Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income-Tax vs New Commercial Mills on 9 November, 1993
Equivalent citations: [1994]49ITD506(AHD)
ORDER
B.M. Kothari, Accountant Member
1. These appeals are directed against the orders passed by the learned CIT (Appeals), Ahmedabad, Shri G.B. Parida, for assessment years 1985-86 and 1986-87.
2. The brief facts relevant for all the grounds raised by the revenue in these appeals are as under : The assessee is a public limited company incorporated in the year 1969 with the object of carrying on the business of manufacturers and dealers in cloth. The company carried on manufacturing operations up to the year 1980. On account of serious recession in the textile industry throughout the country and particularly in Gujarat, the assessee-company sold its land, building and machinery on 24-11-1980 at Rs. 3.05 crores to one M/s Bharat Vijay Mills Ltd. (for short 'M/s BVM'). The company received Rs. 25 lakhs as down payment and the balance amount was receivable in 28 equal quarterly installments along with interest. The aggregate amount of interest payable on the instilments was Rs. 2.18 crores. The company also executed a separate agreement dated 22-10-1980 by which it leased out its registered trade mark "Gopi" to M/s BVM for 4 years and the royalty payable for each quarter was to be calculated with reference to the cloth on which the trade mark was used. The company received Rs. 62 lakhs as advance license fee which was required to be adjusted against royalty/license fee payable for user of the trade mark 'Gopi' over the period of four years.
2.1 The company, after the sale of the land, building, machinery, etc. in the year 1980, earned income from sale of cloth to some extent, royalty/ licence fees from the leasing of the trade mark 'Gopi', interest income received/receivable from M/s BVM on the deferred payment of instalments towards the sale proceeds of the fixed assets and some other miscellaneous income. For assessment years 1982-83 to 1984-85 the assessee-company was being assessed on these incomes by treating the same as income from business and the benefit of carry forward of past unabsorbed depreciation and unabsorbed business losses were allowed to be carried forward and set off against the income of the aforesaid earlier years.
3. Appeal for assessment year 1985-86: In the year under consideration i.e., 1985-86, the assessment records were transferred from the ITO to the Dy. CIT (Asstt.) who came to the conclusion that the company had discontinued its business at the time of sale of its fixed assets and income derived thereafter by way of interest from investments, royalty from trade mark, etc. was assessable under the head "Income from other sources" and not as "Profits and gains of business". He, therefore, did not allow the benefit of carry forward and set off of unabsorbed depreciation and business loss of earlier years against the income of the year under consideration, which was assessed by him as income from 'other sources'.
4. The learned CIT (Appeals) considered the arguments advanced on behalf of the assessee at considerable length and gave a very thoughtful consideration to all the submissions made on behalf of the assessee as well as the elaborate reasons given in the assessment order. He then arrived at the conclusion in para 14 of his order that so far as unabsorbed depreciation of earlier years against the income of this year, irrespective of whether such income is assessable as business income or income from other sources, is concerned, the same would be eligible to be set off against any income assessed under any head of income in view of the judgment of Hon'ble. Gujarat High Court in the case of CIT v. Deepak Textile Industries Ltd. [1987] 168 ITR 773.
4.1 Thereafter the CIT (Appeals) considered the question as to whether the licence fee/royalty received on exploitation of the trade mark 'Gopi' could be regarded as business income or not. After elaborate discussion, he came to the conclusion that income earned from exploitation of the commercial asset, ie., trade mark "Gopi Fabrics" is business income and it arose from the same business of which it was a part.
4.2 The learned CIT (Appeals) thereafter considered the question whether interest earned on unpaid sale price of the fixed assets from M/s BVM is business income or not. He considered this matter at pages 20 to 22 of his order and arrived at the conclusion that the interest income derived from unpaid sale proceeds of the fixed assets should be treated as income from the same business.
