1999-VIL-253-GUJ-DT

Equivalent Citation: [1999] 157 CTR 177

GUJARAT HIGH COURT

Tax Appeal No. 102 of 1999

Date: 26.10.1999

DEPUTY COMMISSIONER OF INCOME TAX

Vs

PATIDAR GINNING & PRESSING CO.

Manish R. Bhatt, for the Petitioner.
Mehta, for the Respondent.

BENCH

B. C. PATEL and P. B. MAJMUDAR, JJ.

JUDGMENT

By the Court.-Being aggrieved by the order passed by the Tribunal, Ahmedabad Bench, on 20th Oct., 1998, in IT Appln. No. 1470/Ahd/1993, Dy. CIT (Asst.), Spl. Range-2, Surat, has preferred this appeal under s. 260A of the IT Act, 1961.

2. According to the Revenue, the Tribunal has committed grave error in rendering the decision. Two questions suggested by the Revenue before the Tribunal, said to be raising important questions of law, are as under :

(i). "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the bad debt claim of Rs. 42,38,439 of the assessee is admissible on the ground that old business should be deemed to continue despite its closure as per resolution of Board of Directors dt. 31st July, 1987 ?"

(ii). "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that it is enough if the assessee writes off the debt as bad in its books of accounts and the assessee-company need not establish the debt to have become bad ?"

3. It appears from the assessment order that in response to notice, chartered accountant along with the accountant appeared before the AO with books of accounts, bills, vouchers, etc. The same were produced before the AO. It also appears from the assessment order that the company had a ginning mill at Bardoli. However, the assessee-company came in financial difficulty and it had stopped its activities of ginning and pressing, and before the commencement of the year, engaged itself in the process of selling cotton. It appears from the order of the Tribunal that the assessee stopped its ginning and pressing activities and engaged itself in the business of purchase and sale of cotton due to pressing circumstances existing at the relevant time. It was pointed out that selling cotton was not different from the activity of selling cotton after ginning and pressing and both the activities were conducted by the same management with the help of the same funds under the same control and that has been reflected in the balance sheet as well.

4. Before us, it was contended on behalf of the Revenue that a resolution was passed by the company indicating that it has stopped its ginning and pressing activities and after some time, as new business activities commenced, the company was not entitled to claim the benefit. It was submitted that suits have been filed for recovery of the amount stated to be bad debt, and, therefore, the amount could not have been shown as bad debts. According to the learned counsel, Mr. Nayak, the said amount could not have been written off as bad debts. He further submitted that the order of the Tribunal is bad on two grounds; firstly, the company closed its business, and, secondly, as suits were filed for recovery of amount, it cannot be said that the amount which is to be recovered is bad debts.

5. The Tribunal has arrived at a conclusion on appreciation of the material placed before it and also relying on the decision of the apex Court.

6. Before us it was submitted by Mr. Mehta that in the instant case, in view of the decision of this Court in the case of Bansidhar (P) Ltd. vs. CIT (1981) 20 CTR (Guj) 90: (1981) 127 ITR 65(Guj) : TC 16R.1519, interference by this Court is not called for. He submitted that merely because there was closure of ginning and pressing activities, it would not mean that there was complete closure of the business. The fact that the closure of one business did not affect or lead to closure of other business cannot be said to be of much consequences when different business activities were carried out by the assessee. All activities constituted one and the same business, and the write off of its outstanding dues as bad debts in the other were allowable deductions.

7. The Tribunal also considered the decision of the apex Court in the case of Veecumsees vs. CIT (1996) 133 CTR (SC) 500: (1996) 220 ITR 185(SC) : TC S.15.1572. In that case, the Tribunal found that the business carried on by the assessee as a jeweller and running of cinemas, restaurant, etc. were composite and the assessee was carrying on both the business in jewellery and in the activity of exhibition of films till 31st July, 1965, and thereafter the activity of exhibition of films discontinued. The liability to pay interest had arisen in respect of the business carried on by the assessee till 31st July, 1965. The High Court came to the conclusion that since the closing of the cinema business had not affected the assessee's old business in jewellery, there was no interconnection, interlacing or interdependence between the jewellery business and the cinema business and, therefore, it was not possible to say that both the business constituted a composite or the same business.

8. In appeal, the apex Court held that such interest has to be treated as a deduction under s. 36(1)(iii) of the Act. The loan had been obtained for the purpose of constructing the theatre and at the time when the loan was obtained the said theatre was a part of the business of the assessee. The apex Court held that 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. Apart from this, the Tribunal found as a fact that the business carried on by the assessee as a jeweller and in running the cinema theatre, etc. was composite. The apex Court, therefore, held that in view of this also, the assessee was entitled to deduction of interest paid on the loans in question.

9. Mr. Mehta submitted that in the instant case, the same company was carrying on three-fold activities before commencement of the year, namely, ginning, pressing and selling of cotton. Out of the three, the company stopped two of its activities, namely, ginning and pressing. He, therefore, submitted that the Tribunal has committed no error whatsoever and no question of law arises in the instant case.

10. After going through the decision of the Tribunal and the aforesaid judgments, we are of the view that no interference is called for. Hence, this appeal is dismissed. Notice is discharged.

 

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