Composite business principle: interest on borrowings stayed deductible where transport and other activities were run as one integrated enterprise.

Interest on capital borrowed for a discontinued transport line remained deductible because the transport activity and the assessee's other businesses were treated as one composite business. Common management by the same partners, a common fund, inter se transfers between accounts, unity of organisation and control, and use of funds across business lines showed interconnection, interlacing, interdependence and unity of administration. On those facts, closure of the transport activity did not sever its business character from the overall enterprise, and the disallowance was unjustified. The stated principle is that multiple activities carried on as an integrated business with common funds and administration constitute one business for income-tax purposes.

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Issues: Whether the interest paid on capital borrowed for the discontinued transport business was allowable as a business deduction on the footing that the transport business and the other businesses of the assessee formed one single business.

Analysis: The factual findings showed common management by the same partners, a common fund, inter se transfers between the cigar and transport accounts, unity of organisation and control, and use of funds of one line of business for the obligations of another. On those facts, the transport activity was not a separate and independent venture but part of an integrated business structure. Applying the settled test of interconnection, interlacing, interdependence and unity, the closure of the transport activity did not sever its business character from the assessee's overall business. The precedents on the same-business principle supported the conclusion that multiple lines of activity, when carried on with common management, common funds and common administration, constitute one business.

Conclusion: The interest attributable to the transport business was allowable, and the Commissioner was not justified in treating the business as separate for disallowance purposes. The question was answered in the affirmative and against the Revenue.

Ratio Decidendi: Where different lines of activity are carried on with common management, common funds, common administration and interlacing of accounts, they constitute one composite business for income-tax purposes, and interest on borrowings used in that integrated business remains deductible even if one limb of the business is later discontinued.

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