4.3 The learned CIT (Appeals) then considered as to whether the trading in cloth on a small scale done in the year under consideration should be treated as a business activity or not. He observed that in order to decide this question one has to understand the reason for which the manufacturing business in textile industry was closed. The manufacturing activity was closed and the fixed assets were sold to meet the challenge caused by general recession in the textile industry and to obviate further loss. He then came to the conclusion that the company never had the intention to permanently closing the business nor they thought of winding up of the company. This activity was also, therefore, held to be a part of the same business activity. He also observed that the assessee-company had been carrying on the business of trading in cloth even while it was carrying on manufacturing-activity. The income derived from small quantum of trading done in assessment years 1982-83 to 1984-85 was also treated as income from business.
4.4 In para 20 the CIT (Appeals) deleted the addition of Rs. 10 lakhs made on account of estimated royalty income from the leasing out of the trade mark 'Gopi Fabrics'. It was observed that since M/s BVM did not exercise the option to extend the period of licence beyond the period of 4 years, no such income by way of licence fee or royalty can be presumed to have accrued to the assessee after the expiry of the four years period. Hence the CIT (Appeals) deleted the addition of Rs. 10 lakhs made on account of such hypothetical income.
4.5 The next point dealt with by the CIT (Appeals) in para 22 relates to an addition of Rs. 18,40,610 made in interest income. The amount of interest receivable by the assessee from M/s BVM on the unpaid sale consideration of block of fixed assets was Rs. 31,82,542 as against income of Rs. 13,67,432 included by the assessee for only three quarters in the P & L a/c. The CIT (Appeals) held that the net interest income for the 4th quarter amounting to Rs. 3,82,954 should be added as income of the year. He, however, accepted the assessee's contention that interest demanded by M/s BVM on certain amounts paid by them on behalf of the assessee-company to third parties should be allowed as deduction and only the net interest income should be subjected to tax. Accordingly the addition of Rs. 18,14,610 was reduced to Rs. 3,82,954.
5. The revenue has preferred the present appeal in which all the aforesaid reliefs granted by the CIT (Appeals) have been challenged.
5.1 Before us the learned Sr. D.R. submitted that the assessee-company had sold entire plant and machinery as well as the land and factory building. This obviously resulted in closure of the business of textile industry which was run by the assessee up to the year 1980. The income derived by the assessee thereafter by way of interest on unpaid sale price of fixed assets or licence fee for allowing user of the trade name cannot be regarded as continuation of the same business and such income is not assessable under the head 'Income from business'. The Assessing Officer has given elaborate reasons in the assessment order and the learned CIT (Appeals) ought to have confirmed the findings given by him. He further submitted that the principle of res judicata do not apply to income-tax proceedings. The mere fact that such income was treated as income from business in assessment years 1982-83 to 1984-85 and the assessee was allowed the benefit of carry forward and set off of unabsorbed depreciation and unabsorbed business loss of earlier years in assessment years 1982-83 to 1984-85 would not disentitle the Assessing Officer to examine the point in issue afresh in accordance with the provisions of law. Assessment for each year is separate and distinct and the Assessing Officer was fully justified in giving a fresh look to the same facts once again and the view taken by the Assessing Officer is fully justified and valid.
