TMI Blog2003 (2) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... the court was delivered by B. SUDERSHAN REDDY J. -The Income-tax Appellate Tribunal, Hyderabad Bench, at the instance of the Revenue, referred the following question of law to this court for its opinion : "Whether, on the facts and in the circumstances of the case, the cement unit could be said to have commenced business during the accounting year relevant to the assessment year 1983-84 ?" The short facts which have given rise to the above question may have to be briefly noticed : The assessee is a public limited company. The assessment year is 1983-84. The previous year ending on December 31, 1982, is relevant to the assessment year 1983-84. The assessee is carrying on the business of manufacture and sale of fertilizers as well as cement. During the year 1982, the assessee claims to have commenced limestone mining activity for the production of cement. It had claimed expenditure of certain amounts (excluding depreciation) incurred as an allowance deduction in the computation of the total income. The claim of the assessee is that the commencement of limestone mining is the first activity relating to cement manufacture so far as their cement business is concerned. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal that the manufacture of fertilizers and also cement are one and the same business of the assessee as a result of unity of control and management and interlacing and interdependence of such activities and in view of the admitted fact that the assessee had already commenced manufacture of fertilizers, the whole question has become academic. Setting up of plant and machinery for the manufacture of fertilizers, which admittedly the assessee did, is enough to allow the claim of the assessee, is the submission of learned counsel for the assessee. The short question that falls for consideration is as to whether the assessee could be said to have set up the business of manufacturing cement during the accounting year relevant to the assessment year 1983-84. Some confusion appears to have crept into the mind of the Tribunal as well as the appellate authority in appreciating this aspect of the matter. Even the Department contended before the Tribunal that the assessee had not commenced its business of manufacture of cement. The Tribunal also held that the assessee has commenced its business of cement manufacture. However, the learned senior standing counsel submitted that wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment lays down the correct proposition in law. We are in entire agreement with the view taken by the Gujarat High Court. However, in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 (Guj), the same Division Bench struck slightly a different note. In the said case a company was formed in 1956 for the manufacture and sale of cement. As part of its business the company obtained a mining lease for quarrying limestone and started the mining operations in 1958. It claimed the expenditure incurred for the purpose of extracting limestone as also depreciation and development rebate for the machinery installed for that purpose for the assessment years 1960-61 and 1961-62. The court while considering as to whether any relief could be granted to the assessee therein observed : "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 utilized in manufacture of cement. The second category comprised the activity of manufacture of cement by use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that it is only after the business is set up that the previous year of that business commences and any expenses incurred prior to the setting up of a business would not be a permissible deduction. It observed : "The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under section 10(2)." In the case on hand there is no finding by the Tribunal as to when the assessee actually commenced the manufacture of cement as such. There is also no finding as to when exactly the machinery and plant for the manufacture of the cement has been set up. The Tribunal proceeded to hold that the assesses having commenced quarrying limestone, which is an essential raw material for the manufacture of cement, in reality commenced the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too remote to be in proximity to the business of manufacture of cement to form the first stage of commencement of that business of manufacture of cement. However, learned counsel for the assessee laid emphasis on the observation made by this court, which is to the following effect : "Perhaps the same cannot be said to be of the suggested second stage of mining operations of iron ore ... and the same amounts to commencement of the business since the same is in proximity to the business of manufacture of cement." The observation made cannot be blown out of context. It is not as if the court expressed any firm opinion that mining of iron ore is in proximity to the business of production of sponge iron. The very expression "perhaps" indicates that the court has not expressed any firm opinion on the same. The judgment, in our considered opinion, does not support the case set up by the assessee but, on the other hand, supports the submission made by learned senior counsel appearing on behalf of the Revenue. It is not the case of the assessee that the plant and machinery has been erected within a short span of time after commencement of the quarrying of limestone. There is no mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 (Guj) observed that the business activities of the company could be said to fall into three broad categories. The first business activity was to acquire either by purchase or by any other manner, immovable property so that the property could be ultimately given out either on leave or licence or on lease to others together with appurtenant services. The second category of the business activity was to put the building accommodation and lands into proper shape. The third business activity was to actually give out accommodation on lease or on leave and licence basis. The court took the view that though the company actually let out on leave and licence a portion of the building with effect from May 1, 1965, the earlier and preceding part of its activities were also business activities to ensure that everything was in shape, for the use of the occupier. This judgment of the Gujarat High Court received the approval of the Supreme Court in CIT v. Sarabhai Management Corporation Ltd. [1991] 192 ITR 151. However, the Supreme Court observed that the first category of activities referred to by the High Court, viz., acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery set up for the purpose; and the third category consisted of the activity of selling manufactured cement. Each one of these activities was as much essential for the purpose of carrying on the business of the assessee as the others. May be, all the activities cannot be simultaneously carried on. The business may commence when the activity which is first in point of time and which must necessarily precede the other activities is started provided there is a proximate connection between the activity which is first in point of time and the subsequent activities which go to make up the business. Mere quarrying of limestone in the leased land itself per se would not amount to setting up of business. It is, therefore, for the assessee to establish that after the extraction of limestone by quarrying leased area of land the next activity in the chain of manufacture of cement by user of plant and machinery set up for the purpose has also begun. It is for the assessee to establish the same and if the same is not established the assessee cannot be held to have set up the business of manufacture and sale of cement. For the aforesaid reasons we find it difficult to apply the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diar [1978] 115 ITR 505 (Mad). Reliance is also placed upon CIT v. Birla Gwalior Pvt. Ltd. [1970] 78 ITR 788 (Cal). We are not inclined to accede to the submissions made by learned counsel for the assessee that the question referred for our opinion has become an academic one. The Tribunal did not rest its decision in coming to the conclusion that the assessee has commenced its business of manufacture of cement by commencing quarrying of limestone which is an essential raw material for the manufacture of cement, on the ground that the assessee had set up and commenced its business of manufacture and sale of fertilizers. On the other hand, the Tribunal came to the conclusion that the assessee has commenced its business of manufacture of cement by taking the first and preliminary step of quarrying limestone which is an essential raw material for the manufacture of cement. We have to proceed on the basis of the finding recorded by the Tribunal in support of its conclusion. We cannot import the findings and the views of the Tribunal taken in the matter for the assessment year 1982-83. In the result we hold that the Tribunal misdirected itself in reaching its decision in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
