V. Bhargava, C.J:— These three references are all interconnected and are, therefore, being dealt with by us in one single judgment. In all the three references, the assessee is Sir Shadi Lal Sugar and General Mills Ltd. Reference No. 14 of 1961 is under the Income-tax Act and relates to the assessment years 1946-47 and 1947-48 while Income-tax Reference No. 568 of 1961 relates to the assessment years 1948-49 and 1949-50. The previous year corresponding to each of these assessment years ended on 30th September, so that the first of the previous years concerned ended on 30th September, 1945, and the last one on 30th September, 1948. The excess profits tax reference relates to the assessment years 1946-47 and 1947-48. The chargeable accounting period relating to the assessment year 1946-47 is from 1st October, 1944, to 30th September, 1945, and coincides with the previous year for the assessment year 1946-47 in the Income-tax Reference No. 14 of 1961. The chargeable accounting period relevant to the assessment year 1947-48 is from 1st October, 1945, to 31st March, 1946, and, consequently, forms part of and coincides with the part of the previous year relevant to the assessment year 1947-48 with which we are concerned in Income-tax Reference No. 14 of 1961. Due to this coincidence of chargeable accounting period of the excess profits tax with the corresponding previous years in the income-tax references, the findings given by us in the income-tax reference would be automatically applicable mutatis mutandis to the excess profits tax references.

2. The two income-tax references relate to the claim made by the assessee in respect of losses incurred in a business of manufacture of butyl alcohol and acetone which was taken up by the assessee as a subsidiary business with the principal business of running the sugar mills under one of the clauses of the objects of the public limited company which owns the sugar mills. Under this clause, the public limited company was authorised to add to the manufacture of sugar, manufacture of any other article or other business or machinery for utilising the by-products or as the company may otherwise deem advantageous. The case was that, on the basis of a research carried on by one Mr. Desai of the Indian Agricultural Institute of the Government of India at New Delhi and the process patented by him, the assessee decided to start the manufacture of butyl alcohol, also described as butynol for the purpose of utilising the molasses, which were a by-product of the sugar mills. The assessee negotiated with the Government of India and obtained from it the necessary permission to start the business and also got the necessary technical data. It was on December 2, 1944, that the directors of the assessee-company informed the shareholders that the directors had set up a plant to manufacture butyl alcohol at Mansurpur, and that this plant was nearing completion and would start working shortly. According to the assessee, the fabrication of the plant was completed on March 4, 1945, and the plant actually went into production on March 5, 1945. Consequently, all the expenses incurred up to March 4, 1945, in respect of this plant were capitalised by the company and treated as capital expenditure while the expenses with effect from March 5, 1945, were claimed as expenditure wholly and exclusively laid out for the purpose of business of manufacture of butyl alcohol. The plant had a productive capacity of 100 gallons of butyl alcohol per day. It was claimed that an amount of Rs. 24,075 was expended in the previous year ending 30th September, 1945, and the corresponding amounts expended for the three succeeding previous years were Rs. 43,231, Rs. 53,664-3-6 and Rs. 18,342-10-3. Against these expenses were set off the price of butyl alcohol that was produced and either sold or remaining in stock. The net amount thus worked out as expenditure was claimed as a loan in carrying on this business of manufacture of butyl alcohol during these four years. The Income-tax Officer disallowed this claim on the ground that in fact the plant never went into manufacture of butyl alcohol and always remained only at the experimental stage. This amounted to saying that whatever little butyl alcohol was produced was only the result of experiments being made in the course of setting up of the factory and there was in fact no manufacture at all for the purpose of sale of the finished commodity. It was thus held that, the plant never having gone into production, all the expenses incurred must still be treated as expenses towards capital for the purpose of getting up the plant and not revenue expenditure incurred in running the plant as a manufacturing business. That view was affirmed by the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal. In these circumstances, the following question, which is common to all the relevant four assessment years, has been referred to us for our opinion:

“Whether, on the facts and circumstances of the case, the assessee was carrying on business in the manufacture of butynol and acetone in the assessment years 1946-47 and 1947-48 and as such was entitled under section 10(2) of the Income-tax Act to the reduction of Rs. 24,075 and Rs. 40,831 and the depreciation on factory, building, plant and machinery put up for purposes of manufacture of butynol and acetone in the assessment years 1946-47 and 1947-48?”