6. The learned counsel for the assessee supported the order of the CIT (Appeals). He submitted that the learned CIT (Appeals) has considered all the aspects relating to the aforesaid matter and has given elaborate reasons in support of the view taken by him. It is an undisputed fact that the facts pertaining to the year under consideration are absolutely similar as that in assessment years 1982-83 to 1984-85. He invited our attention towards the judgment of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 to support his contention that although strictly speaking, res judicata does not apply to income-tax proceedings, there must be a point of finality in all legal proceedings. In the absence of any change in the facts and the circumstances, the revenue should have felt bound by the previous decisions which still subsists and no attempt should have been made to reopen the same question once again in assessment year 1985-86. The expression "business" has a wider connotation. The assessee was carrying on textile business. Only the mode and method of doing the business has changed. On account of serious recession and crisis in the textile trade, the assessee found it prudent to dispose of the old and out-dated plant and machinery and the factory building to meet the situation created by the serious recession and to obviate further loss. But it continued to do some business by way of trading in cloth. The mere fact that turnover of trading was very small in the year under consideration would not lead to the conclusion that the business was totally discontinued. At the time when the assessee was carrying on the manufacturing activity it also simultaneously carried on the business of trading in cloth and also derived income by way of interest. All such income was assessed to tax under the head 'Income from business'. All those activities were integral part of the composite business carried on by the assessee which continued to remain even after disposal of the fixed assets. He invited our attention towards the decision of the ITAT in the case of Shree Amarsinhji Mills v. Dy. CIT [IT Appeal No. 279 (Ahd.) of 1989 dated 9-3-1992] to support his contention. He also invited our attention towards the judgments in CITv. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC) and B.R. Ltd. v. V.P. Gupta, CIT [1978] 113 ITR 647 (SC). As regards set off allowed in respect of unabsorbed depreciation of earlier years against the income of the year under consideration he submitted that the CIT (Appeals) has rightly accepted the assessee's contention in view of the binding judgment of Hon'ble Gujarat High Court in CITv. Deepak Textile Industries Ltd. [1987] 168 ITR 773. The learned counsel reiterated the same arguments as were advanced on behalf of the assessee before the CIT (Appeals). He urged that the order passed by the CIT (Appeals) requires no interference in relation to the aforesaid points.
6.1 The learned counsel also submitted that the CIT (Appeals) has rightly held that income by way of interest on unpaid purchase price, income by way of licence fee from exploitation of its trade mark 'Gopi', income from small sale of cloth and other miscellaneous income as assessable under the head 'Income from business' and the CIT (Appeals) has also rightly held that the same business continued to exist in the year under consideration as was carried on prior to sale of fixed assets.
6.2 The learned counsel also submitted that the CIT (Appeals) has rightly deleted the addition of Rs. 10 lakhs made on account of hypothetial and estimated royalty income for the use of trade mark 'Gopi'.
6.3 He also supported the order of the CIT (Appeals) directing the ITO to assess only the net amount of interest receivable from M/s BVM. He relied on the detailed reasons mentioned in the order of the CIT (Appeals) in relation to the aforesaid points.
7. We have carefully considered the submissions made by the learned representatives and have also gone through the orders of the departmental authorities as well as all the judgments to which our attention was drawn during the course of hearing. Our findings in relation to the various points requiring our consideration in this appeal are as under :
7.1 The view taken by the learned CIT (Appeals) in para 14 of his order that assessee's claim for set off of the unabsorbed depreciation of earlier years against the income of this year, irrespective of whether such income is assessable as business income or income from other sources is acceptable in view of the decision of the Hon'ble High Court of Gujarat in the case of Deepak Textile Industries Ltd. (supra), requires no interference as the same is clearly and completely supported by the aforesaid judgment of the jurisdictional High Court. The said view taken by the CIT (Appeals) is, therefore, confirmed.
7.2 The next point relates to nature of income by way of licence fee/royalty received on exploitation of the trade mark 'Gopi. The company started manufacturing operations sometime after its incorporation in 1969. It continued up to the year 1980. This trade mark was registered in January 1970. The trade name of a popular product, or the trade mark or a brand name, which has its own goodwill, is a very valuable right or an asset of business which was acquired by the assessee-comapny over a period of several years from the year 1970 to 1980. The income derived by way of exploitation of such a business asset by allowing M/s BVM to use the said trade name is obviously income arising from the same business and has rightly been held to be assessable as income from business. The trade mark "Gopi" was also one of the commercial assets of the company at the time when it was carrying on the manufacturing a tivity and the income derived by the assessee-company from the business of textiles also include income earned as a result of exploitation of the said trade name. The CIT (Appeals) has, therefore, rightly held that such income should be treated as income derived from the same business, as such a trade mark was a part of the commercial asset owned by the company prior to sale of the fixed assets. The CIT (Appeals) has given elaborate reasons and has also relied on several decisions in para 15 of his order for arriving at such a conclusion. We do not find any justification in interfering with such a finding given by the CIT (Appeals).
