Expansion to Naini Factory Deemed Branch: Revenue Expenditure Allowed

The High Court held that the Naini factory was an expansion of the existing business at Bangalore, allowing the deduction for revenue expenditure claimed by the assessee-company. The court considered the Naini unit as essentially a branch of the assessee with overall control from Bangalore, leading to the expenses being deemed allowable as revenue expenses for the assessment year 1970-71.

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Issues involved: Interpretation of whether the Naini factory constituted a new business or an expansion of an existing business.

Summary:
The case involved a question referred u/s 256(1) of the Income-tax Act, 1961, regarding the status of the Naini factory as a new business or an expansion of the existing business at Bangalore. The assessee-company established a unit at Naini and claimed deduction for revenue expenditure incurred there for the assessment year 1970-71. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim, but the Tribunal allowed it, considering the Naini unit as an expansion of the existing business at Bangalore. The Tribunal found that the Naini factory was essentially a branch of the assessee, with overall control from Bangalore, and therefore, the expenses claimed were allowable as revenue expenses. The High Court, based on this factual finding, answered the question in the affirmative and in favor of the assessee.

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