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TMI Blog1984 (3) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a private limited company and it is incorporated under the Companies Act on 7th April, 1975. Copy of memorandum and articles of association is filed before us. The main object of the assessee company is stated to be to carry on business of exporters of all kinds of goods produced, manufactured, grown in India and importers of all kinds of goods permitted by the government of India and generally to carry on the business of exporters and importers and Act as manufacturer representative. At the time of hearing of these appeals it is stated by the assessee's counsel Shri M.J. Swamy that the man contemplated business of the assessee was export of tobacco. The previous year for 1979-80 is ended with 30th June, 1978, for 1980-81 it ende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal expenses -- . . . . To Printing & Stationery 1.34 . . . . To Bank charges 1.00 . . . 562.50 . 741.29 562.50 . 741.29 From the above figures in the profit and loss account for the accounting periods relevant to the assessment years under consideration it would be clear that the assessee took on rent a building, incurred some expenses like filing fees, audit fee, postage and telegram and legal expenses. We were supplied with the directors report for the accounting period ending with 30th June, 1979 and 30th June, 1980. In the former report it is stated that the company could not secure any potential order during the accounting year in spite of the efforts made by the directors. However, it is made very clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the ITO refused to carry forward the losses and assessed the assessee at nil income. 3. Aggrieved against he assessments the assessee preferred appeals before CIT (A), Hyderabad. It is contended before him that the expenses incurred after the business is set up and before the business is commenced should be held to be deductible expenditure based upon the decision of the Bombay High Court in Wester India Vegetable Products Ltd. vs. CIT (1954) 26 ITR 151 (Bom) and of the Supreme Court in CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC). However, the ld. CIT (A) held that the ratio of both the decisions cited on behalf of the assessee are not clearly applicable to the facts on hand and in that he found the case of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is clearly seen that in the thinking of the ld. CIT (A) there should be commencement of business before expenses incurred in between the date of setting up and commencement of business are to be allowed as legitimate business deduction. The question that crops up for our consideration is whether this thinking of the CIT (A) is in tune with the correct legal position on the subject. 4. In Western India Vegetable Product Ltd. vs. CIT (1954) 26 ITR 151 (Bom) the assessee company was incorporated on 29th Dec., 1945 and it obtained a certificate of commencement of business on 20th April, 1946. The assessee company purchased a groundnut oil mill on 1st Nov., 1946. The assessee claimed various expenses aggregating to Rs. 27,894,11.9. the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of WT Act, i.e. on the wording of s. 5(1)(xxi) and the words used in that sub-section were 'date of commencement of operation for establishment of unit'. Even while interpreting the true meaning of those words the Supreme Court approved the dicta of the Bombay High Court in (1954) 26 ITR 151 (Bom). In Sarabhai Management Corporation Ltd. vs. CIT (1976) 102 ITR 25 (Guj) the facts are nearer to the facts on hand. There the company was incorporated on 24th March, 1964. The main object of the company was to acquire immovable property and to give it out either on leave and licence basis or on lease as residential accommodation or office accommodation with all appurtenant amenities. The assessee company purchased a bungalow belong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported decision the Gujarat High Court held that when business is established and is ready to start business it can be said to be set up. The business must be put into such a shape that it can start functioning as a business or a manufacturing organisation. 5. Applying the ratio of the above three decisions it can be easily seen that the business sought to be set up by the assessee company was export of tobacco. What all is needed for setting up of the said business is to secure a business place or an office, to provide it with furniture, etc., to have a telephone to maintain the office and make ready everything to start business. If no intended exporter approached the assessee and got his product exported through the assessee it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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