7.3 The next question which arise for our consideration is whether interest income earned on unpaid sale proceeds of fixed assets from M/s BVM is business income or not. The assessee, in view of the serious recession in the textile industiy, thought it proper to dispose of the manufacturing unit along with land, building and machinery on instalment, basis with a view to fetch better price. The interest income is attributable to the sale of commercial fixed assets of the company. Such interest income has been treated as income from business in assessment years 1982-83 to 1984-85 i.e., after the sale of the factory. Those decisions have become final. The learned Sr. D. R. has not pointed out as to whether any effort was made by the department to cancel those assessments by resort to Section 263 or under any other appropriate provisions of law. The facts pertaining to the year under consideration are identical with the facts as were existing in assessment years 1982-83 to 1984-85. Even at the time when the company was carrying on manufacturing activities, it also derived income by way of interest, which was assessed to tax under the head 'Income from business'. The interest income has increased considerably from assessment year 1982-83 because of the sale of fixed assets to M/s BVM on deferred instalment basis. The CIT (Appeals) has given very convincing reasons in para 16 of his order for holding that such interest income should be treated as coming from the same business and the same should be assessable under the head 'Income from business'. There is absolutely no reason or justification in interfering with such findings given by him.
7.4 Likewise, we also agree that the findings given by the CIT (Appeals) that the trading in cloth, although on a very small scale, in the year under consideration and other miscellaneous income should also be treated as income assessable under the head 'business' and such an activity should be treated as constituting the same business which was carried on by the company prior to the sale of the fixed assets.
7.5 It will also be worthwhile to observe that the company never had any intention to permanently close its business. The fixed assets of the manufacturing unit were sold with a view to meet the serious crisis caused on account of the great recession in the textile industry. The Directors of the company thought it fit that it will be prudent on the part of the company to dispose of the manufacturing unit on such instalment basis. By doing so the company would be able to pay off its secured and unsecured creditors fully and out of the surplus funds arising from these sale proceeds, the company will be able to set up a new process house. Such an intention is clearly borne out from a letter of the Chairman addressed to the shareholders in connection with the extraordinary general meeting scheduled to be held on 24-9-1980 for approving the resolution on the sale of the fixed assets and leasing out the trade mark 'Gopi'. It was one of the prudent ways by which the company wanted to get over the period of crisis and had the intention to restart the manufacturing unit with better technology and to put up 300 art silk mills to produce the blended fabrics. These are all part of important decisions which a trader has to take in view of the compelling reasons and circumstances which the trader has to face at a particular point of time of crisis and problems. In our view the CIT (Appeals) has rightly placed heavy reliance on the said resolution while arriving at the aforesaid conclusions about continuance of the same business and about the assess ability of various items of income under the head 'Income from business'.
7.6 One more reason which has persuaded us to confirm the findings of the CIT (Appeals) is that after the sale of the fixed assets of the manufacturing unit in the year 1980, the income derived by the assessee from similar sources, namely, licence fee from exploitation of trade mark 'Gopi', interest on unpaid sai.e price of fixed assets receivable from M/sBVM, income from dealing in textile goods on a smaller scale, etc. have been treated as income assessable under the head 'Profits and gains of business' and these activities have been treated as constituting the same business. The assessee's claim for grant of carry forward and set off in respect of unabsorbed depreciation and unabsorbed business loss of earlier years has been accepted in assessment years 1982-83 to 1984-85. Nothing has been brought to our notice indicating that the department made any effort to revise, cancel or modify those completed assessments by resort to provisions such as Section 263 or Section 147 or any other provisions of law. It is true that, strictly speaking, res judicata does not apply to income-tax proceedings. Each assessment year being a unit what is decided in one year may not necessarily apply in the following year but where a fundamental aspect permeating through the different years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year. The parties are not permitted to begin fresh litigations because of new views they may entertain of the law in relation to the identical facts of that case or new versons which they present as to what should be a proper comprehension by the authorities of the i.egal result either of the construction of the documents or the weight of certain circumstances. If these were permitted, litigation would have no end except when i.egal ingenuity is exhausted. Such a view is ci.early fortified by the judgment of the Hon'bi.e Supreme Court in the case of Radhasoami Satsang (supra) relied upon by the i.earned counsel for the assessee. The view taken by the CIT (Appeals) deserves confirmation in relation to the aforesaid points in view of the aforesaid principi.es of law setti.ed by the apex court. This disposes of ground Nos. 1 to 4 of the revenue's appeal which have no merit and are accordingly rejected.
