Dipak Kumar Sen, J.:— The facts found and/or admitted in these proceedings may shortly be stated as follows: Messrs. J.K Industries (P) Ltd., Calcutta, the assessee, purchased a plot of land measuring about 20 cottahs on Chowringhee Road, Calcutta, on the 28th November, 1960, at a cost of Rs. 6,13,013 pursuant to a resolution of its board of directors dated the 24th August, 1960. For the aforesaid purpose, the assessee borrowed a sum of Rs. 4,50,000 from the Hindusthan Commercial Bank Ltd. In the assessment years 1961-62 to 1964-65, the relevant financial years being 1960-61 to 1963-64, the assessee claimed deduction of the interest paid to the said bank against the aforesaid loan each year as also municipal tax paid on the land for the purpose of computation of its business profits. The assessee contended that its object in purchasing the said land was to construct a multistoreyed building where it could set up its own office as also the offices of several companies managed by it. In the assessment year 1961-62, i.e, accounting year 1960-61, the assessee claimed a further deduction of Rs. 9,206, allegedly incurred as renovation expenses in respect of its office premises which included the cost of panelling the walls with plywoods, cost of a notice board and book case and the cost of installing the said book case and a safe.

2. In the assessment year 1961-62, the ITO allowed the claim of the assessee in respect of the interest paid to the bank as also the municipal tax paid in respect of the said land but disallowed the assessee's claim for renovation on the ground that the expenses incurred were capital in nature. On appeal, the AAC gave notice to the assessee and the municipal tax should not be disallowed (sic). The AAC found that between the assessment and the appeal the assessee had not taken any steps in furtherance of its purported objective and the scheme of the assessee to have a multistoreyed building was not even in a blue-print stage. He held further that, even if the avowed object of the assessee was accepted, it followed that the assessee had acquired an investment mainly to derive income from property, and, therefore, the interest paid to the bank and the municipal tax paid could not be deducted as having been incurred for the purpose of the business of the assessee. He disallowed the deductions claimed for the interest as also for the municipal tax in all the assessment years. On the claim for deduction of renovation expenses, the AAC allowed an estimated amount of Rs. 4,000.

3. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. The Tribunal found, inter alia, that:

(a) The expenses in question, i.e, the interest paid to the bank and the municipal tax paid had, admittedly been incurred in the course of the carrying on of the assessee's existing business.

(b) The primary object for the proposed construction of the multi-storeyed building was to house the office of the assessee and those of the managed companies.

(c) The assessee had refused accommodation to the State Bank of India which wanted to hire the ground floor of the proposed building.

4. The Tribunal considered a blue-print of the proposed multi-storeyed building prepared by the architects of the assessee and a copy of the letter of the architects dated the 18th November, 1964, addressed to the managing director of the assessee. By reason of the aforesaid, the Tribunal held that the amount of the borrowed capital had been utilised by the assessee for acquiring a business asset for the purpose of its own business as well as for that of its managed companies. Following Calico Dyeing and Printing Works v. CIT, [1958] 34 ITR 265 (Bom), the Tribunal held that the interest paid on the borrowed amount as also the incidental expenses like municipal tax must be allowed under s. 10(2)(iii) of the Indian I.T Act, 1922, as legitimate business expenses.

5. The Tribunal found further that the major part of the expenses incurred by the assessee for renovation of its office building had been incurred on the veneer panelling of walls, which cost Rs. 3,575. Following the decision of the Punjab High Court in Regal Theatre v. CIT, [1966] 59 ITR 449, the Tribunal held that such expenses could not be treated as expenses of a capital nature as the panelling was not of an enduring nature and did not last long. The expenses incurred for making and installing the notice board, the book case and the safe were, however, held not to be revenue expenses and were disallowed.

6. At the instance of the Commissioner, the Tribunal under s. 66(1) of the Indian I.T Act, 1922, and s. 256(1) of the I.T Act, 1961, has drawn up a statement of case and referred the following questions as questions of law arising from its aforesaid order:

For the assessment years 1961-62 to 1964-65:

“(1) Whether, on the facts and circumstances of the case, the assessee is entitled to the deduction of the amounts of interest set out earlier, viz., Rs. 42,911, Rs. 31,575, Rs. 32,868 and Rs. 31,315, respectively, in the computation of its profits for the assessment years 1961-62 to 1964-65 as interest on capital borrowed for the purposes of the assessee's business under section 10(2)(iii)/section 36(1)(iii) of the Income-tax Act, 1922/1961?

