Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing interest on the loan taken from Grindlays Bank?

High Court Of Calcutta

CIT vs. Western Bengal Coal Fields Ltd.

Sections 36(1)(iii)

Asst. Year 1975-76, 1977-78, 1978-79

Y.R. Meena & Bijitendra Mohan Mitra, JJ.

IT Ref. No. 22 of 1992

25th March, 1998



By this reference application, the following questions have been referred for our opinion :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing interest on the loan taken from Grindlays Bank?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that coal mines business of the assessee-company constituted the same business and in that view of the matter in allowing the interest on loan from Grindlays Bank as deduction ?”

2. The assessee was a colliery owner whose right, title and interest in the mines had been acquired after the enactment of the Coal Mines (Nationalisation) Act, 1973. During the asst. yrs. 1975-76, 1977-78 and 1978-79, the assessee-company incurred liabilities towards expenditure of interest to the Grindlays Bank of Rs. 2,91,980, Rs. 7,71,851 and Rs. 7,71,851, respectively. The assessee claimed before the AO that in view of its agreement with the bank and in view of the legal suit filed by the bank in the High Court, the company had incurred the liability to pay the interest as per agreement. The company debited its P&L a/c at the same rate, i.e., four per cent per annum. It was also brought to the notice of the AO that the assessee is not only carrying on the activities of coal mining but also indulged in boring, etc., and they all constitute one and the same business. Therefore, whatever loan has been obtained, though for one line of business, if that is closed, even after closure of that business, the assessee’s business continued and it carried on some other activities and the interest payable on the loans obtained for the purpose of carrying on business, the assessee is entitled for deduction of that interest. The claim of the assessee was not accepted by the AO. In appeal before the CIT, the CIT(A) was satisfied from the evidence produced before him that the assessee was carrying on boring business along with its mining business and the activities of boring business continued even after the nationalisation of mines.

The CIT(A) was also satisfied in respect of commonness of management, commonness of accounts and interlacing of various activities of the appellant company and the fund receipts from the different activities were being deposited in the same bank accounts and were also being utilised without any reservations for other activities of the assessee-company. The CIT has also inspected the cash book produced before him which shows the commonness of the funds concerned and also intermingling of the funds as well as the activities of the assessee- company. Therefore, in view of the said factual aspect and of the decision of the Supreme Court in the case of B.R. Ltd. vs. V. P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC) : TC 45R.362, the CIT directed the AO to allow the interest as claimed by the assessee.

3. In appeal before the Tribunal, in paragraph 8 the Tribunal found as a matter of fact that it is evident from the record that the assessee was engaged in boring activities along with its mining business in the pre-nationalisation period. No materials have been brought on record to show that there was any organisational change in the management after the nationalisation of the coal mines. The fund remained common even after the nationalisation of the coal mines. Payments and receipts of boring as well as mining were intermingled in the bank as well as in the cash books. Therefore, the common management and the interlacing of various activities cannot be denied. In Veecumsees vs. CIT (1996) 133 CTR (SC) 500 : (1996) 220 ITR 185 (SC), their Lordships of the Supreme Court observed at as under : “. . . the Tribunal was, in our view, right in concluding that such interest had to be treated as a deduction under s. 36(1)(iii). The loans had been obtained for the purposes of the assessee’s business. The fact that the particular part of the business for which the loans had been obtained had been transferred or closed down did not alter the fact that the loans had, when obtained, been for the purpose of the assessee’s business. The test of ‘same business’ appropriate for set off of carry forward losses is not appropriate here.” Thus, in this decision, their Lordships have taken the view that when the assessee carries on more than one business and one business is transferred or closed and if the loan was taken earlier for the business which subsequently closed, but if the management is common, the interest paid on that loan cannot be denied, though one of the lines of business or any branch of business is closed for which the loan had been taken.

4. In the result, we answer both questions Nos. (1) and (2) in the affirmative, i.e., in favour of the assessee and against the Revenue.

[Citation : 233 ITR 139]

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