8. The next ground, i.e., ground No. 5, deals with the dei.etion of the addition of Rs. 10 lakhs being estimated royalty income for use of trade mark "Gopi Fabrics". The CIT (Appeals) discussed this point elaborately in para 20 of the order passed by him. By agreement dated 22-10-1980, the assessee-company i.eased out the trade mark 'Gopi Fabrics' to M/s BVM for 4 years and quarterly instalments of licence fees was to be calculated with reference to the sai.es made by that company of cloth on which the trade mark was to be used. Advance licence fee to the extent of Rs. 62 lakhs was received by the assessee, which was required to be adjusted against the licence fee payabi.e during the stipulated period of 4 years in which the trade mark was to be exploited. M/s BVM had the option to extend the period of licence for a further period not exceeding 4 years on the same terms and conditions. Such an option was not exercised by M/s BVM. As a result of this fact the licence for user of the trade mark automatically lapsed and the last instalment of the licence fee for the quarter ended on 30-9-1984 was determined with reference to the sai.es and was limited to Rs. 4,46,977 being the amount equal to the unadjusted advance licence fees received earlier. The CIT (Appeals) held that since the agreement lapsed after the expiry of the stipulated period of 4 years of i.ease and it was not renewed, there was no valid scope for holding that the licence fee for the remaining two quarters, i.e., from 1-10-1984 to 31-3-1985 accrued to the assessee-company. Such a view taken by the CIT (Appeals) is perfectly valid and justified. No such addition could have been validly made in respect of a notional or hypothetical income, which in fact did not accrue or materialise to the assessee. The view taken by the CIT (Appeals) in relation to this point is also, therefore, confirmed.
9. The last ground taken by the revenue relates to reducing the addition on account of interest income receivable from M/s BVM from Rs. 18,14,610 to Rs. 3,82,954. The Assessing Officer has discussed this point in para 9 of the assessment order. The assessee was entiti.ed to receive interest from M/s BVM on the deferred amount of sai.e consideration in quarterly instalments as per the agreement of sai.e of fixed assets made to them. The assessee-company accounted for only the net amount of interest after adjustment of interest on certain expenses incurred for the assessee by M/s BVM, for three quarters only as under :
24-5-1984 Rs. 4,90,791
24-8-1984 Rs. 4,69,292
24-11-1984 Rs. 4,07,921
The assessee-company, in a note, submitted that the net amount of interest accrued for the fourth quarter from 25-11-1984 to 25-2-1985 was Rs. 3,82,954. In the said note it was also stated that the company is in dispute with M/s BVM and a suit was fii.ed in the City Civil Court as regards non-payment of instalments of interest. It was also stated that interest will be offered for taxation only after a consent decree is made by the court. The ITO observed that since the company has maintained books of account on mercantii.e basis and the interest has accrued as per the agreement with M/s BVM, the entire interest income is taxabi.e on accrual basis in the year under consideration. The claim for interest adjusted by M/s BVM on the amounts paid by them on behalf of the assessee-company to third parties is neither contractual nor it has been admitted by the assessee-company. The claim of interest by M/s BVM is, therefore, only a contingent liability. The ITO thereafter determined the amount of addition required to be made in the declared figure of interest income shown in the profit and loss account as under :
Date Amount
Rs.