(2) Whether, on the facts and circumstances of the case, the municipal taxes paid by the assessee (as set out in para. 3 above) can be deducted as legitimate business expenses in respect of each of the assessment years 1961-62 to 1964-65?”

For the assessment year 1961-62:

“Whether, on the facts and circumstances of the case, the expenditure of Rs. 4,796 incurred by the assessee is deductible as revenue expenditure in the computation of its business profits for the assessment year 1961-62?”

7. There was another controversy in the assessment year 1964-65. In the relevant accounting year, that is, 1963-64, the assessee received a total gross dividend of Rs. 1,49,110 from other companies. The assessee's income under s. 56 of the I.T Act, 1961, was computed by the ITO to be Rs. 90,583, by adding the interest and the dividend received by the assessee and deducting the entire interest paid. While charging super-tax on the total income of the assessee the ITO allowed rebate under s. 99(1) of the I.T Act, 1961, in respect of only the sum of Rs. 90,583, and not on the gross dividend received as claimed by the assessee. The AAC upheld the rebate as allowed by the ITO. On further appeal, the Tribunal accepted the assessee's contention and held that rebate under s. 99(1) should be allowed in respect of the entire amount of gross dividend and not the dividend as computed.

8. At the instance of the Commissioner, the following question has also been referred as a question of law:

“Whether, on the facts and circumstances of the case, the assessee is entitled to claim rebate of super-tax under section 99(1)(iv) of the Income-tax Act, 1961, on the entire amount of dividends received by it, viz., Rs. 1,49,110 or only on the above amount less the deductions allowable thereagainst under section 56(2)?”

9. The above question appears to us to be covered by a decision of this court in CIT v. Darbhanga Marketing Co. Ltd., [1971] 80 ITR 72. Following the same, we answer this question in the affirmative and in favour of the assessee.

10. On the questions relating to the assessee's claim for deduction of interest paid on capital borrowed and municipal taxes, Mr. Suhas Sen, learned counsel for the revenue, contended at the hearing that the specific finding of the Tribunal was that the multi-storeyed building proposed to be built on the land was meant to house the office of the assessee as also the offices of the managed companies and, therefore, it could not be said that the object of the assessee in borrowing the capital was for its own business purpose. He submitted that housing of the managed companies was not the business of the assessee. Section 10(2)(iii) or s. 36(1)(iii) did not apply to the facts of this case and the assessee could not claim any deduction thereunder.

11. Mr. Sen contended further that interest paid on capital borrowed for the purpose of acquisition and construction of house property was specifically deductible in computing income from house property under s. 24 of the I.T Act, 1961. The assessee could claim deduction of interest paid only under this head and not as a business expenditure.

12. In support of his contentions, Mr. Sen cited the following decisions:

(a) Commissioner Of Income Tax… v. United Breweries…., [1973] 89 ITR 17 (Mys). The facts of this case were that the assessee, a public limited company, carried on the business of manufacture and sale of beer. During the relevant assessment years the assessee borrowed money on interest. It also advanced moneys to its subsidiary companies without interest. The ITO held that since interest was not charged by the assessee on advances made by it to its subsidiaries, a part of the interest paid on the amounts borrowed by the assessee was for a non-business purpose and was not allowable as a deduction under s. 36(1)(iii). The Tribunal, however, held that the assessee carried on its business through the agency or medium of its subsidiaries and there was no distinction between the activities of the assessee-company and those of its subsidiaries. On a reference, the Mysore High Court held that there was no material for the Tribunal to hold that the assessee carried on its business through the agency of its subsidiaries and that the business carried on by the subsidiaries was that of the assessee. The contentions of the revenue were upheld.

