Business unity and borrowed-capital interest deduction upheld where separate department did not create a distinct business.

Piece-goods activity conducted under a separate style and from another building was treated as part of a single commercial undertaking, so separate accounts and physical separation did not make it a distinct business for disallowing interest on borrowed capital. Interest remained deductible where the borrowing was originally for business purposes and was applied in the business, even though the relevant branch had ceased before the assessment year. The reference was answered in favour of the assessee, and the claimed deduction was allowed with costs.

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Issues: (i) whether the piece-goods activity carried on under a separate style and from a separate building constituted a business separate and distinct from the assessee's main business, so as to disallow interest on borrowed capital used for that activity; (ii) whether interest on borrowed capital remained deductible where the borrowed money had been applied for business purposes but the relevant branch had ceased before the assessment year.

Issue (i): Whether the piece-goods activity was a separate and distinct business.

Analysis: The activity carried on under the style of Ramaswami & Co. was treated as one part of the assessee's overall business. Separate accounts, a different style, and operation from another building did not establish a distinct business where the findings showed a single commercial undertaking conducted in different departments.

Conclusion: The issue was answered in favour of the assessee; the piece-goods activity was not a separate and distinct business for this purpose.

Issue (ii): Whether interest on borrowed capital was deductible although the branch had ceased to function in the assessment year.

Analysis: The borrowed money had been obtained for business purposes and applied in the business until it was lost. The relevant test was whether the capital was originally borrowed for the business and whether interest was paid during the assessment year, not whether the capital continued to be available in that year.

Conclusion: The issue was answered in favour of the assessee; the interest remained deductible.

Final Conclusion: The reference was answered affirmatively, and the assessee was entitled to the deduction claimed, with costs awarded.

Ratio Decidendi: Where borrowed money is applied as business capital in a single commercial undertaking, interest paid on that borrowing remains deductible even if one department of the business has ceased before the assessment year.

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