Law: Income Tax Act, 1961

Section: 36,36(1)(iii)

Income-tax----Interest on borrowed -capital ---Business---Assessee carrying on jewellery business exhibition of cinematographic films---Capital borrowed for constructing cinema theatre---Cinema theatre run for several years and then transferred---Loan had been obtained for business purposes---Finding by Tribunal that business of jewellery and that of exhibitor of films was a composite one---Interest of borrowed capital deductible for periods after cinema business discontinued---Indian Income Tax Act, 1961. S. 36(1)(iii)--[C.I.T. v. Veecumsee (1985) 152 ITR 708 reversed]. The assessee ran a jewellery business. It then commenced business also in the exhibition of cinematographic films. In 1961, it obtained loans for building a cinema theatre. The said theatre was built in 1962 and was run by the assessee until July 31, 1965, when it was transferred to another firm. For the years during which the assessee exhibited films in the said theatre the interest paid on the loans obtained for constructing it were allowed by the Revenue as a deduction under the provisions of section 36 (1)(iii) of the Income Tax Act, 1961. The Income Tax Officer declined the deduction for the Assessment years 1967-68, 1968-69 and 1969-70, on the ground that the business of exhibition of films in the said theatre was no longer in extent. The Appellate Assistant Commissioner allowed the deduction. The Tribunal found that there was no dispute that for the construction of the theatre the assessee had made heavy borrowings and the interest on such borrowings had been allowed by the Revenue as a deduction as the assessee was running the said theatre as its own business; that the assessee had admittedly paid the interest in question for the years under appeal in respect of the loans which had been obtained for the purpose of investing in the business of exhibition of films. The Tribunal also found that the business carried on by the assessee as a jeweller and in the running of the said theatre, restaurant, etc., were composite; that the assessee was carrying on both the business in jewellery and in the exhibition of films till July 31, 1965, and that only thereafter was the activity of exhibition…

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