TMI Blog1979 (1) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... erned in this reference with the assessment year 1962-63, for which the accounting year is the year ending on March 31, 1962. The assessee is a limited company, which was formerly acting as the managing agents of Shreeram Mills. The assessee-company thereafter established a factory for manufacturing tools under the trade name of Hansa Tools, which factory went into production in August, 1961. The factory was at Udhna in Surat District (State of Gujarat). The assessee-company had earlier approached the Gujarat Electricity Supply Board for getting power supply, and on 14th July, 1960, the board communicated to the company its willingness to provide necessary supply on condition that the company paid a sum of Rs. 92,400 towards the estimated c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be regarded as a capital expenditure. The matter was thereafter carried in second appeal to the Tribunal. The Tribunal also concurred with the ITO and the AAC, observing that the expenditure in this case was incurred to enable the company to start its factory and it was not an expenditure incurred in the course of running the factory. Further, according to the Tribunal, this must be regarded as a capital expenditure despite the fact that the asset on which the expenditure is incurred was not the property of the assessee. It is the correctness of this conclusion of the Tribunal which is impugned in the reference. Mr. Kolah appearing on behalf of the assessee-company submitted that the decision of the Tribunal and the approach of the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for establishment of the unit cannot be simultaneous with the setting up of the unit, as urged on behalf of the Commissioner, but must precede the actual setting up of the unit. In fact, it is the operations for establishment of a unit which ultimately culminates in the setting up of the unit. " The question then is : Was the assessee-company's unit of Hansa Tools set up at the time when the expenditure was incurred ? According to Mr. Kolah, the question was required to be considered and answered from a businessman's point of view, adopting a commonsense approach, and not in the manner in which the revenue wants us to answer the same. In connection with this submission he referred us to several decisions of the Gujarat High Court, to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly as a culmination of these operations when all that was necessary for the setting up of the business was done. We were also referred to a later decision of the Gujarat High Court in Prem Conductors Pvt. Ltd. v. CIT [1977] 108 ITR 654, where it was observed that if the business of the assessee consists of different categories, then it could be said to have set up its business from the date when one of the categories of its business is started.It was not necessary, according to the Gujarat High Court, that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. According to the Gujarat High Court, the test to be applied is as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., ether, at least when the machinery was installed. However, even this submission was negatived by the Division Bench applying the test earlier propounded in Western India Vegetable Products' case [1954] 26 ITR 151 (Bom) and holding that for a manufacturing company or a unit thereof till some end product is or can be obtained, it cannot be said that the company or unit is ready to commence production. On the facts as were found by the Tribunal it was ascertained by the High Court that although machinery had been installed in December, 1960, or January, 1961, there was no worthwhile production till August, 1961 ; and even though this production of August, 1961, was sub-standard, the court found in favour of the assessee (to a limited extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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