Unity of business and interest deductibility depend on common control, management and business use of borrowings.

Distinct commercial ventures may constitute one business where they share unity of control, management, staff, capital and accounts; on those facts, the cashew-nut, tin-can and oil activities were treated as parts of the same business, so interest on business borrowings remained deductible. Interest linked to personal drawings or other non-business use of funds could not be allowed, so the deduction had to be confined to the portion referable to business borrowings, with any non-business element excluded.

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Issues: (i) Whether the assessee's ventures in cashew-nuts, tin cans and oil constituted one business or separate businesses for the purpose of deductibility of interest on borrowings. (ii) Whether the disallowance of interest attributable to borrowings connected with the cashew-nut venture was lawful.

Issue (i): Whether the assessee's ventures in cashew-nuts, tin cans and oil constituted one business or separate businesses for the purpose of deductibility of interest on borrowings.

Analysis: The determination of whether different ventures amount to one business depends on the inter-connection, inter-lacing, inter-dependence and unity of the activities, viewed on facts such as common control, common management, common staff, common capital and common accounts. Here, the cashew business, tin-can manufacture and oil manufacture were carried on with identity of ownership, management, employees and borrowed capital. The tin-can activity began as ancillary to the cashew business and, by gradual shift, replaced it without breaking the continuity of the business structure.

Conclusion: The three ventures formed parts of the same business, and the answer to the first question was against the department and in favour of the assessee.

Issue (ii): Whether the disallowance of interest attributable to borrowings connected with the cashew-nut venture was lawful.

Analysis: Interest on borrowings used for business purposes is deductible only to the extent it is referable to business borrowings. The record also showed that part of the bank borrowing represented personal drawings, which could not be allowed as a business deduction. The Tribunal had not quantified that non-business portion, so only the interest relatable to the business borrowing could be allowed.

Conclusion: The disallowance of interest attributable to the business borrowing for the cashew-nut venture was not lawful, and the corresponding interest had to be deducted; the answer to the second question was also in favour of the assessee, subject to exclusion of any amount referable to personal drawings.

Final Conclusion: The reference was answered in favour of the assessee on both questions, holding that the ventures were part of one business and that business-related interest on the relevant borrowings was deductible.

Ratio Decidendi: Whether distinct commercial ventures constitute one business is to be decided by examining their unity of control, management, capital, staff and accounts, and interest on borrowings is deductible only to the extent it is referable to business purposes.

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