3. In the reference made in respect of the subsequent two assessment years 1948-49 and 1949-50, the corresponding question framed is the same language except that for the years mentioned in the earlier reference the years of each later year reference have been substituted and, further, for the amounts in respect of which reduction was claimed as given in the earlier reference, the amounts claimed in the subsequent reference have been substituted. In addition, in the reference relating to the years 1948-49 and 1949-50, an additional question referred is:

“Whether, on the facts and in the circumstances of the case, and in view of section 114 of the District Boards Act, the sum of Rs. 4,000 and Rs. 2,000 were deductible under section 10(2) of the Income-tax Act for the assessment years 1948-49 and 1949-50 respectively?”

4. This question was referred to us because the assessee had claimed that, in respect of its entire business including business of sugar mills, the assessee had paid a sum of Rs. 4,000 in the previous year relating to the assessment year 1948-49 and a sum of Rs. 2,000 in the previous year relating to the assessment year 1949-50 to the District Board because these amounts were due in respect of circumstances and property tax which was assessed on the assessee's properties which formed the capital, the machinery and the plant of the assessee's business of manufacturing sugar and other products. The income-tax authorities disallowed the claim in respect of this on the ground that, under section 114 of the District Boards Act, the tax as circumstance and property was calculated on the basis of the income of the assessee and the tax was, therefore, in the nature of a tax on income which was not a legitimately deductible expenditure under section 10(2) of the Income-tax Act. Since the assessee contested this view of the Income-tax Appellate Tribunal, the question reproduced by us above has been referred to us as the second question for our opinion.

5. On the first question, it appears to us that the point that conies up for consideration is whether the assessee's business of manufacture of butyl alcohol did in fact or did not commence at all during these assessment years and, if it did commence, what was the date with effect from which it commenced of there was no commencement of the business of manufacture of butyl alcohol, it is obvious that no amount can be claimed as revenue expenditure resulting in loss in business, whereas if it is found that the business was actually commenced, expenditure incurred thereafter would be in the nature of revenue expenditure claimable under section 10(2)(xv) of the Income-tax Act on the ground that it was wholly and exclusively laid out for the purpose of carrying on that business of manufacture. There is no dispute at all with regard to the expenditure that was incurred up to March 4, 1945. The assessee itself capitalised all the expenditure up to that date and did not claim it to be revenue expenditure incurred for the purpose of making taxable income. The dispute arises with regard to the expenditure incurred with effect from March 5, 1945.

