1. This reference relates to the assessment years 1967-68, 1968-69 and 1969-70. The accounting period for these years ended respectively on 31st August, 1966, 31st August, 1967, and 31st August, 1968. The questions that arise for our decision are as follows :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the claim of the assessee regarding the legal expenses amounting to Rs. 1,050 for A.Y. 1967-68, Rs. 4,599 for A.Y. 1968-69 and Rs. 890 for A.Y. 1969-70 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 30,000 paid as per order of the High Court was an allowable deduction under the I.T. Act?
3. Whether the Appellate Tribunal was right in holding that the assessee was under obligation to pay the amount of Rs. 30,000 and that the payment related to the relevant accounting period ?'
The assessee carried on the business of exhibiting cinema films. To begin with, the business was carried on in three cinemas. Jairam Talkies is one of the cinemas in which the business of exhibition of films was carried on. The possession of Jairam Talkies was delivered by the assessee to the owner on 2nd October, 1964. The owner filed a suit for recovery of damages for the period from 22nd May, 1960, to 4th October, 1964. The case of the assessee is that in defending the suit he had to incur expenditure of Rs. 1,050 in the account period relevant to the assessment year 1967-68, Rs. 4,599 in the account period relevant to the assessment year 1968-69 and Rs. 890 in the account period relevant to the assessment year 1969-70. Further, in pursuance of the decree passed in that suit, the assessee had to pay Rs. 30,000 in the account period relevant to the assessment year1969-70. These amounts have been allowed by the Tribunal as business expenditure under Section 37 of the I.T. Act, in computing the total income for the aforesaid years.
2. The argument of the learned standing counsel for the Department before us is that as these expenditures were incurred in respect of Jairam Talkies which was vacated on 2nd October, 1964, and as no business of exhibition of cinema films was carried on in the relevant accounting periodsin that cinema house, the above amounts could not be allowed as business expenditure under Section 37, The contention of the learned standing counsel is that the three cinema houses constituted distinct sources of business. The principles applicable in such a situation were laid down by the Supreme Court in L.M. Chhabda and Sons v. CIT : 65ITR638(SC) . The Supreme Court, in that case, laid down that there is no such general principle that where an assessee carries on business ventures of the same character at different places it must be held as a matter of law that the ventures are part of a single business. It was further observed that whether different ventures carried on by the assessee form part of the same business must depend on the facts and circumstances of each case, and it is for the assessee to establish that the different ventures constitute part of the same business. It was also held that if an assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year, he cannot claim allowance of an outgoing attributable to the business which is closed against the income of his other businesses in that year. In view of the principles laid down in the above mentioned case, the question to be decided by the Tribunal was whether the exhibition of films in the three cinema houses constituted one single business or whether there were three independent businesses carried on by the assessee. This question has not at all been considered by the Tribunal. In our opinion, therefore, the question of allowing the aforesaid amounts as business expenditure will have to be gone into by the Tribunal after evaluating the facts in the light of the decision of the Supreme Court in the case of L.M. Chhabda and Sons : 65ITR638(SC) .
3. For the reasons stated above, we answer the questions by saying that the Tribunal will have to examine these questions again in the light of the decision of the Supreme Court in the case of L. M. Chhabda and Sons.There will be no order as to costs of this reference.