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TMI Blog1972 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ific instruments and communication equipment. The assessee appointed one Dr. Ramanathan as General Manager of the new business in November, 1965, and Dr. Ramanathan immediately thereafter started exploring possibilities for purchase of machinery and equipment necessary for the purpose of carrying on the business. In January, 1966, the assessee placed orders for machinery and equipment and some of the machinery and equipment was received by the assessee in February, 1966. The assessee also started placing orders for raw materials and stores from January, 1966, and diverse amounts were expended by the assessee at the time of placing such orders. The assessee for some time occupied rented premises in Naroda Industrial Estate from the Gujarat I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, entitled to deduction of revenue expenditure made by it during the period from 1st January, 1966, up to 31st March, 1966. The Income-tax Officer being aggrieved by this decision given by the Appellate Assistant Commissioner in favour of the assessee, preferred an appeal to the Tribunal but the Tribunal also took the same view as the Appellate Assistant Commissioner and held that the new business of the assessee was set up in January, 1966, during the previous year and the claim of the assessee for deduction was, therefore, rightly allowed by the Appellate Assistant Commissioner. This view taken by the Tribunal is challenged in the present reference made at the instance of the revenue. Before we proceed to examine the question wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up assumes importance because, according to section 3(1)(d) of the Income-tax Act, 1961, the previous year for a business newly set up in a financial year means the period beginning with the date of the setting up of the business and ending with the financial year and it is only if expenditure is incurred by an assessee during the previous year that he can claim it as a revenue deduction in computing the trading profits of the business. Here, in the present case the assessee claimed to deduct an aggregate sum of Rs. 13,770 as revenue expenditure in the assessment for the assessment year 1966-67 and this revenue expenditure could be claimed by the assessee only if it was incurred during the previous year and the new business of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(11) which was the section of the Indian Income-tax Act, 1922, corresponding to section 3(1)(d) of the Income-tax Act, 1961, what is required to be considered is the setting up of a business and not the commencement of a business. It is only when a business is established and is ready to commence business that it can be said of that business that it is set up. Before it is ready to commence business, it is not set up. This view taken by the Bombay High Court was approved by the Supreme Court in Commissioner of Wealth-tax v. Ramaraju Surgical Cotton Mills Ltd. There the question was whether a new spinning unit started by the assessee was set up after the commencement of the Wealth-tax Act, 1957, so as to qualify the assessee for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady to discharge the function for which it is being set up. It is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing organisation that it can be said that the unit has been set up. The Supreme Court accordingly held that the new spinning plant was set up after 1st April, 1957, since it was long after that date that it could be said to be ready to discharge the function for which it was set up. These observations of the Supreme Court lay down the test which must be applied for the purpose of determining when a business can be said to be set up. If this test is applied to the facts found by the Tribunal--which facts we have already enumerated while stating the facts giving rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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