1954 (3) TMI 59 - HC - Income Tax

Assessee's Business Commencement Date Clarified by Court

Western India Vegetable Products Ltd. Versus Commissioner of Income-tax

Western India Vegetable Products Ltd. Versus Commissioner of Income-tax - [1954] 26 ITR 151 Issues Involved:1. Determination of the commencement date of the business for the purpose of allowable deductions.2. Justification for disallowing expenses incurred before a certain date.3. Interpretation of 'setting up' versus 'commencement' of business.Issue-wise Detailed Analysis:1. Determination of the commencement date of the business for the purpose of allowable deductions:The central issue revolves around identifying the correct date when the assessee company commenced its business activities for the purpose of allowable deductions under the Income-tax Act. The Income-tax Officer determined that the business commenced on 1st November 1946, when the oil mill was purchased. In contrast, the Appellate Assistant Commissioner (AAC) held that the business commenced on 20th April 1946, the date the certificate of commencement of business was obtained. The Tribunal, however, concluded that the business activities began on 1st September 1946, based on the first purchase of raw materials and other preparatory activities.2. Justification for disallowing expenses incurred before a certain date:The Income-tax Officer disallowed expenses incurred before 1st November 1946, considering them not related to the business activities. The AAC allowed expenses incurred after 20th April 1946, arguing that they were necessary for carrying on the business. The Tribunal, however, disallowed expenses prior to 1st September 1946, reasoning that business activities could only be said to have commenced when some activity related to carrying on the business was done, such as purchasing raw materials.3. Interpretation of 'setting up' versus 'commencement' of business:A significant legal question was whether there is a distinction between 'setting up' and 'commencement' of business. The judgment clarified that 'setting up' means establishing or placing on foot, while 'commencement' refers to the actual start of business operations. The court noted that a business is set up when it is ready to commence operations, and expenses incurred during the interval between setting up and commencement are permissible deductions under Section 10(2) of the Income-tax Act.Judgment Analysis:The court agreed with the Tribunal's broader interpretation, which considered multiple factors, including the certificate of commencement, the purchase of the oil mill, and the details of expenses. The court emphasized that the Tribunal did not solely rely on the date of the first purchase of raw materials but took into account various surrounding circumstances to determine the commencement date.The court also highlighted that the appropriate question should have been whether there was evidence before the Tribunal to hold that the assessee company commenced its business from 1st September 1946. The court found that the Tribunal had indeed considered the nature of the expenses and other relevant factors in arriving at its decision.The court concluded that the Tribunal's decision was based on sufficient evidence and that the expenses incurred before 1st September 1946 were rightly disallowed. The court redrafted the question as: 'Whether there was evidence before the Tribunal to hold that the assessee company set up its business as from 1st of September, 1946Rs.' and answered it in the affirmative, dismissing the notice of motion with costs.