TMI Blog1978 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... n given by the order dated 8th July, 1977, the supplementary statement of case has been duly sent to us by the Income-tax Appellate Tribunal. In order to understand the rival contentions a few facts may be stated : We are concerned with the assessment year 1962-63, the relevant accounting year being the year ending 30th September, 1961. The assessee is a private limited company which was incorporated on 1st August, 1959. The construction of the building and the erection of the plant and machinery developed by Shree Ram Institute of Delhi were completed by the end of December, 1960, or January, 1961. The business of the assessee was to manufacture industrial solvents and the machinery which was installed would, it was expected, produce ether. For the purpose of such manufacture the assessee required denatured spirit or alcohol as raw material and in January, 1961, the assessee acquired 5,000 gallons of alcohol. It is on record that the plant was initially charged with about 200 gallons of raw material on 5th February, 1961, and it has been found by the Tribunal that on 42 different occasions during the relevant accounting year the company had charged its plant and machinery with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. The revenue carried the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal considered the rival arguments and upheld the submissions made before it on behalf of the assessee. In the opinion of the Tribunal even if the trial runs proved unsuccessful or resulted in the production of the finished products which were not marketable, still the assessee could be said to have commenced its business. In conclusion, it agreed with the views of the AAC that the assessee had set up its business in February, 1961, and that it was entitled to the allowance of the expenses incurred for the business purpose. In the order of the Tribunal, It was observed that during this period the company had got the finished product but it was not in a marketable state. In the said order, however; the Tribunal had not given the date or even the month when the company had got the finished product. Accordingly, as stated earlier, a direction was given to it on 8th July, 1977, to submit a supplementary statement of case. In para. 4 of the supplementary statement of case submitted the Tribunal has observed that from the material on record it appeared that the assessee did obtain some quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. Some of the cases involved consideration of s. 3(1)(d) of the I.T. Act, 1961, which is equivalent to s. 2(11) of the Indian I.T. Act, 1922. The latter provision came to be considered by a Division Bench of this court in Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom), which has been regarded as the leading authority, in which the distinction between the setting up of a business and the commencement of the business was brought out by the following passage : " It seems to us that the expression 'setting up' means, as is defined in the Oxford English Dictionary, 'to place on foot' or 'to establish', and in contradistinction to 'commence'. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not of great assistance in determining the questions referred to us, as the activities of the assessee-companies were of a totally different kind, and in both the cases it was held by the court that there was more than one activity which consideration affected the answer to be given to the question under consideration, viz., when was the business set up ? In Prem Conductors Pvt. Ltd. v. CIT [1977] 108 ITR 654 (Guj), there was a totally different situation as the company was set up to take over an existing running factory. In our case, the activity of the assessee-company was to produce industrial solvents, viz., ether. Can the assessee-company be said to be ready to 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 Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same analysts and an identical conclusion had been reached by them. The position then is that in August, 1961, the plant had commenced operation but the end product was sub-standard and hence obviously not marketable. It is in this context that Mr. Joshi on behalf of the revenue has urged that even in August, 1961, the business of the assessee could not be said to have been set up, although the plant was being worked, inasmuch as a proper standard marketable end product had not been obtained. We are afraid that if this test as suggested by counsel is accepted, we would be taking an unrealistic view of the requirements of the statutory provisions. In each case the question as to when the business can be said to be set up will be required to be answered on the facts of that case, which facts have to be found by the Tribunal and indicated in the statement of case and the supplementary statement of case submitted to us. On the facts of the case as submitted to us by the Income-tax Appellate Tribunal (which are binding on us and have not been challenged by either party) we think that the proper view to take would be to hold that the assessee could be regarded as having set up its busi ..... 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