- (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee to answer the following questions of law : (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding 'that the expenses incurred by the assessee-mills in providing simple meals, breakfast and tea to its customers and suppliers, etc., coming from outside as customary expenses were in the nature of entertainment expenses and hence not allowable in view of Section 37(2B) of the Income-tax Act, 1961 ? (2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that a sum of Rs. 90,000 incurred by the company for obtaining a survey and feasibility report on the polythene plant is capital expenditure and not allowable as a business expenditure ? (3) Whether, on the facts and circumstances of the case the Tribunal was right in holding that surtax liability is not an expenditure allowable as a business expenditure and not an expenditure wholly and exclusively incurred for the purposes of its business ?"
(2.) THE relevant assessment year is 1974-75. The above-quoted questions Nos. (1) and (3) relating to the same assessee for a different assessment year are covered by our decision in D. B. I. T. Reference No. 3 of 1982 decided on August 14, 1987--[1989] 175 ITR 70. Question No. (1) was answered in favour of the assessee, while the aforesaid question No. (3) was answered in the Revenue's favour. Both these questions are answered accordingly in the present reference also, following our earlier decision. The only surviving question now is question No. (2) quoted above. The assessee carries on a business in textiles. It claimed a deduction of Rs. 90,000 spent by it for obtaining a survey and feasibility report regarding a polythene plant from an expert in the field with a view to set up a polythene plant. However, the assessee's application for permission to set up the polythene plant was rejected by the MRTP authorities so that no further step could be taken in that direction. The assessee claimed deduction on the ground that the proposed polythene plant was to manufacture packing material required for the assessee's products manufactured in the existing business and, that therefore, the expenditure was incurred wholly and exclusively for the purpose of the assessee's business. This claim was disallowed by the Income-tax Officer and thereafter by the Appellate Assistant Commissioner as well as the Tribunal. The aforesaid question No. (2) has been referred at the instance of the assessee in this situation. In our opinion, necessary facts on the basis of which the aforesaid question No. (2) has to be answered have not been determined by any of the lower authorities including the Tribunal. The test to be applied for deciding whether this is an allowable expenditure or not was indicated by the Supreme Court in Setabganj Sugar Mills Ltd. v. CIT [1961] 41 ITR 272, as under (p. 274) : "The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact. Certain principles are applied to determine whether on the facts found, a legal inference can be drawn that the different ventures constitute separate businesses or viewed together, can be said to constitute the same business. These principles were stated by Rowlatt J. in Scales v. George Thompson and Co. Ltd. [1927] 13 TC 83, 89. The learned judge observed : '. . . the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses.' The learned judge also observed that what one has to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one." This was reiterated in Standard Refinery and Distillery Ltd. v. CIT [1971] 79 ITR 589 (SC).
(3.) THE decisions cited at the bar, including the Gujarat High Court decision relied on by the Tribunal, in reality, apply the above test indicated by the Supreme Court for deciding the question on the facts of that particular casts. It is obvious that the same test has to be applied for answering this question in the present case as well. In other words, it is to bo decided on the facts of this case as to whether the proposed polythene plant was so interconnected or interlaced with the existing textile business of the assessee and the two were so dovetailed into each other as to make them the same business. If that be so, and the answer is in the affirmative, then the assessee could be entitled to the deduction, otherwise not. We do not find the necessary facts being determined by either the Income-tax Officer or the Appellate Assistant Commissioner or the Tribunal on the basis of which this question can be decided by applying the test indicated. This question cannot, therefore, be answered at this stage without necessary facts and the Tribunal will have to decide the same afresh after determin ing the necessary facts giving opportunity, if necessary, to the parties, to adduce further evidence for this purpose. Consequently, the reference is answered as under : Question No, 1 is answered in the assessee's favour and against the Revenue by holding that the expenses incurred by the assessee in providing snacks, etc., is an allowable deduction. Question No. 2 does not arise for our decision for the reasons given above. Question No. 3 is answered in favour of the Revenue and against the assessee by holding that the Tribunal was justified in the view that surtax liability is not a permissible deduction. No costs. ;