Law:

Section:

Section 37(1) of the Income-tax Act, 1961-Business expenditure-Assessee. a manufacturer of dyestuffs, started another factory for manufacturing intermediates used in manufacture of dyestuffs-Whether interest paid on its capital borrowing qua such new unit was an allowable expenditure-Held, on facts, yes Facts The assessee-company was engaged in the manufacture of dyestuffs. During the assessment year 1968-69, relating to the accounting year ended 31-3-1968, it started a new industrial undertaking for the manufacture of dyes (intermediates) used in the manufacture of dyestuffs, which were hitherto purchased in the market. The factory building was under construction, the machinery was under installation and the factory had not gone into production. The assessee claimed deduction of Rs. 21,117 which was paid as interest to a bank on capital borrowed for the aforesaid project, but the same was disallowed by the ITO since the intermediates business had not commenced. The AAC confirmed the disallowance, holding that the intermediates manufacture was an independent venture and not a part and parcel of the original business. On second appeal, the Tribunal allowed the impugned deduction. On reference: Held It was not possible to hold that this was a separate and entirely new undertaking and a totally independent venture unconnected with the existing business of the assessee. Accordingly, the Tribunal was right in allowing the impugned deduction. Case review Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.) followed. Case referred to Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265 (Bom.) JUDGMENT S.K. Desai J.-In this reference, which is at the instance of the commissioner of Income-tax and made by the Income-tax Appellate Tribunal Bombay Bench "D", the following question of law stands referred to us : "Whether, on the facts and in the circumstances of the case, the Tribunal erred in allowing deduction of Rs. 21,117, being the interest paid by the assessee on the capital borrowed by it for the Thana project in computing the income of the assessee for the assessment year 1968-69 ?" The assessee-company is a private limited company engaged in the…

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