6. The first period that is to be considered is the period from March 5, 1945, up to 30th September, 1945, which forms part of the previous year relating to the assessment year 1947-48 in the income-tax reference and part of chargeable accounting period for the assessment year 1946-47 in the excess profits tax reference. From the findings of fact recorded by the Tribunal in the appellate order read with the facts given in the statement of the case as well as the facts given in the order of the Income-tax Officer and the Appellate Assistant Commissioner, which have been incorporated as parts of the statement of the case, we find that during this period there was a consumption of raw materials of a small value of Rs. 2,000 and odd while there was absolutely no production at all of the finished products, viz., butyl alcohol or acetone. This fact as found by these authorities has not been challenged before us by learned counsel for the assessee. It would thus appear that during the period in question a small amount of raw materials was obtained and probably used up by the assessee in the plant which had been set up for manufacture of butyle alcohol but not a single drop of that alcohol was actually produced in the plant. It seems to us that procurement or use of a small quantity of raw material with no production of the finished article cannot lead to a finding that the actual work of manufacture of butyl alcohol had been commenced during this period. In this connection we may refer to the opinion of Rowlatt J. in Birmingham & District Cattle By-Products Co. Ltd. v. Commissioners of Inland Revenue 1919 12 Tax Cas. 92.. In that case the assessee-company was incorporated on June 20, 1913, for the purpose of carrying on the business of making some use of the by-products of the butcher's trade. It arose out of a combination of a number of butchers who entered into a contract with the trustee of the company to be formed that they would supply, and the company would take, these products. The assessee-company took over those agreements, and, having taken over those agreements, the directors, at the expense of the company, went about and looked at places of business of a similar character in various parts of the country. Then they entered into a contract for erection of works, which works were duly erected in July, 1913. Thereafter, they entered into agreements for the purchase of products and in August, 1913, they engaged and employed a man as a foreman of works who prior to October, 1913, superintended the manufacture of utensils. It was with effect from 6th October, 1916, that they began to take the raw materials and to turn out their products. Rowlatt J., on these facts, held that all the steps taken up to 6th October, 1913, were steps preparatory to going into manufacture and that the actual business of manufacture was commenced when they began to take the raw materials and to turn out their products which started on 6th October, 1913. In the present case before us, it is true that the erection of the plant was completed on March 4, 1945, but, even thereafter, though a small quantity of raw materials was taken, there was actually no turning out of the finished products during the period with which we are at present dealing, viz., the period up to 30th September, 1945. During this period, admittedly no finished products were turned out and, consequently, it cannot be said that the business of manufacture of butyl alcohol had already commenced during this period. Even if some raw materials were consumed, the only inference would be that those materials were used up in carrying on some experiments which did not result in the actual production of the finished products so that there was no commencement of the business of manufacture. In respect of the first period, therefore, we consider that the view taken by the Income-tax Appellate Tribunal is perfectly correct.

7. Then we proceed to consider together the two subsequent periods from 1st October, 1945, to 31st September, 1946, and from 1st October, 1946, to 30th September, 1947, which periods correspond to the assessment years 1947-48 and 1948-49. During the first of those previous years, it appears that a substantial amount of raw materials was consumed. The value of raw materials given in the statement of the case is Rs. 11,735 which includes a sum of Rs. 237 representing the cost of molasses issued. Molasses were specially mentioned as they were the main ingredients used as the raw material in the manufacture of butyl alcohol. In the second of the two periods, the raw materials used were of the value of Rs. 16,088-14-6, which we presume will include the cost of the molasses issued, though it is not specifically mentioned in the statement of the case. The facts as given in the statement of the case and in the judgment of the Tribunal show that there was no dispute that these expenses for the raw materials were actually incurred. It will thus be seen that the facts found indicate that raw materials of substantial value were consumed during these two periods. The figures given in the statement of the case further show that during the first of those two periods 140 gallons of butyl alcohol was actually produced and in the second period the actual production of butyl alcohol was 353 gallons. Thus there was an actual turnout of the finished material during these two periods. The case put forward by the assessee that those finished products were offered for sale has also been accepted. It was, however, found that there were no actual sales in the first of these two periods corresponding to the previous year for the assessment year 1947-48, whereas 193 gallons of butyl alcohol were actually sold for a sum of Rs. 1,930 during the second period which represents the previous year relating to the assessment year 1948-49. In the first year, there were no sales because, though the goods were offered to the Government for sale, the Government did not consider that the quality of the products justified purchase by the Government. On these facts, we are of the opinion that the only possible finding is that the business of manufacture had commenced and was being carried on during the two periods. The income-tax authorities including the Income-tax Appellate Tribunal did not accept this case on the view that, even during these two periods, the plant was still at an experimental stage and this inference was drawn from the circumstance that the out-turn of the finished products of butyl alcohol was very small, being 145 gallons in the first period and 353 gallons in the second period, when the plant had a capacity of producing 100 gallons a day. We consider that for taking this view, the Tribunal had no jurisdiction. The mere fact that the finished product which was considered marketable was small in quantity cannot necessarily lead to the inference that the plant had not started the process of manufacturing the finished products. The Tribunal seems to have ignored completely the fact that raw materials obtained at very substantial cost were consumed during both these periods. The fact that raw materials of those values were consumed can lead to no other inference except that the plant must have been run for substantial periods for the purpose of producing butyl alcohol. It seems that, though a large quantity of raw materials was actually consumed, the finished product happened to be small in quantity and that was probably the reason that the business ran at a loss. The mere fact that the business ran at a loss does not mean that the process of manufacturing was not going on with the object of producing the finished product and putting it on the market. In fact, all ingredients to show that manufacture had begun were available on the facts found by the Tribunal and the income-tax authorities themselves. There was the fact that substantial quantity of raw materials had been consumed, that certain quantity of the finished product was produced and those finished products were offered for sale or were actually sold during these periods. It may be that, because of some defect in the business, molasses or the plant or in the process which was being carried out, the actual out-turn of the finished product was very unsatisfactory; it may be that the major part of the finished product was unmarketable or for some other reason a large quantity of the finished product could not be turned out, but that would be quite immaterial. The facts clearly show that the plant was run for substantial periods, raw materials had been consumed with the sole object of turning out the finished products and finished products were produced and offered for sale or actually sold. Consequently, there can be no other conclusion except that the business of manufacture had commenced and was carried on during these two periods. In these circumstances, in respect of the two assessment years 1947-48 and 1948-49, the first question referred to us must be answered in favour of the assessee.