(b) Addl. CIT v. Laxmi Agents Pvt. Ltd. (see p. 227 infra). In this case, it was found by the Tribunal that the assessee borrowed money and invested in shares of its managed company with a view to protect its managing agency business. The Tribunal concluded that the main object of this investment was for the purpose of the assessee's business and not to earn dividend. The Gujarat High Court upheld the decision of the Tribunal and observed as follows (see p 236 infra):

“If once it is established that capital was borrowed for the purpose of business, it is immaterial how that borrowed capital was applied because all that cl. (iii) of s. 36(1) requires is that borrowings, on which interest is paid, should be for the purpose of business.”

“……The expression ‘purposes of business’ is comprehensive enough to cover expenditure of revenue nature as well as of capital nature because, both the types of expenditure can be incurred for business purposes. Therefore, even if a borrowing is made for incurring an expenditure of capital nature, it remains the borrowing for a business purpose. If that is so, the requirements of section 10(2)(iii) of the Act of 1922 are fully. satisfied and interest paid on such borrowing is entitled to deduction as revenue expenditure……”

(c) M.S.P Raja v. CIT, [1976] 105 ITR 295 (Mad). The facts of this case were that the assessees constituted a partnership for the purpose of raising coffee. The capital of this new firm was provided by withdrawal by the assessees from another partnership firm where the assessees were partners and where they had a running current account. The assessee claimed deduction of the interest charged by the firm from where the money had been withdrawn. The ITO disallowed the claim on the ground that the money was borrowed for purchase of an agricultural estate and not for a business purpose. It was held by the Madras High Court on reference that the assessee did not carry on a single business and,- therefore, the assessee was not eligible for deduction of the interest paid under s. 36(1)(iii) of the Act, as the interest had been paid on moneys invested on agricultural land which was not “business” within the meaning of the I.T Act, 1961.

13. Mr. Sukumar Bhattacharyya, learned counsel for the assessee, has contended before us that it has been found as a fact by the Tribunal that the assessee has utilised the capital borrowed in acquiring a business asset. This finding has not been challenged by the revenue and, therefore, the question must be answered in favour of the assessee. He contended further that the two admitted objects of the assessee in acquiring this capital asset were: (a) the purpose of its own business; and (b) the business of the managed companies to the extent that the assessee intended to house the offices of the managed companies in the same building. These objects undoubtedly were included in the phrase “for the purpose of business” of the assessee.

14. Mr. Bhattacharyya cited CIT v. J.K Industries (P.) Ltd., [1969] 71 ITR 594 (Cal) in support of his contentions. In this case relating to the present assessee, one of the directors of the assessee had been sent to Europe to explore the possibilities of technical and financial collaboration with foreign concerns in the matter of manufacture of paints, cranes and conveyance equipments and also to acquire technical knowedge about the manufacture of paints, ropes and some other items. The expenses of this foreign tour were disallowed by the ITO on the ground that the same were not incurred for the purpose of the assessee's business. It was held by this court on a reference that by reason of such expenses certain assets of enduring benefit might have accrued to the managed companies but the purpose for which the managing agent incurred these expenses was to increase its own earnings and augmenting the commission derived from the managed companies and, therefore, such expenses were allowable as business expenditure of the assessee under s. 10(2)(xv).

15. Mr. Bhattacharyya further contended that at no stage prior to the present reference it had been contended on behalf of the revenue that the business of the managed companies had no connection with the business of the assessee and it was not open to the revenue to raise this question at the reference. Mr. Bhattacharyya contended that s. 24 of the I.T Act, 1961, had no application in the instant case inasmuch as the section provided for deductions from income from house property. In the instant case during the relevant assessment years the assessee did not have any house property at all and the proposed multi-storeyed building was not even in a blue-print stage.

16. The contentions of the assessee appears to us to be not without substance. It has been found by the Tribunal that with the capital borrowed the assessee had acquired a business asset for the purpose of its own business. Further finding is that it was the object of the assessee to house its own office as also the offices of the companies managed by it. These findings have not been challenged nor was it contended at any stage that the housing of the offices of the managed companies was not a part of the business of the assessee. Had this point been mooted at the proper stage the agreements between the assessee and the managed companies could have been considered to ascertain whether the assessee was in any way liable to arrange for office or bound accommodation of the managed companies. Following the decision of the Supreme Court in Cit Bihar v. M/S Kirkend Coal Co. , [1969] 74 ITR 67 we hold that this question which was neither raised nor argued before the Tribunal cannot be raised at this stage.

