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TMI Blog1972 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... cence to establish a cement manufacturing plant in the name of "Saurashtra Cement Works Ltd." The assessee was in the meantime incorporated on 11th June, 1956, and it took over the benefit of the mining lease as also of the licence to set up a cement manufacturing plant. On 12th December, 1956, the assessee placed an order for plant and machinery of the value of about rupees one crore and on 9th January, 1957, the Registrar of Companies granted to the assessee a certificate to commence business. The assessee purchased machinery of considerable value for the purpose of carrying on quarrying operations and started extracting limestone from the leased area from April, 1958. The plant and machinery which had been ordered by the assessee arrived in the meantime and the assessee completed the installation of the plant and machinery in June, 1960, and started manufacture of cement in October, 1960. Now certain expenditure was incurred by the assessee by way of salary, travelling expenses, brokerage, bank guarantee, dead rent, electricity charges, salary, insurance charges, etc., in connection with the installation of the plant and machinery as also for carrying on operations for quarrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be allowed as permissible deductions in computing the taxable profits of the assessee only if the assessee carried on business during the relevant years of account and since the business of the assessee was not commenced until after the end of the relevant years of account, the assessee was not entitled to deduction in respect of these items. The Appellate Assistant Commissioner, accordingly, enhanced the assessment of the assessee by disallowing these items and adding them back. The assessee being aggrieved by the decision of the Appellate Assistant Commissioner preferred appeals to the Tribunal. The assessee contended before the Tribunal that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment by disallowing expenditure incurred for the purpose of extracting limestone as also depreciation allowance and development rebate in respect of machinery employed for that purpose, but this contention was negatived by the Tribunal and the power of the Appellate Assistant Commissioner to enhance the assessment by disallowing these deductions was upheld. However, so far as the merits of the disallowance were concerned, the Tribunal disagreed with the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, justified in law ? " The second question relates to the competence of the Appellate Assistant Commissioner to enhance the assessment, but that question would need to be considered only if we decide the first question against the assessee. Let us, therefore, first consider the first question. Now, it is elementary that expenditure in order to be deductible as revenue expenditure must be incurred for the purpose of the business which is carried on by the assessee in the relevant accounting year. It is a sine qua non of expenditure which is a permissible deduction that there should be a business carried on by the assessee in the relevant accounting year and the expenditure must be for the purposes of that business. The expenditure claimed by way of deduction in the present case was incurred during the accounting years ending 30th June, 1959, and 30th June, 1960, and it was laid out wholly and exclusively for the purpose of carrying on the activity of extraction of limestone. It could, therefore, be allowed as a permissible deduction only if it could be shown that the assessee commenced its business when it started extraction of limestone or, in other words, extraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery set up for the purpose ; and the third category consisted of the activity of selling manufactured cement. These three activities combined together constituted the business of the assessee. Each one of these activities was as much essential for the purpose of carrying on the business of the assessee as the others. If the assessee ceased to carry on any one of these activities, the business would come to an end. Each one of these activities constituted an integral part of the business of the assessee. Why then can it not be said that the assessee commenced its business when it started the first of these activities ? The activity of quarrying the leased area of land and extracting limestone from it was as much an activity in the course of carrying on the business as the other two activities of manufacture of cement and 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an essential activity in the course of carrying on the business, or which, in other words, is a business activity is started, the assessee must be held to have commenced the business. To take any other view would not only be illogical but also irrational. The conclusion reached by the Tribunal cannot, therefore, be said to be unreasonable or perverse or based on no evidence at all. The revenue sought to combat this conclusion by relying on the decision of the Bombay High Court in Western India Vegetable Prodtucts Ltd. v. Commissioner of Income-tax. We do not see how this decision can be of any help to the revenue in the present case. The only proposition for which this decision can be cited as an authority is that there is a distinction between the setting up of a business and the commencement of a business and that distinction is that when a business is established and is ready to commence business, 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. This decision does not lay down that when a business consists of several activities one of which must necessarily precede the other, the starting of the first activity can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression used in the proviso, under which the period for which the exemption is available is to be determined, is not the same as that used in the principal clause. In the proviso, the period of five successive years of exemption has to commence with the assessment year next following the date on which the company commences operations for the establishment of the unit. Operations for the establishment of a unit, from the very nature of that expression, can only signify steps that have to be taken to establish the unit. The word 'set up' in the principal clause, in our opinion, is equivalent to the word 'established', but operations for establishment cannot be equated with the establishment of the unit itself or its setting up. The applicability of the proviso has, therefore, to be decided by finding out when the company commenced operations for establishment of the unit, which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause ... These operations 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on no evidence at all. We fail to see how a decision given on one set of facts can bind us to reach a similar decision on a totally different set of facts. There is nothing in this decision which would deflect us from the view which we are otherwise inclined to take. We must, therefore, bold that the assessee commenced its business when it started the activity of extraction of limestone by quarrying the leased area of land. Since extraction of limestone commenced from April, 1958, it must be held that the assessee was carrying on business during the relevant years of account and the Tribunal was right in taking the view that the expenditure incurred by the assessee in carrying on the activity of extraction of limestone as also depreciation allowance and development rebate in respect of the machinery employed in extracting limestone were deductible in computing the trading profits of the assessee for the assessment years 1960-61 and 1961-62. We, accordingly, answer the first question referred to us in the affirmative. On this view of the first question taken by us, it becomes unnecessary to consider the second question and we do not, therefore, propose to answer it. The Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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