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TMI Blog1972 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction - - - - - Dated:- 21-7-1972 - Judge(s) : P. N. BHAGWATI., P. D. DESAI. JUDGMENT The judgment of the court was delivered by BHAGWATI C.J.-This reference arises out of assessment to income-tax made on the assessee for the assessment year 1966-67, the relevant previous year being the financial year ending 31st March, 1966. The assessee is a private limited company which has been acting as managing agent of Swastik Oil Mills Ltd. since several years past. Some time towards the end of 1965, the assessee decided to start a new business for manufacture of scientific instruments and communication equipment. The assessee appointed one Dr. Ramanathan as General Manager of the new business in November, 1965, and Dr. Ramanathan imme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see preferred an appeal to the Appellate Assistant Commissioner and before the Appellate Assistant Commissioner, the claim for deduction was confined to a sum of Rs. 13,770. The Appellate Assistant Commissioner disagreed with the view taken by the Income-tax Officer and held, relying on the decision of the Bombay High Court in Western India Vegetable Products Ltd. v. Commissioner of Income-tax, that since the assessee purchased raw materials and stores in January, 1966, the new business of the assessee must be held to have been set up in January, 1966, and the assessee was, therefore, entitled to deduction of revenue expenditure made by it during the period from 1st January, 1966, up to 31st March, 1966. The Income-tax Officer being aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set up. The contention of the revenue is that, on the facts on record, it was impossible for the Tribunal to have come to the decision that the business of the assessee was set up in January, 1966, or at any time prior to 31st March, 1966. We would, therefore, reframe the question so as to read : "Whether 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 ?" This question as refrained, we now proceed to consider, Now the question as to when a business is set up assumes importance because, according to section 3(1)(d) of the Income-tax Act, 1961, the previous year for a business newly set up in a financial year means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to when a business can be said to be set up is no longer a matter of doubt or debate. It is concluded by a decision Of the Supreme Court in Commissioner of Wealth-tax v. Ramaraju Surgical Cotton Mills Ltd. We shall presently refer to that decision but before we do so, it is necessary to refer to one other decision and that is the decision of the Bombay High Court in Western India Vegetable 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 Income-tax Act, 1922, corresponding to section 3(1)(d) of the Income-tax Act, 1961, what is required to be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st April, 1957, or after. The Supreme Court, speaking through Bhargava J., pointed out : "Thereafter, the High Court referred to a decision of the Bombay High Court in Western India Vegetable Products Ltd. v. Commissioner of Income-tax, and, on its basis, concluded that the proper meaning to be assigned to the expression 'set up' in section 5(1)(xxi) would be 'ready to commence business'. We are unable to agree with the learned counsel for the Commissioner that, in arriving at this view, the High Court committed any error. A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit has been put into such a shape that it can start functioning as a business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered out the necessary machinery and equipment. These were merely operations for the setting up of the business. The business could be set up only as a culmination of these operations when all that was necessary for the setting up of the business was done. The new business in the present case could not, therefore, be said to be set up by the assessee until July, 1966, when the machinery was installed and the factory was ready to commence business. We, therefore, answer the question as reframed by saying that the finding of the Tribunal that the business of the assessee was set up in the previous year that is, prior to 31st March, 1966, was contrary to evidence or based on no evidence at all. It was impossible for the Tribunal to have come ..... X X X X Extracts X X X X X X X X Extracts X X X X
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