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TMI Blog1991 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... s expenses under section 30 and/or section 37 of the Income-tax Act, 1961 ? " Assessment year 1965-66 : "2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses of Rs. 27,000 incurred in connection with rent of plot of land and Rs. 1,00,000 incurred on account of foreign tour of Shri S. K. Agarwalla are not deductible as business expenses under section 30 and/or section 37 of the Income-tax Act, 1961 ? " The facts, inter alia, are that the assessee is Messrs. Mining Machinery and Explosives (P.) Ltd. and the assessment years involved are 1964-65 and 1965-66. The assessee-company although named as Mining Machinery and Explosives (P.) Ltd. was dealing in detonators manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expense, according to the Income-tax Officer, was neither incidental to business nor of a trading nature. For similar reasons, he made the disallowance in the following year. The assessee-company filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner discussed the order in detail in the assessment order for the assessment year 1964-65. He held that it was clear from the very nature of the transaction that the expenditure was in regard to the object of purchase and sale of certain goods with a view to make profit. It was accordingly connected with the assessee's business which was that of a dealer in goods. The Appellate Assistant Commissioner observed that although the assessee was dealing only in mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that it decided to deal in manganese ore and steel. The lines in which the assessee was already dealing and the line in which the assessee decided to deal were entirely different. The assessee-company was only a distributor and was as such earning its income by getting commission on sales. On the other hand, the new line of business, i.e., of exporting manganese ore and importing steel on barter basis were altogether a new one and the assessee diversified its line by dealing in new goods because it did not take any agency for distribution of manganese ore or steel but tried to deal exclusively in these goods not on commission basis or on distributorship but as an exporter and importer. On facts, therefore, we are unable to uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and import business could not mean that the business had been set up. The assessee's business in this regard was only in an exploratory stage and the assessee-company sent, firstly Mr. Iyer and then its director, Shri S.K. Agarwalla abroad to explore the possibilities of export and import but nothing came out of it. The premises were also taken on rent because the assessee-company proposed to deal in these new lines but barring payment of rent nothing was done. In our opinion, the business of export and import was never set up. Therefore, the assessee-company was not entitled to claim any expense in that regard." The learned advocate for the assessee submitted that it may be necessary to pass through a preparatory stage before actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny wanted to start a new line of business, viz., the export of manganese ore and import of steel on barter basis. The assessee-company, however, could not succeed in starting the said line of business. It is an admitted position, however, that the said new line of business could not be started by the assessee-company, and, as such, the question of the said expenditure being incurred on the said line of business does not arise at all. Nor could expense incurred in connection with the rent of plot of land for the said purpose be allowable expenditure ; for, such new line of business never materialised. In the case of CIT v. Kanoria General Dealers (P.) Ltd. [1986] 159 ITR 524 (Cal), it has been held that, where a business unit has been set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontemplated by the assessee could not have commenced in this case. In the instant case, on the basis of facts, we are of the view that the assessee decided to set up a new line of business but it never fructified. The Tribunal was correct in holding that the assessee-company is entitled only to claim expenses in respect of the business which was carried on by it and the profits of which are to be computed and assessed and those expenses should be incurred only after the business is set up. It is only when the unit has been put into such a shape that it can be said that the unit has been set up. Since the business of export and import was never set up, the question of allowing the expenses could never arise. The assessee-company, according ..... X X X X Extracts X X X X X X X X Extracts X X X X
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