TaxTMI 
TaxTMI 
2003 (2) TMI 54
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....ng activity for the production of cement. It had claimed expenditure of certain amounts (excluding depreciation) incurred as an allowance deduction in the computation of the total income. The claim of the assessee is that the commencement of limestone mining is the first activity relating to cement manufacture so far as their cement business is concerned. The assessee also claimed depreciation and investment rebate on plant and machinery installed and used in the mining activity. The Inspecting Assistant Commissioner held that the business of the assessee was not set up nor did it start manufacturing activity of cement production and, therefore, is not entitled for any deduction as claimed by the assessee. The officer accordingly disallowed the claim for deduction of Rs.23,26,619 and as well as the assessee's claim for depreciation and investment rebate. On appeal, the Commissioner of Income-tax, relying upon the decision of the Gujarat High Court in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 allowed the expenditure on quarrying of limestone as well as depredation and development rebate on the machinery employed. The Commissioner came to the concl....
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....f the Tribunal as well as the appellate authority in appreciating this aspect of the matter. Even the Department contended before the Tribunal that the assessee had not commenced its business of manufacture of cement. The Tribunal also held that the assessee has commenced its business of cement manufacture. However, the learned senior standing counsel submitted that what is required to be considered is the setting up of a business. In our considered opinion the setting up of a business is not the same as commencement of business. It is not necessary for an assessee to claim the benefit of deduction of expenditure and also depreciation and investment rebate on the ground of its commencement of business. It would be enough if the assessee establishes that it had set up the business. In the instant case it would have been enough for claiming the benefit that the assessee had already set up of a business of manufacturing cement. In CIT v. Sarabhai Sons Pvt. Ltd. [1973] 90 ITR 318, the Gujarat High Court noticed the clear distinction between "commencement of business" and "setting it up" for the purposes of section 3(1)(d) of the Income-tax Act, 1961 (as it stood at the relevant t....
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....which constituted the business of the assessee were divisible into three categories: the first category consisted of the activity of extraction of limestone by quarrying leased area of land. This activity was necessary for the purpose of acquiring raw material to be utilized in manufacture of cement. The second category comprised the activity of manufacture of cement by user of the plant and 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 activiti....
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....when the assessee actually commenced the manufacture of cement as such. There is also no finding as to when exactly the machinery and plant for the manufacture of the cement has been set up. The Tribunal proceeded to hold that the assesses having commenced quarrying limestone, which is an essential raw material for the manufacture of cement, in reality commenced the business of cement manufacturing. In CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 (SC), the, expression "set up" in the principal clause of section 5(1)(xxi) of the Wealth-tax Act, 1957, came up for consideration. The Supreme Court in categorical terms held that a unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing Organisation that it can be said that the unit has been set up. The Gujarat High Court in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 distinguished this binding precedent on the ground that the question before it was a different one, viz., as to when the business of the assessee could....
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....he judgment, in our considered opinion, does not support the case set up by the assessee but, on the other hand, supports the submission made by learned senior counsel appearing on behalf of the Revenue. It is not the case of the assessee that the plant and machinery has been erected within a short span of time after commencement of the quarrying of limestone. There is no material available on record as to when the plant and machinery for the manufacture of cement has been erected. As observed by this court, what activities constitute commencement of business is a mixed question of fact and law and it has to be decided on the facts of each case. On the facts of this case it is not possible to hold that the assessee had set up the business and commenced the manufacture of cement as such. In Sarabhai Management Corporation Ltd. v. CIT [1976] 102 ITR 25 (Guj) the Gujarat High Court approvingly referred to its earlier decision in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 and observed that in each case what is required to be done is to determine what was the business of the assessee and in particular what are the activities which constituted such busi....
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....s activities were also business activities to ensure that everything was in shape, for the use of the occupier. This judgment of the Gujarat High Court received the approval of the Supreme Court in CIT v. Sarabhai Management Corporation Ltd. [1991] 192 ITR 151. However, the Supreme Court observed that the first category of activities referred to by the High Court, viz., acquisition of a property for being let out can be said to be only a preparatory stage (analogous to the acquisition of buildings, plant and machinery in a manufacturing business). The subsequent activities certainly constitute activities in the course of the carrying on of the assessee's business. The Supreme Court accordingly held that it would not be correct to treat the assessee as having commenced its business only when the licensee or lessee occupied the premises or started paying rent. Relying upon these decisions learned counsel for the assessee argued that the Supreme Court had put its seal of approval and accordingly upheld the principles laid down by the Gujarat High Court in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170. It was contended that the principles laid down in Sa....
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....sed area of land the next activity in the chain of manufacture of cement by user of plant and machinery set up for the purpose has also begun. It is for the assessee to establish the same and if the same is not established the assessee cannot be held to have set up the business of manufacture and sale of cement. For the aforesaid reasons we find it difficult to apply the ratio laid down by the Gujarat High Court in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 even if the ratio laid down therein is held to have received the approval of the Supreme Court in CIT v. Sarabhai Management Corporation Ltd. [1991] 192 ITR 151. Learned counsel for the assessee, however, strenuously contends that the whole question referred for the opinion of this court has become an academic one and an academic question need not be answered by this court. Learned counsel submitted that this court, in the facts and circumstances of the case, may have to refuse to answer the question. Learned counsel relied upon the judgment of the Supreme Court reported in CIT v. Smt. Anusuya Devi [1968] 68 ITR 750 in which the Supreme Court observed : "The High Court may decline to answer ....