Judgment:
B.P. Jeevan Reddy, C.J.
1. Under Section 256(1) of the Income-tax Act, 1961, the Tribunal has stated the following question at the instance of the Revenue :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the order of the Appellate Assistant Commissioner in that the interest amounting to Rs. 15,642 was allowable as business expenditure ?'
2. The assessee is a registered firm. It was engaged in the business of expanding of iron metal by mechanical process and its supply. It started a new business of manufacture of rubber products under the name and style of M/s. Lokesh Rubber Industries. For that purpose, it raised a loan of Rs. 1,56,452. During the accounting year relevant to the assessment year concerned herein (assessment year 1976-77), the rubber factory did not work. The assessee claimed deduction for the amount paid by way of interest on the said loan which was disallowed by the Income-tax Officer. On appeal, however, the Appellate Assistant Commissioner allowed the deduction which has been confirmed in appeal.
3. The contention of, the Department is that the interest should go along, with the capital expenditure and must constitute 'actual cost' for the purpose of development expenditure, etc. It says the said interest cannot be given deduction out of the income derived from the metal unit.
4. We are unable to agree. The assessee is one. He may have set up a new factory but the assessment is not made unit-wise but assessee-wise. There is no rule which compels him to include the said amount in the capital expenditure or to capitalise the same. He is entitled to deduct the said amount from out of his income. May be, that some other course was available to him but since he has chosen to adopt this course, there can be no legal objection thereto.
5. A Division Bench of this court has also taken a similar view in Prem Spinning and Weaving Mills Co. Ltd. v. CIT : [1975]98ITR20(All) . That was a case where the assessee-company was running a spinning and weaving mill. It wanted to set up a strawboard manufacturing factory. For that purpose it raised a loan of rupees seven and half lakhs from the U. P. Financial Corporation. During the relevant year, the assessee incurred an expenditure of Rs. 38,450 towards interest, stamp and registration charges and legal charges, etc., and it claimed to deduct the same out of its income. This court held that the assessee was entitled to do so. It was pointed out that, according to the memorandum of association of the assessee-company, it was entitled to set up a new unit for manufacture of straw-board. In this case also, it is found by the Tribunal that the partnership deed empowered the partners to carry on any other business if they so desire.
6. Accordingly, the question referred is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.