should be allowed as a deduction, irrespective of the closure of a specific business line. Consequently, both questions regarding interest on the loan from Grindlays Bank were answered in favor of the assessee and against the Revenue.