17. Even otherwise, it cannot be said that it would not be conducive to the business of the assessee if all the companies managed by it were housed in the same building. It appears to us that it would lead to some economy and greater efficiency in management.

18. The contention of Mr. Sen that deductions claimed by the assessee are not allowable under s. 10(2)(iii) or s. 36(1)(iii) or s. 37 inasmuch as the same comes under s. 24 of the I.T Act, 1961, cannot ˜be sustained on a closer scrutiny. The material part of s. 24 is as follows:

“24. Deductions from income from house property.—(1) Income chargeable under the head ‘Income from house property’ shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:— ……

(vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.”

19. Admittedly, during the relevant years there was no income from the capital asset acquired and the asset concerned, viz., the land, had not been converted into house property during the relevant period. On these facts, there is no question of any deduction being claimed or allowed under s. 24.

20. For the above reasons, we answer both the questions referred in respect of assessment years 1961-62 to 1964-65 in the affirmative and in favour of the assessee.

21. On the question referred exclusively in respect of the assessment year 1961-62, relating to the assessee's claim for deduction of expenditure incurred in connection with renovation, Mr. Sen, for the revenue, contended that the wooden panelling set up at a cost of Rs. 3,575 resulted in the acquisition by the assessee of a benefit and/or advantage of an enduring nature and, therefore, the expenditure must be held to be in the nature of a capital expenditure and not deductible as revenue expenditure. In support of his contentions Mr. Sen cited Hyam v. IRC, [1929] 14 TC 479 for the following observations from the judgment of the Lord President (Clyde) (p. 486):

“Shop-fittings are intended to last, and often do last, as long as the shop, with very little repair or alteration: in the present case, the fittings which were discarded and sold were from 25 to 37 years old. The reconstruction and remodelling of a shop or hotel—whether the result of a compulsory change of site, or brought about by the necessity of bringing business premises into line with the more luxurious conditions demanded by the public of today—are not usual incidents of the conduct of the business, and the expenditure required to effect them is not a usual expenditure appearing in the accounts of the business.”

22. Mr. Sen also cited H. Mohmed & Co. v. CIT, [1977] 107 ITR 637 (Guj), where the aforesaid observations in Hyam's case, [1929] 14 TC 479 were quoted with approval.

23. Mr. Sukumar Bhattacharyya relied upon and cited the decision in the ease of Regal Theatre, [1966] 59 ITR 449 (Punj) which was considered by the Tribunal. The facts in this case were that the assessee had taken on lease a cinema building with all furnitures and fittings whereunder the lessee could not make any additions or alterations and the lessor had to carry out whitewashing, colour washing and repairs to the building. During the relevant assessment year, in order to cover up a damaged wall, the assessee spent a sum for wooden panelling. The question arose whether the said amount spent as aforesaid would be allowable as a deduction under s. 10(2)(xv) of the Indian I.T Act, 1922. On these facts, the Punjab High Court held that the assessee's lease was for a short duration and the life of the panels was such that the panelling could not be treated as an asset of an enduring nature. The High Court compared the putting up of such wooden panelling with plastering and painting of walls and held that the expenses incurred were of a revenue nature.

24. In the instant case, the assessee's contention that the wooden panelling did not last long and as such were not an enduring asset has been accepted by the Tribunal. This finding of fact has not been challenged. In view of the aforesaid finding and the decision in Regal Theatre, [1966] 59 ITR 449 (Punj) we hold that the expenses incurred by the assessee in putting up the wooden panelling did not result in any enduring benefit to the assessee and, therefore, was deductible as a revenue expenditure. As to the balance amount of Rs. 1,221 spent on renovation, Mr. Sen did not make any particular argument or comment. They appear to be included in the item of sundry repairs and servicing charges. There is no reason why they should not be allowed as revenue expenditure.

25. We, therefore, answer this question also in the affirmative and in favour of the assessee. This reference is disposed of accordingly. There will be no order as to costs.

C.K Banerji, J.:— I agree.