TMI Blog1975 (8) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ee should purchase a portion of the main bungalow belonging to Ambalal Sarabhai in the "Retreat" compound, Shahibag, Ahmedabad, together with the appurtenant land admeasuring 12,175 square yards for a sum of Rs. 8,73,500. The land together with the building was purchased and the document of purchase was registered on March 28, 1964. The case of the assessee before the revenue authorities and before the Tribunal was that it started procuring material for providing necessary facilities with which the building was to be given on licence. According to the assessee, it was in a position to offer services to licensees on and from October 1, 1964. The assessee-company, therefore, claimed that expenditure of Rs. 48,004 which was incurred by it between October 1, 1964, and March 31, 1965, was a business expenditure. The assessee-company claimed deduction of the said expenditure and it contended that it was entitled to carry forward the loss shown in its return. The Income-tax Officer rejected the assessee's claim on the ground that it had not started or commenced its business in the year of account. According to the Income-tax Officer, the assessee-company commenced business only from May 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eem expedient, and in particular by preparing building sites and by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining offices, flats, houses, factories, warehouses, shops, wharves, buildings, works and conveniences of all kinds and by consolidating or connecting or subdividing properties." Clause (3) provides as follows: "To manage land, building and other property, whether belonging to the company or not and to collect rents and income and to supply to tenants and occupiers and others all kinds of services, conveniences, privileges, benefits, advantages and amenities including those enumerated in clause (1), refreshments, attendants, messengers, light, waiting rooms, reading rooms, meeting rooms, lavatories, toilet, laundry coveniences, electric conveniences, stables, garages and other advantages." Clause (24) of the objects clause provides: "To purchase, take on lease or in exchange or otherwise acquire, for the purposes of the business of the company, improve, manage, develop, cultivate, work, sell, exchange, surrender, lease, mortgage, charge, convert, turn to account, dispose of and deal with movable and immovable property an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment, like hot-plates, refrigerator, handcart, cycle, electric fittings in the shape of fans and fittings, garden equipment, furniture and fixtures and thus it was acquiring equipment so as to make the service of the different types of gadgets and machinery available to those who chose to occupy the property. The correspondence which has been annexed to the statement of the case also goes to show that correspondence was being carried on for installation of a lift and it was expected that the period of delivery would be fourteen months for the lift from the date of the receipt of the lay-out approval. Mr. Patel for the assessee-company his emphasized that though a licensce started occupying the premises with effect from May 1, 1965, in the month of April, 1965, only an amount of Rs. 6,000 was spent for building repairs and all other items of expenditure had been incurred by the company prior to March 31, 1965. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal have all of them come to the conclusion that the company could not be said to be ready to commence its business or to be in a state to commence its business prior to May 1, 1965, and certainly not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definite business activities, that is, regular course of activities which the company was required to carry on, for example, watch and ward facilities, facilities by way of providing kitchen staff, other service staff, gardeners, etc., and providing gadgets and equipment would be part of the business activity of the company and when the company carried on these activities by engaging the adequate staff, it can be said that the company was carrying on its business activities. Hence, in each such case, what is required to be done is to determine what was the business of the assessee and in particular what are the activities which constituted such business. We must also point out the confusion which is likely to be created by the two concepts, setting up the business for the particular business concern and the commencement of business of the particular assessee. In Western India Vegetable Products Ltd. v. Commissioner of Income-tax, a Division Bench of the Bombay High Court consisting of Chagla C. J. and Tendolkar J. has held that there is a clear distinction between a person commencing a business and a person setting up a business and for the purpose of the Indian Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961, what is required to be considered is the setting up of a business. When a business is established and is ready to start business it can be said to be set up. The business must be put into such a shape that it can start functioning as a business or a manufacturing organization. It must be pointed out, as is clear from Sarabhai Sons Pvt. Ltd., that the main question before the Division Bench was whether on the finding of the Tribunal that the business of the assessee had been set up in the previous year was unreasonable or contrary to evidence or based on no evidence at all. Therefore, the main question which was considered by the Division Bench in that case was the question of appreciation of evidence on record and to find out whether there was evidence to support the conclusion that the business of the assessee had been set up in the previous year or whether the finding of the Tribunal that it had been set up in the previous year was unreasonable or contrary to evidence. The decision in Sarabhai Sons Pvt. Ltd. has been explained by the same Division Bench in Commissioner of Income-tax v. Saurashtra Cement Chemical Industries Ltd. in these terms: "That decision raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale of manufactured cement. The business could not in fact be carried on without this activity. This activity came first in point of time and laid the foundation for the second activity and the second activity, when completed, laid the foundation for the third activity. The business consisted of a continuous process of these three activities and when the first activity was started with a view to embarking upon the second and the third activities, it clearly amounted to commencement of the business. It may be that the whole business was not set up when the activity of quarrying the leased area of land and extracting limestone was started. That would be set up only when the plant and machinery was installed, the manufacture of cement started and an organization for sale of manufactured cement was established. But, as pointed out above, business is nothing more than a continuous course of activities and all the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede the other activities is started. Take, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gadgets, etc., were acquired by purchase or otherwise, lift was installed and ultimately with effect from May 1, 1965, a portion of the accommodation was actually given out on licence basis at the fee of Rs. 27,000 per month. Therefore, if we have merely to look at giving out on licence as the business activity of the concern, then in a loose sense it can be said that the company commenced its business with effect from May 1, 1965, but that is not the only business activity of the company. The business activity of the company consists of three broad categories which we have pointed out above and the objects clause of the memorandum of association justifies such a conclusion. Therefore, when the company actually let out on leave and licence basis a portion of these particular premises with effect from May 1, 1965, the earlier preceding part of its activities were also part of the business activities of the company, for example, engaging the garden staff, kitchen staff or other staff, buying the equipment and getting the equipment ready, making the staff familiar with the working of that equipment, etc. They are all part of the business activities of the company so that ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
