TMI Blog1992 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... acts may be noted at the outset. The respondent-assessee is private limited company which carries on the business of processing of marine products. The relevant assessment year is 1972-73. In the return filed by the assessee, it, inter alia, claimed deduction in respect of expenses amounting to Rs. 53,158 incurred by it before the actual commencement of the business, but after the setting up of the business. The Income-tax Officer called upon the assessee to furnish full particulars regarding the expenditure by his letter dated May 3, 1973. The assessee set out the details of the claim in its letter dated December 17, 1973. The assessee's case before the Income-tax Officer was that the assessee, in connection with the business of processing of marine products , had rented the processing premises from the Government in August, 1970, on annual rental basis and the contracts with the fishermen for supplying fish were completed in June 28, 1970. However, the actual business started only in October, 1970, after the monsoon season when fish and other marine products could be caught from the sea. According to the respondent-assessee, the company had incurred expenditure amounting to Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. The Tribunal, on appreciation of evidence, has taken the view that the assessee's business could be said to have been established and set up on and after August 15, 1970, and, therefore, whatever expenses the assessee incurred could be said to have been incurred towards the said business and, therefore, can be said to be rightly deducted under section 37 of the Act. The break up of this expenditure incurred from August 15, 1970, is furnished by the assessee to the Revenue and it reads as under : (Rs.) Rent 4,978 Travelling 33,189 Miscelleneous 4,695 Salar 3,275 Factory rent 25,300 Managing director's remuneration 10,000 Car maintenance 1,594 --------------- 83,031 --------------- A mere look at these figures shows that they were all expenses of revenue nature and were not of capital nature. In fact, that is precisely the reason why tile Revenue, in its appeal before the Tribunal, concentrated its attack only on the ground that these expenses were incurred prior to the setting up of the business which, according to the Revenue, was set up on October 6, 1970, when fish and other marine products could be caught from the sea for bringing them to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and sell aluminium and copper conductors and, prior to manufacturing of aluminium conductors, the company had already received advance orders for manufacture and sale of conductors to be manufactured by it in future. The said step taken by the company was considered to be a step towards the setting up of the business being at least part of the main business and, therefore, the expenditure incurred by the assessee could be considered for deciding the business expenses. In this connection, the following pertinent observations were made by B. J. Divan C.J., speaking for the Division Bench (at page 666) : " One business activity may precede the other. What is required to be seen is whether one of the essential activities for the carrying on of the business of the assessee-company as a whole was or was not commenced." We may now turn to the earlier decision in Sarabhai Management's case [1976] 102 ITR 25 (Guj). In that case, the very question was examined in the light of the diverse business activities of the assessee-company. Three broad categories of activities of the assessee-company were analysed. The first business activity of the company was to acquire, either by purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruary, 1968. The question was whether the expenses incurred in February, 1968, can be considered to be business expenses. For answering this question, the Division Bench of this court, speaking through B. K. Mehta J., observed as under (headnote): " When a business is established and is ready to commence business, then it can be said of that business that it is set tip. The words 'ready to commence' would not necessarily mean that all the integrated activities are fully carried out and/or wholly completed. The requirement is also complied with in a given case where an assessee had undertaken the first of the kind of integrated activities which the business is overall comprised of. The question whether a business has been set up or not is always a question of fact which has to be decided on the facts and in the circumstances of each case." The following observations of Chagla C.J. in Western India Vegetable Products' case [1954] 26 ITR 151, 158 (Bom) were quoted with approval : " That is why it is important to consider whether the expression used in the Indian statute for setting up a business is different from the expression Mr. Justice Rowlatt was considering, viz., 'commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
