1984 (3) TMI 170

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....nd they may be stated as under. The assessee is a private limited company and it is incorporated under the Companies Act on 7th April, 1975. Copy of memorandum and articles of association is filed before us. The main object of the assessee company is stated to be to carry on business of exporters of all kinds of goods produced, manufactured, grown in India and importers of all kinds of goods permitted by the government of India and generally to carry on the business of exporters and importers and Act as manufacturer representative. At the time of hearing of these appeals it is stated by the assessee's counsel Shri M.J. Swamy that the man contemplated business of the assessee was export of tobacco. The previous year for 1979-80 is ended with....

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.... 1,332.70 . 562.50 30-6-1980 300.00 To Rent 120.00 . By share transfer fee . 2.50 To Postage 2.95 . fee 2.00 100.00 To Audit fee 100.00 562.50 By net loss 739.29 60.00 To Filing fee 180.00 . . . 100.00 To legal expenses - . . . . To Printing & Stationery 1.34 . . . . To Bank charges 1.00 . . . 562.50 . 741.29 562.50 . 741.29 From the above figures in the profit and loss account for the accounting periods relevant to the assessment years under consideration it would be clear that the assessee took on rent a building, incurred some expenses like filing fees, audit fee, postage and telegra....

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...., I do not think that the business as such is set up. I, therefore, treat the loss as on account of capital nature and is not allowed for carry forward." The same comments were made even while completing the assessments for two other years by the ITO. Ultimately while framing the assessments for the three assessment years under consideration the ITO refused to carry forward the losses and assessed the assessee at nil income. 3. Aggrieved against he assessments the assessee preferred appeals before CIT (A), Hyderabad. It is contended before him that the expenses incurred after the business is set up and before the business is commenced should be held to be deductible expenditure based upon the decision of the Bombay High Court in Wester I....

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....taking premises on rent, equipping it with furniture, typewriter, telephone etc., and by employing some people to maintain office the assessee could be said to have brought into existence the business apparatus and it could be said to have set up business. But setting up of office by itself would not amount to commencement of business. Therefore, it is clearly seen that in the thinking of the ld. CIT (A) there should be commencement of business before expenses incurred in between the date of setting up and commencement of business are to be allowed as legitimate business deduction. The question that crops up for our consideration is whether this thinking of the CIT (A) is in tune with the correct legal position on the subject. 4. In West....

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....t before it is ready to commence business it is not set up. There may, however, be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deduction." In CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC) no doubt the case turns upon the provisions of WT Act, i.e. on the wording of s. 5(1)(xxi) and the words used in that sub-section were 'date of commencement of operation for establishment of unit'. Even while interpreting the true meaning of those words the Supreme Court approved the dicta of the Bombay High Court in (1954) 26 ITR 151 (Bom). In Sarabhai Management Corporation Ltd. vs. CIT (1976) 102 ITR 25 (Guj) the facts ....

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....e. The Gujarat High Court approved the decision of Bombay High Court approved the decision of Bombay High Court in (1954) 26 ITR 151 (Bom). The Gujarat High Court ultimately held that from October, 1964, the assessee could be said to have commenced its business activity and, therefore, the assessee had commenced business on that date. At p. 32 of the reported decision the Gujarat High Court held that when business is established and is ready to start business it can be said to be set up. The business must be put into such a shape that it can start functioning as a business or a manufacturing organisation. 5. Applying the ratio of the above three decisions it can be easily seen that the business sought to be set up by the assessee company....