25-4-1984 8,59,552
24-8-1984 8,18,196
24-11-1984 7,74,978
24-2-1985 7,29,816
31,82,542
less : Interest
shown as per
P&L a/c 13,67,932
18,14,610
10. The CIT (Appeals) observed that the aggregate amount of interest receivabi.e for the four quarterly instalments during the year was Rs. 31,82,542. M/s BVM was paying on behalf of the assessee certain amount to third parties against the assessee's statutory liabilities and for other obligations. M/s BVM was, therefore, calculating interest payabi.e by the assessee on the payments made on its behalf at the same rate at which it was required to pay interest on the unpaid sai.e proceeds of the fixed assets'. Credit note was accordingly passed by M/s BVM in favour of the assessee only in respect of the net amount of interest in each quarter. There is no dispute that the interest was payabi.e at the rate of 18% by the assessee on the advance taken of Rs. 28,34,000 on the date of the sai.e of the fixed assets. However, the assessee was disputing the charging of interest by M/s BVM on the amounts paid directly on its behalf out of the principal amount payabi.e in each instalment. Suit was fii.ed in the City Civil Court and the matter was finally setti.ed amicably in the accounting year rei.evant to assessment year 1987-88. The CIT (Appeals) held that net interest has been offered by the assessee all along in the past and the same has been accepted by the department as the correct interest income. This issue became final inasmuch as even after the revision order under Section 263, the Dy. CIT has taken the net interest and this issue was neither raised nor disturbed by the CIT. The assessee has submitted a chart showing details relating to such net interest income shown by the assessee with respect to M/s BVM starting from quarter ended on 24-2-1981 to 24-11-1984. It has been mentioned that interest charged by M/s BVM on Rs. 28.34 lakhs on the loan advanced by them at the time of sai.e of fixed assets, is an undisputed amount of interest payabi.e by the assessee to M/ s BVM. Interest on current account charged by M/s BVM was disputed by the assessee. The aggregate of these two interests payabi.e to M/s BVM was reduced out of the amount of interest payabi.e by M/s BVM to the assessee on the unpaid sai.e price of the fixed assets and thereafter the net amount of interest was credited in the profit and loss account of all the rei.evant years. It has been further stated that when the matter was finally setti.ed the assessee has offered for taxation under Section 41(1) in assessment year 1987-88 an amount of Rs. 36,56,000. The i.earned counsel, therefore, submitted that only the year of taxability of the interest income or the deductibility of interest expenditure is in dispute and their allowability is not at all in dispute. In the case of a company where the tax rate is uniform it will be of no significance either to the assessee or to the revenue if it has been finally taxed in assessment year 1987-88 when the matter was mutually setti.ed in accordance with the consent terms submitted before the Ahmedabad City Civil Court.
11. After a careful consideration of the entire facts and circumstances of the case, we are of the considered opinion that interest income receivable by the assessee from M/s BVM on the unpaid amount of sai.e consideration of the fixed assets accrued in favour of the assessee in accordance with the agreement executed between the assessee and M/s BVM. The total amount of interest income pertaining to the year under consideration amounting to Rs. 31,82,542 is, therefore, chargeabi.e to tax as income of the year under consideration.