8. Lastly, we deal with the case relating to the fourth period from 1st October, 1947, to 30th September, 1948, relevant to the assessment year, 1949-50. The finding recorded for this year is that there was during this year no production and that in fact the distillery did not work at all during this year. The non-working of the distillery was admitted by the representative of the assessee in his own statement. During this year, therefore, the process of manufacture of butyl alcohol was not carried on at all. The income-tax authorities and the Tribunal in these circumstances held that the business of manufacture of butyl alcohol was not carried on at all during this year and we are unable to hoid that the finding so recorded in any way suffers from an error of law. The finding is based on the evidence given by the representative of the assessee itself.

9. In this connection, learned counsel appearing for the assessee urged two points before us. The first point urged was that, even though there was no carrying on of the process of the manufacture of butyl alcohol during this year, the facts found show that 145 gallons of butyl alcohol already in stock were sold and expenses were incurred in advertising and doing other work relating to sale so that it should not have been held that the business during this year was not carried on and had stopped. There are two reasons why we have to hold that the assessee cannot claim any benefit on such a plea. The first reason is that the assessee, in putting forward its case before the income-tax authorities, had set up the plea that the business which was being carried on by the assessee was that of manufacture of butyl alcohol and there was no mention that the business was, or that even a part of the business consisted of, sale of butyl alcohol. It appears that the work of sale of butyl alcohol was treated as a minor and ancillary part of the main business of manufacture of butyl alcohol. Even in the objects of the company, there was only a mention of the manufacture of other articles being taken up as a subsidiary business, and before all the authorities which had occasion to deal with the case, the assessee all the time contended that the business of manufacture of butyl alcohol was going on. At no stage was the plea taken in the alternative in respect of this particular year that it should be held that, though the business of manufacture had closed down, the business of selling butyl alcohol was still continuing. The second reason is that, before the income-tax authorities, the claim which was made for loss was based on the entire expenditure incurred during this period 1st October, 1947, to 30th September, 1948, without any specification that the expenditure related to carrying on the business of sale of the stock of butyl alcohol and that it was separable from the expenditure which was being claimed as having been incurred in the manufacture of butyl alcohol. In fact the statement of the case shows that at least some of the items could not have been expenditure for the purpose of sale of butyl alcohol only. One such item is wages on engineering and chemical staff which can only be needed in the manufacturing process. There being no separate claim that there was any expenditure solely and exclusively incured for the purpose of continuing the business of sale of stocks of butyl alcohol, we are unable to hold that in this year any part of the deduction claimed can be allowed as deductible expenditure under section 10(2)(xv) of the Income-tax Act simply because some stocks were sold during this period.

