TaxTMI 
TaxTMI 
1982 (10) TMI 51
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....nbsp; a. Engineering service fee 24,400 b. Travelling expenses 3,100 c. Industrial licence fee 500 &nbs....
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....roject and not for the existing business of the assessee. He, therefore, confirmed the order of the ITO. 4. Before us, the learned counsel for the assessee has drawn our attention to the objects clause of memorandum of association of the company and a letter dated 17-3-1978 from the Government of India. So far as the former is concerned, it is nobody's case that the company was doing anything outside the scope of its objects clause. The letter of 17-3-1978 is addressed to the assessee-company and there is no doubt that it was assessee-company which was given permission for setting up the project at Kandla Free Trade Zone for the manufacture of 'metallic yarn and polyester films' for the purpose of manufacture of capacitors. 5. On behalf of the assessee, the learned counsel has contended that the new project was merely an extension of the existing business of the company and that, therefore, all the aforesaid expenditure was allowable as revenue expenditure. He has relied on the decision of the Gujarat High Court in CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715. In that case, the assessee-company was manufacturing glass at Baroda and incurred an expenditure for estab....
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.... nature and, therefore, cannot be allowed. 8. In the result, the Commissioner (Appeals)'s order is confirmed and the appeal is rejected. Per Shri K.P. Bhatnagar, Accountant Member --- I am in respectful disagreement. In paragraph 6 of his order, my learned brother has come to be of the view that the new project was merely an extension of the existing business. On facts and in the circumstances of the case, that was obviously the correct view that could be taken and I am in respectful agreement with my learned brother in respect of the same. But then, therefore, the ratio of the decision of the Gujarat High Court, viz., Alembic Glass' case, would determine the issue. Question No. 2 as referred to the Gujarat High Court in that case reads as under: "Whether, on the facts and in the circumstances of the case, the interest, miscellaneous expenses, and travelling expenses incurred by the assessee referable to the Bangalore unit are wholly and exclusively for the purpose of the assessee's business ?" Thus, the matter referred to the Gujarat High Court also covered the allowance of miscellaneous expenses and the travelling expenses incurred by the assessee besides the claim of....
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....sp; 1,200 So far as the loan application fee is concerned, the allowance of the same has to be treated as covered by number of decisions of various courts. The courts have held that for the borrowing of money it was immaterial whether the borrowing had been made for acquiring a revenue asset or a capital asset. The courts had considered that the borrowing did not result in acquiring an asset of an enduring nature and that on the other hand it was in fact a liability to be discharged by the borrower. The only condition for the borrower had to be that there was already a running business and that a new business altogether was not being set up. In the case of the assessee, the business was already running and the case was of setting up of a new unit as extension of its business. As regards the industrial licence fees also, the allowance thereof has to be treated as covered by the said decision of the Gujarat High Court in the case of Alembic Glass. It is common ground that the Under Secretary to the Government of India had writt....
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....id decision It is ordered accordingly. 3. In the result the appeal is allowed. Per Shri K.R. Dixit, Judicial Member --- Although the question stated to the Gujarat High Court mentions miscellaneous expenses, the judgment itself deals with only interest on borrowings provided for specially under section 10(2)(iii) of the Indian Income-tax Act, 1922 ; nowhere in the judgment, does the 'ratio' as stated at page 3 above appear. 2. The words in the Supreme Court judgment are clear and their meaning unmistakable. Can we go against it ? STATEMENT UNDER SECTION 255(4) --- There being a difference of opinion amongst us, the matter is referred to the President under section 255(4) of the Income-tax Act, 1961, in respect of the following: "Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the deduction of the expenses of Rs. 29,200 incurred in connection with the setting up of a new unit as extension of its business ?" THIRD MEMBER ORDER Per Shri K. T. Thakore, Accountant Member --- This appeal had come up for hearing before a Bench constituted by two members. As the members of the Bench differed in their opinion on a certain....
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....bsp; c. Industrial licence fee 500 d. Loan application fee 1,200 ....
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....decision of Alembic Glass case, that the expenditure was allowable as a revenue expenditure. It may be pointed out here that according to the learned Judicial Member the decision in Alembic Glass case dealt with the question of allowance of interest on borrowings under section 10(2)(iii) of the 1922 Act and did not deal with the other items like miscellaneous expenses, travelling expenses, etc., specifically ; though these items were referred in the question. 7. In view of the difference of opinion between the two members, the matter was placed before me as stated above. The learned counsel for the assessee, Shri Patel, pointed out that there was extension of existing business and both the learned members have agreed in regard to this fact. According to him, the decision in Alembic Glass case would clearly govern the controversy. That apart, the decision of Gujarat High Court reported at Bansidhar (P.) Ltd. v. CIT [1981] 127 ITR 65 also supported his claim for allowance of the impugned expenditure as revenue expenditure. The learned departmental representative on the other hand referred to the provisions of section 35D of the Act and stated that the assessee's claim was covered ....
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....disputed that the business organisation, administration and fund of both the units of the assessee, namely, the unit at Baroda and the unit at Bangalore, were common. There was one company which controlled the administration of both the units, which supplied the staff to both the units and which managed the whole of the business organisation of both the units. The production of both the units was considered the production of the assessee-company itself. In the application for the proposed establishment of the new unit at Bangalore made by the assessee to the Government of India on December 8, 1959, and in the application for licence submitted by the assessee to the Government, it was stated that the new unit at Bangalore was nothing but an expansion of the existing business. Thus, there was complete inter-connection, inter-lacing and inter-dependence of both the units, which is the test laid down for determining whether two lines of business constitute the 'same business' within the meaning of section 24(2), by the Supreme Court in the case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632 and again approved by the Supreme Court in Produce Exchange Corporation Ltd. v. CIT [197....
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.... the manufacture of areal ropeways was an extension of the assessee's existing activities and allowed the expenditure on foreign tour as a revenue expenditure. It was held that there was no proposal to increase fixed capital of the company. All the existing designing techniques and processes---know-how in the possession of the assessee-company---were to be employed for the purpose of manufacturing areal ropeways and it was for the better utilisation and more essential utilisation of its existing profit-earning apparatus that the directors of the assessee-company wanted to diversify from their existing business of manufacturing of conveyor belts, etc., and go in for the production of areal ropeways. Since there was no proposal to add to the fixed capital of the assessee-company even at a later date and all that was done was to utilise existing machinery and knowledge of the company more efficiently and in a better manner, the expenditure on foreign tour was allowable as a revenue expenditure. In coming to the above decision their Lordships observed as follows: "These are distinctions, which we have pointed out, where on the one sideline or the other the question is decided by det....