11.1 However, the interest payable by the assessee to M/s BVM on the amount of loan of Rs. 28.30 lakhs as well as interest on payments made on behalf of the assessee by M/s BVM and debited in the current, account ought to have been considered separately. The deduction in respect of interest expenditure can be allowed as deduction only if the assessee can show that on the basis of any subsisting contract or agreement (whether oral or written agreement) between the parties such interest was payabi.e by the assessee to M/s BVM. The Assessing Officer will also have to consider the effect of the fact that the assessee is itself disputing the liability for payment of interest at i.east in respect of interest on debits in the current account and a suit has been fii.ed in the City Civil Court. For deciding this issue it may perhaps be necessary to examine the effect of Section 34(1) of the Civil Procedure Code dealing with award of interest from the date of the suit till the date of decree. In this connection it may be rei.evant to consider the rei.evant judgments of different courts dealing with the accrual of interest in respect of loans for which suits have been fii.ed. For exampi.e, CITv. U.P. Financial Corpn., CITv. NaskarparaJute Mills Co. Ltd. 11983] 141 ITR 384 (Cal.). Since the copy of the suit fii.ed by the assessee disputing the liability was not availabi.e in the compilation submitted before us nor the departmental authorities had an occasion to go through the plaint and the reply of the respondent in the civil case it would be just and proper to set aside this issue and restore the same back to the Assessing Officer for examining all the rei.evant facts and circumstances pertaining to this claim. The matter relating to allowability of interest payabi.e to M/s BVM is, therefore, restored back to the Assessing Officer with a direction that the matter will be decided afresh in accordance with the provisions of law after giving reasonabi.e opportunity to the assessee. It may also be clarified that in case the amount in question has already been subjected to tax in assessment year 1987-88, any decision by the Assessing Officer should not result in i.evy of tax on the same amount of income in more than one year. The Assessing Officer may also examine as to whether the shifting of the year of allowability of such interest expenditure from the year under consideration to assessment year 1987-88 will result in any gain to the revenue. If there is no gain by shifting of the year of its allowability the expenditure in question should be allowed in the year under consideration in view of the observations of the Hon'bi.e Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. [ 1958] 33 ITR 681. With these observations this issue is restored back to the Assessing Officer for deciding the same afresh in accordance with the provisions of law and after giving proper opportunity to the assessee.
12. Now we will consider the revenue's appeal for assessment year 1986-87. The first ground is that the CIT(A) has erred in directing the ITO to tax only the net interest of Rs. 10,49,462 in the hands of the assessee-company and not the gross of interest. This point is identical as in the preceding year. We have considered and decided this point whii.e dealing with ground No. 6 of revenue's appeal for assessment year 1985-86. It has been held that interest income receivabi.e by the assessee-company from M/s BVM in relation to unpaid sai.e proceeds of the fixed assets should be charged to tax on accrual basis as per the agreement executed with them. However, in respect of interest payabi.e by the assessee-company to M/s BVM. the matter has been restored back to the Assessing Officer for deciding the same afresh in accordance with the provisions of law and in accordance with the guidelines given therein. On similar reasoning this issue is restored back to the Assessing Officer for deciding the same afresh after providing reasonabi.e opportunity to the assessee.
13. In ground No. 2 it has been stated that the CIT(A) has erred in directing that the interest income earned on unpaid sai.e proceeds of the fixed assets should be treated as business income and that the unabsorbed depreciation and carried forward loss should be set off against whatever income assessed. This ground has been decided in favour of the assessee and a similar ground taken by the revenue in assessment year 1985-86 has been rejected. On same reasonings ground No. 2 is rejected.
14. In ground No. 3, it has been mentioned that the CIT(A) has erred in holding that the entire expenditure claimed by the assessee-company except Rs. 7,200 incurred on the maintenance of a guest house should be allowed. This point has been dealt with by the CIT(A) in para 6 of his order. The CIT(A) has observed that since it has been held that the assessee still continues to carry on the same business all the expenses other than those not specifically allowable under the provisions of Income-tax Act should be allowed as deduction. He, however, observed that rent for guest house of Rs. 7,200 has to be disallowed under Section 37(4).
15. We have already confirmed the finding given by the CIT(A) holding that the assessee still continues to carry on the same business. Therefore, the direction given by him to allow all expenses which are allowable under the provisions of law is perfectly valid and requires no interference.
16. Both the appeals are treated as partly allowed for statistical purposes.