TMI Blog1993 (2) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... in object of manufacturing, buying, selling and dealing in all kinds of vulcanisers, tyres and tube presses and to set up a heavy machine shop. The assessee-company filed its return of income under the Income-tax Act, 1961 ( for short, " the Act " ), for the assessment year 1974-75 relevant to the previous year October 1, 1972, to December 31, 1973, declaring a loss of Rs. 1,88,310. In its profit and loss account, the assessee credited the interest of Rs. 1,54,325. The assessee claimed that the business had been set up during the previous year and, as such, it was entitled to deduction of expenditure debited to the profit and loss account as revenue expenditure. The Income-tax Officer did not accept the claim of the assessee on the ground that the assessee had not set up its business during the relevant previous year. It was observed by the Income-tax Officer that even though the company had procured orders for supplying machinery to outsiders, it could not be said that the business had commenced in the previous year as neither the plant and machinery had been installed nor any manufacturing activity commenced in the previous year. The Income-tax Officer, therefore, did not allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er only on June 10, 1974, and the actual manufacturing commenced thereafter. It was, there fore, held that the expenditure incurred by the assessee during the relevant previous year was allowable as deduction and the interest income was also assessable as business income under section 28 of the Act and not as income from other sources under section 56 of the Act as done by the Income-tax Officer. Aggrieved by the order of the Tribunal, the Revenue applied for reference under section 256(1) of the Act. Hence, this reference at the instance of the Revenue. Learned counsel for the Revenue submits that the finding of the Tribunal that the assessee had set up its business during the relevant previous year is erroneous, inasmuch as it is based only on the fact that the assessee had, during the relevant previous year, purchased some raw material and obtained some orders for supply of machinery. Learned counsel further submits that the Tribunal failed to appreciate the true meaning of the words " has set up its business " which has already been decided by this court and the Supreme Court in a number of decisions. According to learned counsel, the receipt of orders for supply of machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 158 ) : " 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). " This view was approved by the Supreme Court in CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478. In the above case, the controversy before the Supreme Court was whether the new unit started by the assessee was set up after commencement of the Wealth-tax Act, 1957, so as to qualify the assessee for exemption from wealth-tax under section 5(1)(xxi) of the Wealth-tax Act, 1957. The assessee in that case was carrying on the business of manufacture of absorbent cotton wool. In March, 1955, the board of directors of the assessee-company resolved to establish a new spinning unit for which a licence was obtained from the Government of India in August, 1955. The assessee placed orders for purchase of necessary spinning machinery and plant in the months of January and February, 1956. The construction of the factory buildings was taken in hand i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o commence its business, viz., production of ether, merely when the machinery was installed or even when the plant was charged initially with 200 gallons of raw material ? In our opinion, when the question is so put, the answer is obvious and the answer is that till some end-product which is the business of the company is or can be obtained, it cannot be said that the company is ready to commence production and it is such readiness to commence production which has been indicated in Western India Vegetable Products Ltd.'s case [1954] 26 ITR 151 (Bom), as equivalent to the setting up of the business. " Thus, the principles for determining when a business can be said to have been set up are well-settled. If a question arises as to whether a particular business can be said to have been set up in the relevant assessment year, that question, as observed by this court in CIT v. Forging and Stamping Pvt. Ltd. [1979] 119 ITR 616, will have to be determined on the facts and circumstances in each case. Reference was made by counsel for the assessee to the decision of this court in CIT v. Caltex Oil Refining (L) Ltd. [1976] 102 ITR 260. We have perused the same. We do not find that the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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