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TMI Blog2013 (10) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sardar Sarovar, there are bound to be different stages where different activities take place and those activities being integral parts of the business and when they are set up phase vice, assessee cannot be deprived of benefits of fiscal legislation in disregard to well settled principles on the issue by adopting over technical approach. For determining as to when the business can be said to have been set up, the flow of the water from Narmada Canal in the given circumstances needed to be viewed as an integral and inseparable activity of the business of the assessee. - It is apparent from the record that the assessee supplied water through its main canal, one of the purposes of setting up the company is to supply the water through the canal & even if the entire stretch of canal is yet to come into existence, in a project of this big a size, it will surely be not right to hold that the business of the assessee respondent has not been set up. The construction of dam and canal are essential and inseparable parts of the activity which would necessarily precede other activities - Those of the activities which form integral part of entire term business when preceded other activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the earlier year as activity to supply water to people of the State from Narmada Dam has already commenced. 2.5 The Gujarat faced scarcities in earlier years and Sardar Sarovar Nigam, for this emergency supply, put to use its facilities created so far and started the deliverance of water through its partially completed Narmada Main Canal. The Assessing Officer, however, did not accept the say of the assessee and while disallowing deduction, computed income of the assessee as income from other sources. 2.6 Challenge before the CIT(Appeals), it rejected the assessee's appeal following its earlier order for the Assessment Year 1990-1991 holding that the business of the assessee would commence only when the water starts flowing from the canals and/or when power houses start generating electricity. 2.7 The Special Bench of Income Tax Appellate Tribunal was formed which allowed the appeal of the assessee by giving detailed reasonings. 2.8 Such order of the Tribunal is impugned in the present Tax Appeal raising aforementioned questions of law for our consideration. 3. We have heard learned counsel Mr. Sudhir Mehta for the revenue who fervently submitted that for the earlier A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing both the sides and on examination of decision of the Tribunal, we are in agreement with the findings of the Tribunal that this essentially is a mixed question of law and fact. Even if the Tribunal earlier in case of this very assessee for the Assessment Years 1989-1990 and 2000-2001 had examined this very issue and those findings are at large before this Court, that could not have prevented the Tribunal to examine the facts which were laid before it as every year, the fact and circumstances would materially change. No error is committed either in law or in fact in constitution of Special Bench. Therefore, no question of law arises as far as this issue is concerned. 7. With regard to Question no. 1, it is needed to be mentioned that this Court in Tax Appeal Nos.449/2004 and 1183/2007 has admitted the question in case of the very same assessee as to when the business of the assessee can be said to have commenced. This question was in relation to the construction of dam and also the bank interest earned on the fixed deposits by the assesseerespondent. The question herein is in regard to setting up of a business which is held by the Tribunal in affirmation from the day on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the case where the assessee had started a new business for manufacturing of scientific instruments and communication equipments. The assessee had claimed deduction for the amount spent in connection with the new business. The Court referred to the judgment of the Supreme Court given in case of CWT vs. Ramaraju Surgical Cotton Mills Ltd (supra), while answering the question that as to when a business can be said to be set up is no longer a matter of doubt or debate. The Court held as under: Bombay High Court in Western India Vegetables Products case. The Bombay High Court pointed out in this case that there is a clear distinction between a person commencing a business and a person setting up a business and for the purpose of Section 2(11} which was the section of the Indian IT Act, 1922, corresponding to Section 3(1)(d) of the IT Act, 1961, what is required to be considered is the setting up of a business and not the commencement of a business. It is only when a business is established and is ready to commence business that it can be said of that business that it is set up. Before it is ready to commence business, it is not set up. This view taken by the Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or on lease as residential or, in the alternative for business accommodation. This Court, there also, held that the business can be divided into three categories; 1) To acquire immovable property 2) To put up the building accommodation, set up the land and garden, and 3) Actually to give out accommodation on lease or on leave and licence basis. The Court followed the decision given in case of CIT vs. Saurashtra Cement Chemical Industries Ltd.(supra), explained the decision rendered in case of Sarabhai Management Corpn. Ltd. (supra). 13. Yet another decision rendered in case of Prem Conductors Pvt. Ltd. vs. CIT reported in 108 ITR 654, this Court was answering the question whether business can be said to have commenced when there was actual production or at the time when earlier steps like securing orders were taken. Referring to the earlier decisions rendered in cases of CIT vs. Saurashtra Cements and Chemicals Ltd. (supra) and Sarabhai Management Corporation Ltd. (supra) vs. CIT (supra), it held that for the Court to consider whether company has set up its business or not, it needs to examine the same in light of the above mentioned decisions, whether the business of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avail the benefits under the Income-tax Act. This being essentially a mixed question of law facts needs to be decided primarily on the basis of facts and circumstances of each case, based on different decisions rendered in this regard. In a given case, for the Court to consider whether the business has been set up or not, the nature of business of assessee, whether the same comprises of integrated activities and whether all these activities collectively would go to make the business, shall need to be examined in light of the object clause of the Memorandum of Association and other material available on the subject. The annual report of the assessee respondent in the instant case for the year 2000-2001 highlighted progress of the project as the activity could be divided into three categories 1)Dam and Appurtenant Works, 2) Hydro power and 3) Narmada Main Canal. As far as the first activity is concerned, excavation and concrete works should be considered major components of the Main Dam works. The major portion was excavated and concrete work was done upto March, 2001. Open excavation and underground excavation for River Bed Power House and Canal Head Power House with its auxilia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are set up phase vice, assessee cannot be deprived of benefits of fiscal legislation in disregard to well settled principles on the issue by adopting over technical approach. For determining as to when the business can be said to have been set up, the flow of the water from Narmada Canal in the given circumstances needed to be viewed as an integral and inseparable activity of the business of the assessee. The Tribunal has rightly approached the issue by holding that test in such events will have to be applied which must appeal to the common sense. It is apparent from the record that the assessee supplied water through its main canal, one of the purposes of setting up the company is to supply the water through the canal even if the entire stretch of canal is yet to come into existence, in a project of this big a size, it will surely be not right to hold that the business of the assesseerespondent has not been set up. The construction of dam and canal are essential and inseparable parts of the activity which would necessarily precede other activities. As well laid down by this Court in the decisions in case of Saurashtra Cements and Chemicals Ltd. (supra) and other judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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