Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Naini factory did not constitute a new business but was an expansion of the existing business at Bangalore ?

High Court Of Karnataka

CIT vs. Indian Telephone Industries Ltd.

Section 37(1)

Asst. Year 1970-71

K. Jagannatha Shetty & S.A. Hakeem, JJ.

IT Ref. No. 265 of 1978

17th August, 1984

Counsel Appeared

K. Srinivasan & H. Raghavendra Rao, for the Revenue : G. Sarangan, for the Assessee

JAGANNATHA SHETTY, J.:

The question referred under s. 256(1) of the IT Act, 1961, by the Tribunal, Bangalore Bench, is as follows : ” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Naini factory did not constitute a new business but was an expansion of the existing business at Bangalore ? “

2. The assessee-company had established a unit at Naini and for the asst. yr. 1970-71, it claimed deduction in respect of certain sum as revenue expenditure incurred in that establishment. The ITO and the AAC rejected that claim while the Tribunal allowed it, recording a finding as follows : ” The two factories belonged to the Indian Telephone Industries, Bangalore, and for all practical purposes, it was an expansion of the business of the existing unit of the factory. The overall control of the business of the two factories at Naini was conducted from Indian Telephone Industries Ltd., Bangalore. The production of these two units would be the production of Indian Telephone Industries Ltd. with headquarters at Bangalore only. Looking to all these facts, in our opinion, the factories are nothing but a branch of the assessee even though for purposes of relief as a new industrial undertaking, it can be treated as separate units, but it cannot be said that it was a new business altogether. The expenditure claimed by the assessee would, therefore, be allowable as revenue expenses. We, therefore, reverse the orders of the authorities below in this regard and direct the allowance of the expenses claimed in toto.”

3. It will be seen from the above finding recorded by the Tribunal that the establishment at Naini is not an independent unit but just an expansion of the existing business.

In view of this finding of fact, we answer the question in the affirmative and in favour of the assessee.

[Citation : 175 ITR 215]

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