TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 215
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....999 and therefore, the claim for such debt was not allowable u/s. 36(1) (vii) of the Act? (B) Whether the Appellate Tribunal is right in law and facts in deleting the disallowance of interest of Rs. 13,50,000/- on account of interest free advance given to Sardar Patel Foundation? (C) Whether the Appellate Tribunal is right in law and in facts in deleting the disallowance of interest of Rs. 21,83,829/- on account of interest free advance of Rs. 1.21 crore given to M/s. Madhavdas Tulsidas & Co.?" 2.1 In Tax Appeal No. 1439 of 2007, this court has framed the following substantial question of law : "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (A) deleting the disallowance paid in respect of interest free advances out of borrowed funds?" 2.2 This court, while admitting Tax Appeal No. 1671 of 2007, has framed the following substantial question of law: "Whether the Appellate Tribunal is right in law and on facts in confirming the order of the CIT(A) cancelling the penalty of Rs. 61,77,043/- levied under section 271(1)(c) of the Income-tax Act, 1961?" 3. For the purpose of deciding the appeals, we set out the facts of Tax App....
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.... of the Act it is one of the conditions that the assessee must carry on the business in the relevant year of account. If the business is discontinued before the commencement of the accounting year, the income attributable to that business received in the year cannot be taxed under s. 10, because the source of income had ceased to exist. If the income of a business is not taxable under s. 10 as income of a particular year because the business was not carried on in that year, the assessee can obviously not seek to debit the expenditure incurred for carrying on that business, against his other income, for the outgoings are chargeable only against the income of a business which was carried on in the previous year. If follows that if an assessee carries on several distinct and independent business, and one of such business is closed before the previous year, he cannot claim allowance under s. 10 of the Act of an outstanding attributable to the business which is closed against the income of his other business in that year. 10. It is true that the appellants were conducting cinema theatres in Ahmedabad and Bombay, and the result of the accounts of the different ventures was entered in th....
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....y was carrying on different business activities at different points of time. Upon the closure of one of the businesses in the relevant year of account, the assessee in that case had to pay a sum of Rs. 9,603/- as retrenchment compensation. The assessee claimed deduction under s. 37 of the IT Act, 1961, of the said sum. The claim having been rejected by the ITO as well as the AAC, the matter was taken to the Tribunal which held that the deduction could not be allowed because the several business were widely different in nature and they covered both manufacturing and trading activities, and the closure of one business was not shown to have affected the other business. When the matter was taken to the Gujarat High Court, on a reference, the court took note of the various circumstances and they way in which all the businesses were carried on and held that there was, at the apex, a common management and administration with an overall control of the various business vesting in the board of directors of the assessee company and, therefore, the business that was closed was not a separate and independent business. On those facts, the court held that there was complete interconnection, inter....
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....business that is being carried on by the assessee, the assessee cannot claim the retrenchment compensation paid after the closure of the said business as an expenditure incurred for carrying on the other business." 6. He has also relied on the decision of the Madras High Court in the case of South Indian Industrials Ltd. v. Commissioner of Income-tax reported in (1935) 3 ITR 0011, particularly, paragraph No. 3, which is extracted below: "No purchase was made or anything manufactured during this year. On the contrary, it is admitted that no business whatsoever was carried on except the sale of the old stock already referred to. The loss of Rs. 1,59,489-1-5 was made up of payment of interest on moneys borrowed, depreciation on the machinery and buildings, bad debts written off, loss in revaluation of closing stock due to deterioration and establishment and miscellaneous charges of the various concerns. The company, however, continued to retain its holding of shares in the Chittivalsah Jute Mills Co. Ltd., and to that extent the company was undoubtedly carrying on business; and this is not disputed by the CIT. What, however, is contested by him is the contention that the assessees a....
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....d on under a different name and in a different place was only a branch of the banking business because I am satisfied that those two business were separate and distinct. I think that the examples given by Coutts-Trotter, C.J., on p. 299 are not quite happy ones. This decision can only be taken as applying the principle to cases where the businesses are not separate. What is the position in the present case? The fallacy underlying the assessees, argument is that because a company carries on several concerns those concerns are all one business, namely, the company's business. That is not so. A company can carry on several distinct and separate business and it must always be a question of fact whether those businesses are separate business or whether they are so interlocked with the main chief business of the company as to be really one business, for example, a railway company carrying on a steam boat business in connection with its railway. This distinction has been recognized in cases under the IT Acts in England. One of these is Scales vs. George Thompson & Co. Ltd. 13 Tax Cases 83. There the respondent was incorporated in 1905 to take over as a going concern the business of George....
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.... not charging interest. He has further contended that the Tribunal has committed an error in deleting the disallowance of interest made on interest free advance to Sardar Patel Foundation. Regarding issue of disallowance of interest of Rs. 21,83,829/- made on account of interest free advance of Rs. 1.21 crore given to M/s. Madhavdas Tulsidas & Co., the Assessing Officer has given reasons in his order for disallowing the same as it is of doubt nature. The Commissioner (Appeals) has confirmed the said disallowance. However, the Tribunal has wrongly deleted the disallowance made by the Assessing Officer. Hence the order of the Tribunal is required to be interfered with. 8. Learned counsel for the assessee has contended that the Tribunal has rightly deleted the disallowance made by the Assessing Officer. He has taken us through the order of the Tribunal, particularly at page No. 100 of the appeal where the Tribunal has observed as under: "From the above discussion, we find that both business activities of company is pharmaceutical and agency commission which constituted the same business as there was common management, common fund, common staff administration, consolidated accounts, ....
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....ome-tax, reported in (1996) 220 ITR 185 (SC). He has further relied on the decision of Delhi High Court in the case of Commissioner of Incometax v. Goyal M G Gases P. Ltd., reported in (2008) 303 ITR 159 (Del). In the light of the above decisions, he has contended that the Tribunal has rightly allowed the appeal of the assessee which calls for no interference. 11. We have heard learned counsel for the parties. We have gone through the order of the Tribunal and the case laws cited by the learned counsel for the parties. So far as the business activities carried on by the assessee, namely, pharmaceutical and commission agency, are concerned, since there was common management, common fund, common staff administration, consolidated accounts, balance sheet, complete unity of control in the management and administration of both business activities, we find that both the activities constitute same business. We are, therefore, in complete agreement with the view taken by the Tribunal. In that view of the matter, we answer issue No. 1 in favour of the assessee and against the revenue. 12. So far as issue No. 2 regarding deletion of disallowance of interest on account of interest free adva....