Expansion to Naini Factory Deemed Branch: Revenue Expenditure AllowedJudge(s) : K. JAGANNATHA SHETTY., S. A. HAKEEM JUDGMENT JAGANNATHA SHETTY J.-The question referred under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Bangalore Bench, is as follows : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the Naini factory did not constitute a new business but was an expansion of the existing business at Bangalore ?" The assessee-company had esta... ... ... 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. Assessee, Company Establishing New Unit Commissioner Of Income-Tax Versus Indian Telephone Industries Limited
Income Tax
1984 (8) TMI 5 - KARNATAKA High Court - [1989] 175 ITR 215
KARNATAKA High Court - HC
Dated:- 17-8-1984
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Income Tax
Judge(s) : K. JAGANNATHA SHETTY., S. A. HAKEEM JUDGMENT JAGANNATHA SHETTY J.-The question referred under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Bangalore Bench, is as follows : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the Naini factory did not constitute a new business but was an expansion of the existing business at Bangalore ?" The assessee-company had established a unit at Naini and for the assessment year 1970-71, it claimed deduction in respect of certain sum as revenue expenditure incurred in that establishment. The Income-tax Officer and the Appellate Assistant Commissioner rejected that claim while the Tribunal allowed it, recording a finding as follows : "The two factories belonged to the Indian Telephone Industries, Bangalore, and for all practical purposes, it was an expansion of the business of the existing unit of the factory. The overall control of the business of the two factories at Naini was conducted from Indian Telephone Industries Ltd., Bangalore. The production of these two units would be the production of Indian Telephone Industries Ltd. with headquarters at Bangalore only. Looking to all these facts, in our opinion, the factories are nothing but a branch of the assessee even though for purposes of relief as a new industrial undertaking, it can be treated as separate units, but it cannot be said that it was a new business altogether. The expenditure claimed by the assessee would, therefore, be allowable as revenue expenses. We, therefore, reverse the orders of the authorities below in this regard and direct the allowance of the expenses claimed in toto." It will be seen from the above finding recorded by the Tribunal that the establishment at Naini is not an independent unit but just an expansion of the existing business. In view of this finding of fact, we answer the question in the affirmative and in favour of the assessee.
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