V.K.SINGHAL, J. - (1.) THE Tribunal has referred the following three questions of law arising out of its order dt. 11th Feb., 1981, in respect of the asst. year 1978 -79 : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled to claim deduction of bank charges, legal fees and interest amounting to Rs. 9,075, Rs. 10,000 and Rs. 30,787, respectively, as revenue expenditure ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the travelling and other expenses incurred on Shri Sunil Kumar Sah, director of the company, and Smt. Kum Kum Sah, w/o. Shri Sunil Kumar Sah, director, for undertaking training in production methods of costume jewellery for the new project which was proposed to be set up was capital expenditure ? (3) Whether, on the facts and in the circumstances, the Tribunal has rightly held that the assessee is not entitled to depreciation with reference to travelling expenses incurred on Shri Sunil Kumar Sah, director, in connection with his visit to Austria ?" Question No.1 has been referred on the application of the CIT while questions Nos. 2 and 3 have been referred on the application of the assessee filed under S. 256(1) of the INCOME TAX ACT, 1961. No one has appeared on behalf of the assessee in spite of due service of notice. It appears that the assessee is not interested in agitating the grievance raised in questions Nos. 2 and 3 and, therefore, these questions are returned unanswered. So far as question No. 1 is concerned, the relevant facts are that the assessee -company was running a cinema at Kota and wanted to set up a factory for manufacture of costume artificial jewellery. Expenses of Rs. 9,075 were incurred as bank charges which were paid to the bank as commission for guarantee given by it to the Government of India for import of machinery. Rs. 30,787 were incurred as interest paid on money borrowed for the purpose of machinery. Rs. 10,000 were paid as fees of the advocate for attending the case pertaining to acquisition proceedings in respect of the land purchased by the assessee for the aforesaid project. The assessee claimed these expenses as revenue expenditure. The ITO came to the conclusion that the bank charges cannot be allowed as it has nothing to do with the assessee's previous business and the claim in respect of legal fee was disallowed on the ground that the expenditure related to agricultural land income from which is not taxable and cannot be allowed as business expenditure and in respect of the claim of interest since it is attributable to the capital borrowed for starting a new project, the interest cannot be allowed. In the appeal preferred to the CIT, it was held that the expenses are allowable only in respect of the business which was actually carried on by the assessee during the relevant previous year and expenses incurred in connection with a business which was yet to be set up during the relevant previous year cannot be allowed. It was further held that for different businesses, separate "previous years" can be opted for by the assessee and as such in respect of the new business the previous year starts only from the date of setting up of the new business. The appeal was dismissed.
(2.) IN the second appeal before the Tribunal, relying on the decision of Produce Exchange Corporation Ltd. vs. CIT (1970) 77 ITR 739 (SC), it was held that the different ventures constitute a single business when the unity of control of business is at one place and as such these expenses are allowable. Sec. 36(1)(iii) of the Act provides that the amount of interest paid in respect of capital borrowed for the purposes of business shall be allowed as deduction while computing the income under s. 28.
(3.) IN the case of CIT vs. Shah Theatres (P) Ltd. (1987) 67 CTR (Raj) 120 : (1988) 169 ITR 499 (Raj), this Court has held that the business of exhibition of motion pictures and that of starting construction of the cinema theatre is the same. The interest paid on such borrowing was held allowable as it was incurred in connection with the extension of the existing business and not for setting up a new business.;