MIS VEECUMSEES, MADRAS versus COMMISSIONER OF INCOME TAX, MADRAS

Citation: [1996] SUPP. 2 S.C.R. 60 · Decided: 26-04-1996 · Supreme Court of India · Bench: S.P. BHARUCHA, G.B. PATTANAIK · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
MIS VEECUMSEES, MADRAS 
v. 
COMMISSIONER OF INCOME TAX, MADRAS 
APRIL 26, 1996 
B 
[S.P. BHARUCHA AND G.B. PATTANAIK, JJ.J 
Income Tax Act, 1961.: 
S. 36(I)(iiij-Assessment years 1967-68, 1968-69 and 1969- 70-Inter-
C est on loans borrowed-A/lowing of under the head business--Assessee run-
ning a composite business of jewellery and exhibition of cinematographic 
films-Loan borrowed for the business of exhibition of cinematograph 
films-Allowed by the Appellate Assistant Commissioner and upheld by the 
Tribunal-High Court disallowing the claim-On appeal, held : Transferring 
or closing down of the said business did not alter the fact that the loans had, 
D when obtained, been for the assessee's business-Test of 
1'same business" 
appropriate for set off carry forward losses is not appropriate in this case-Fur-
ther Tribunal found that the business carried 011 was a composite busi-
ness-Hence assessee entitled to the deduction of interest paid on the loans. 
E 
B.R. Ltd. v. V.P. Gupta, Commissioner of Income-Tax, Bombay, 113 
!TR 647 and Produce Exchange Corporation Ltd. v. CIT, (1970) 77 !TR 739, 
referred to. 
F 
G 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7660-62 
of 1996. 
From the Judgment and Order dated 13.12.83 of the Madras High 
Court in T.C. Nos. 18-20 of 1979. -
M. Uttam Reddy, AV. Rangam and A. Ranganathan for the Appel-
lants. 
Dr. G. Ganrishanker, S. Rajappa and S.N. Terdol for the Respon-
dent. 
The following Order of the Court was delivered : 
H 
Leave granted. 
, 
w 
.. 
VEECUMSEES v. C.l.T 
61 
·We are concerned with the following questions, which were A 
answered, in the judgment and order of the High Court at Madras which 
is under appeal, in the negative and in favour of the Revenue. 
1. Whether, on the facts and in the circumstances of the case, and 
having regard to the provisions of Section 36(1)(iii) of the Income 
Tax Act, 1961, the Appellate Tribunal was right in holding that the 
interest attributable to the loans borrowed by the assessee firm for 
the purpose of construction of Safire Theatre should be allowed 
under the head "business" especially when the theatre complex was 
sold as a going concern on 31.7.1965 and the business of exhibition 
of cinematographic films stopped on and from 31.7.1965 ? 
2. Whether the conclusion of the Appellate Tribunal that the 
business carried on by the assessee as jewellers and in the running 
of the cinema theatre, restaurant, etc., are composite is based on 
valid materials and is a reasonable view to take on the facts and 
in the circumstances of the case ?" 
The assessment years with which we are concerned are Assessment 
Years 1967-68, 1968-69 and 1969-70. 
B 
c 
D 
The assessee ran a jewellery business. It then commenced business E 
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 31st July, 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 F 
36(1)(iii) of the Income Tax Act, that is to say, as being the amount of 
interest paid in respect of capital borrowed for the purpose of the 
assessee's business. For the years in question, however, the Income Tax 
Officer declined that deduction on the ground that the business of exhibi-
tion of films in the said theatre was no longer in existence; therefore, the G 
=--o 
interest on borrowings attributable to this particular business could not be 
_ allowed as a deduction in computing the profits of the other business of 
the assessee. In appeal the Appellate Assistant Commissioner allowed the 
deduction as claimed by the assessee. 
The Income Tax Appellate Tribunal noted the facts aforementioned H 
62 
SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R. 
A 
and found that there was no dispute that for the construction of the said 
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. The assessee 
had admittedly paid the interest in question for the years under appeal in 
B 
respect of the loans which had been obtained for the purpose of investing 
in the business of exhibition of films. The Appellate Assistant Commis-
sioner ha

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