TMI Blog1972 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, the relevant account years being the years ending 30th June, 1959, and 30th June, 1960. The assessee is a limited company incorporated on 11th June, 1956. It was floated by one Nanji Kalidas Mehta and the members of his family. On 24th November, 1955, prior to the incorporation of the assessee, a mining lease was granted by the Government of Saurashtra to Nanji Kalidas Mehta for quarrying limestone from certain areas of land. This mining lease was obtained by Nanji Kalidas Mehta because be intended to set up a cement manufacturing plant and limestone is an essential raw material in the manufacture of cement. Nanji Kalidas Mehta, thereafter, obtained from the Government of India on 16th December, 1955, a licence to establish a cement manufacturing plant in the name of "Saurashtra Cement Works Ltd." The assessee was in the meantime incorporated on 11th June, 1956, and it took over the benefit of the mining lease as also of the licence to set up a cement manufacturing plant. On 12th December, 1956, the assessee placed an order for plant and machinery of the value of about rupees one crore and on 9th January, 1957, the Registrar of Companies granted to the assessee a certificate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was merely an activity for obtaining raw material for the manufacture of cement and though this activity was carried on from April, 1958, the business of manufacture and sale of cement could not be said to have commenced till the end of the relevant accounting years since the installation of the plant and machinery was going on during the relevant years of account and it was completed only in June, 1960, and manufacture of cement did not start until October, 1960. The expenditure incurred for the purpose of extraction of limestone as also depreciation allowance and development rebate were, therefore, in the opinion of the Appellate Assistant Commissioner, wrongly allowed by the Income-tax Officer. These items could be allowed as permissible deductions in computing the taxable profits of the assessee only if the assessee carried on business during the relevant years of account and since the business of the assessee was not commenced until after the end of the relevant years of account, the assessee was not entitled to deduction in respect of these items. The Appellate Assistant Commissioner, accordingly, enhanced the assessment of the assessee by disallowing these items and adding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and development rebate in respect of extraction of limestone from mines could be allowed as business expenditure ? " The assessee at the hearing of the reference application submitted that another question of law also arose out of the order of the Tribunal, namely, whether, the Appellate Assistant Commissioner was competent to enhance the assessment and this question of law should also be referred by the Tribunal and accordingly the Tribunal, at the instance of the assessee, referred the following further question to this court for its opinion : " (2) Whether, on the facts and in the circumstances of the case, enhancement of assessment by the Appellate Assistant Commissioner was within his competence and, therefore, justified in law ? " The second question relates to the competence of the Appellate Assistant Commissioner to enhance the assessment, but that question would need to be considered only if we decide the first question against the assessee. Let us, therefore, first consider the first question. Now, it is elementary that expenditure in order to be deductible as revenue expenditure must be incurred for the purpose of the business which is carried on by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning questions arising under fiscal legislation, loose use of expression of ten tends to confound the real issue. To determine what was the business of the assessee, we must consider what are the activities which constituted such business without being misguided by loose expressions of vague and indefinite import. The activities which constituted the business of the assessee were divisible into three categories : the first category consisted of the activity of extraction of limestone by quarrying leased area of land. This activity was necessary for the purpose of acquiring raw material to be utilised in manufacture of cement. The second category comprised the activity of manufacture of cement by user of the plant and machinery set up for the purpose ; and the third category consisted of the activity of selling manufactured cement. These three activities combined together constituted the business of the assessee. Each one of these activities was as much essential for the purpose of carrying on the business of the assessee as the others. If the assessee ceased to carry on any one of these activities, the business would come to an end. Each one of these activities constituted an integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that business is started ? The argument of the revenue seeks to confound the commencement of a business with the establishment of the business as a whole and carrying on of all the activities of the business. This confusion is the result of a loose description of the business of the assessee as a business of manufacture and sale of cement. The revenue says that when the business is of manufacture and sale of cement, how can the assessee be said to have commenced the business when manufacture has not started ? This argument suffers from the fault of over simplification and ignores the true nature of the activities which constitute the business of the assessee. We are of the view that as soon as an activity which is an essential activity in the course of carrying on the business, or which, in other words, is a business activity is started, the assessee must be held to have commenced the business. To take any other view would not only be illogical but also irrational. The conclusion reached by the Tribunal cannot, therefore, be said to be unreasonable or perverse or based on no evidence at all. The revenue sought to combat this conclusion by relying on the decision of the Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion which arose for decision before the Supreme Court was whether the factory of the assessee could be said to have been set up after the commencement of the Act so as to entitle the assessee to exclusion of that portion of its net wealth which was employed in the factory. The Supreme Court, while dealing with that question, made the following observations which were strongly relied on on behalf of the revenue : " A unit cannot be said to have been set up unless it is ready 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 expression used in the proviso, under which the period for which the exemption is available is to be determined, is not the same as that used in the principal clause. In the proviso, the period of five successive years of exemption has to commence with the assessment year next following the date on which the company commences operations for the establishment of the unit. Operations for the establishment of a unit, from the very nature of that expression, can only signif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21st July, 1972, in Income-tax Reference No. 85 of 1970.That decision raised the question as to when a certain business carried on by the assessee could be said to have been set up : whether it was set up prior to 31st March, 1966, or subsequent to that date. The Tribunal had found that it was set up prior to 31st March, 1966, and the question was whether this finding of the Tribunal could be said to be un-reasonable or perverse or contrary to evidence or based on no evidence at all. We held on the facts of that case that it was impossible for the Tribunal to have come to the decision that the business was set up by the assessee prior to 31st March, 1966, and the decision of the Tribunal was contrary to evidence or based on no evidence at all. We fail to see how a decision given on one set of facts can bind us to reach a similar decision on a totally different set of facts. There is nothing in this decision which would deflect us from the view which we are otherwise inclined to take. We must, therefore, bold that the assessee commenced its business when it started the activity of extraction of limestone by quarrying the leased area of land. Since extraction of limestone commence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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