TMI Blog1993 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company claimed deduction for an expenditure of Rs. 15,06,803 claimed to have been incurred in relation to Alfa Electro Unit. The expenditure in question mainly related to the research work and it was claimed that this should be allowed as a business expenditure, since Alfa Electro Unit was started for production of electronic goods. The assessee-company had shown these expenses as "pre-operative expenses" in its final accounts. In the balance-sheet, the directors had reported that since February, 1976, the activities of the instruments division had been suspended. The relevant portion of the directors' report dated September 3, 1976, with reference to the accounts of the assessee-company for the financial year ending March 31, 1976, was as under: "As regards Alpha Electro Unit of the company, the activity in the instruments division has been presently suspended since February, 1976, owing to general recession and unfavourable conditions in the market. With this suspension, certain machinery, equipment and instruments not in use have been disposed of at the best available price so as to save expenses on cleaning and maintaining for the same. The activity in the mini-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mini-computers. This was not related to the existing trading business of the assessee-company. The Income-tax Officer thereafter proceeded to consider whether the business of Alfa Electro Unit could be said to have been commenced by the assessee-company. The assessee-company had placed reliance on the certificate issued by the prescribed authority in relation to the assessment year 1975-76. The prescribed authority had stated that in the mini-computer unit, the production stage had not yet been reached. It was also stated that certain instruments had been developed and in respect of these instruments, the business can be said to have been commenced. The case of the assessee-company is that in the electronic instruments division, several types of machines can be produced and with the development and manufacture of certain instruments, it can be said that the business had already commenced. It was also contended on behalf of the assessee before the Income-tax Officer that the manufacture of mini-computers required continuous research and development and the mere fact that the mini-computers had not been produced did not mean that the business had not been commenced by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion functioned as a small-scale unit for which no licence under the Industries (Development and Regulation) Act was necessary. It was on this basis that the assessee-company obtained a certificate from the prescribed authority under section 35 of the Income-tax Act, 1961. The Commissioner (Appeals) also noted that the assessee-company requested the prescribed authority for issue of another certificate in respect of research and development expenses incurred under the mini-computer division. As sophisticated instruments like mini-computers or micro processor systems involved very high capital expenditure, their development and manufacture could not be attempted by a small-scale unit. It was also necessary to have a licence under the Industries (Development and Regulation) Act, 1951. The Commissioner (Appeals), therefore, observed that the business of manufacturing mini-computers in Alfa Electro Unit did not factually start and could not have started and that is the reason why no certificate was granted by the prescribed authority in respect of scientific expenditure incurred by the assessee-company for development of mini-computers. The business of manufacturing mini-computers wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted fact that the instruments division of the Alfa Electro Unit was nothing but a small-scale unit. The instruments division was concerned with the manufacture of various kinds of voltmeters, oscilloscopes and calibrators. These are electronic testing and measuring instruments. This business was different and distinct from the manufacture of mini-computers or micro processors. In fact, the Government of India through its letter dated September 18, 1979, clarified that an industrial licence will be necessary under the Industries (Development and Regulation) Act, 1951, for the establishment of a new industrial undertaking in the State of Haryana for the manufacture of mini-computers and micro processor-based systems subject to certain conditions to be fulfilled by the assessee. Admittedly, no licence had, so far, been received by the assessee-company for the manufacture of mini-computers and micro processor-based systems. The assessee-company did not produce any material before the Tribunal to show that the instruments division and the mini-computers division were part and parcel of the same business. No material to this effect were placed by the assessee-company either before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the same board of directors of the business of import and export. The court also found that there was common management, common business organisation, common administration, common fund and common place of business for both the export and import businesses and these factors showed that in that case, there was interlacing and interdependence of the various businesses carried on by the assessee. In the instant case, none of the aforesaid facts have been found by either of the authorities. That besides, the question before the Supreme Court in that case stands totally in a different light and a different context. There it was not in dispute that the assessee's business consisted of two separate lines ; what was disputed was whether two businesses together constituted one business in the context of the expression "same business" for the purpose of the carry forward of the loss arising from one line of business for set-off against the profit of another, in a later year when the former line is closed down. That principle does not apply, where the same entrepreneur under the common management, control and finance sets up another line of business, for the purpose of treating expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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