Commencement of business and entitlement to business expenses fixed at 19 August 1961, not February 1961.

Question whether commencement of business occurred in February 1961 or later centered on marketability of the plants output. The court rejected a rigid quality/marketability test as determinative and treated factual findings of the Tribunal as binding. Applying the case facts, the court concluded the assessee-company had set up business by 19 August 1961. Consequences follow: expenses incurred after that date are allowable as business expenses, and the ITO must recalculate admissible business loss, depreciation and development rebate from 19 August 1961. The Tribunal order sustaining the AAC directions was thus not sustained.

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Issues: (i) Whether, on the facts and in the circumstances of the case, the assessee-company had set up business in February, 1961?

Analysis: The question turns on whether mere installation of plant and initial charging of raw material for trial runs suffices to show that the business was "set up" (i.e., ready to commence business) or whether obtaining the end product in appreciable quantity is required to show readiness to commence production. The court examined the log reports and the Tribunal's supplementary statement of case, noting that early trial runs yielded almost no product but the period 19th August, 1961 to 11th September, 1961 showed that ether was formed in reasonable quantities though of sub-standard quality. Precedents distinguish "setting up" (establishment/readiness to commence) from actual commencement; expenses during the interregnum may be deductible if the business is set up. The Tribunal's factual findings as recorded in the statement and supplementary statement of case are binding on the court.

Conclusion: On the facts and in the circumstances of the case, the assessee must be regarded as having set up its business by 19th August, 1961 and not in February, 1961.

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