10. The second point urged by learned counsel was that in any case it should have been held by the Tribunal that, during this period, the business of manufacture of butyl alcohol had merely remained dormant and there should have been no finding that the business had been closed down. It is true that in so many words none of the income-tax authorities has recorded a clear finding that the business of manufacture of butyl alcohol had been closed down in this period but they all rejected the claim of the assessee on the ground that the distillery which was the most essential part of the business of manufacture had not been worked at all during this year. The finding that the distillery was not worked at all provided some evidence and material for holding that the business of manufacture had ceased during this year and we cannot say that the finding thus accepted by these authorities is without any evidence. The question whether the business of manufacture only remained dormant was not in this form raised by the assessee before these authorities or the Income-tax Appellate Tribunal and, consequently, they had no occasion to record any finding thereon. Learned counsel drew our attention to the fact that on December 10, 1948, the directors in their report for the accounts for the year ending 30th September, 1948, stated that they were sorry to inform the shareholders that during the year the distillery could not be worked at all, but they expected that in the coming year they would be able to work it after the arrival of the trained chemist and scientific instruments ordered from America. Learned counsel urged before us that, from this report of the directors, an inference should have been drawn that the business was only dormant. We think that at this stage it is not competent for us to go into this aspect. It was for the assessee to invite a decision from the Income-tax Appellate Tribunal on the question whether the business of manufacture of butyl alcohol was only dormant during the year ending 30th September, 1948, or had been closed down. That the business was not carried on during this year was the basis of the order of the Appellate Assistant Commissioner for disallowing losses claimed and, in case the assessee wanted to claim those losses on the ground that the business was only dormant, it was for the assessee to raise that plea before the Appellate Tribunal and invite a decision from the Tribunal. There is no material at all to show that any decision was ever invited from the Tribunal. In fact, if the question had been investigated by the Tribunal, there would have been other relevant factors to be taken into account such as the question whether in fact there was any resumption of the business of manufacture subsequently in accordance with the assurance given by the directors in their report to the shareholders. The question not having been raised and not investigated, we do not consider that we at this stage can interfere with the view taken by the Tribunal by recording a finding of our own based on this one single material provided by the directors' report to the shareholders. In these circumstances, the finding that during this year the business of manufacture was not carried on at all has to be accepted as correct and on that finding the claim for deduction in respect of this year must be rejected.

11. As a result the first question is answered in the affirmative in respect of the assessment years 1947-48 and 1948-49 and in the negative in respect of the assessment years 1946-47 and 1949-50. So far as the second question referred to us is concerned, it seems to us to be unnecessary to examine it in detail as we see no reason to differ from the view already taken by this court in Simbholi Sugar Mills Ltd. v. Commissioner of Income-tax. The facts in that case were similar and this court, relying on a Privy Council decision, held that circumstances and property tax imposed by a district board and realised from the sugar mill carrying on its business in the area of the district board is an expenditure wholly and exclusively incurred for carrying on the business of the sugar mill and a deductible expenditure under section 10(2)(xv) of the Income-tax Act. The Privy Council case relied upon was Commissioner of Income-tax v. Gurupada Datta [1946] 14 I.T.R 100 P.C., though it appears that due to some clerical error the reference in the printed reports of that case is to Commissioner of Income-tax v. Sri Visweswar Das Gokuldas [1946] 14 I.T.R 110.. The latter case was one decided by the Madras High Court and did not relate to this point at all. On the other hand, it is clear that the case which was referred to was the Privy Council case mentioned by us above. According to the decision given by this court in the case of Simbholi Sugar Mills Ltd., the second question must be answered in the affirmative in favour of the assessee and we answer it accordingly.

12. In the circumstance that the questions have been partly answered in favour of the assessee and partly against it, we direct the parties to bear their own costs of this reference. We assess the counsel's fee at Rs. 500 as the consolidated amount in respect of all the three references.