Interest on borrowings for one integrated business remains deductible despite branch-wise accounting allocation.

Interest on borrowings used for an integrated business carried on through branches in India and Pakistan was held deductible in computing taxable income as a whole. The head office, control, management and financial arrangements being centralised at Calcutta, the foreign branch was not a separate business but part of one indivisible commercial undertaking. Branch-wise allocation in the accounts did not alter the character of the borrowing, and the earlier authority dealing with a distinct foreign branch was distinguished. The disallowance of the interest claim was therefore not justified, and the deduction was allowable.

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Issues: Whether interest on borrowings debited to the Pakistan branch was deductible in computing the assessee's income in India where the assessee carried on one business through branches in India and Pakistan.

Analysis: The assessee's head office, control, management and financial arrangements were all centralised at Calcutta, and the branches functioned under a common business organisation. On these facts, the Darsana branch was not a separate business but only a branch of one integrated business. The earlier Madras decision dealing with a distinct foreign branch was distinguished on the ground that, under the later statutory scheme, the assessee's taxable income had to be computed on the basis of the whole business carried on by it. The principle applied was that interest on capital borrowed for the purposes of an indivisible business remains an allowable deduction, even if the accounts allocate the burden branch-wise.

Conclusion: The disallowance was not justified and the assessee was entitled to deduction of the interest claimed.

Ratio Decidendi: Where an assessee carries on one integrated business through multiple branches, interest on borrowed capital used for that business is deductible in computing the taxable income as a whole, and branch-wise accounting allocation does not defeat the allowance.

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