1. This reference arises out of assessments to income-tax made on the assessee for the assessment years 1960-61 and 1961-62, the relevant account years being the years ending 30th June, 1959, and 30th June, 1960. The assessee is a limited company incorporated on 11th JUne, 1956. It was floated by one Nanji Kalidas mehta and the members of his family, On 24th November, 1955, prior ot the incorporation of the assessee, a mining lease was granted by the Goverment of Saurashtra to Nanji Kalidas Mehta for quarring limestone form certain areas of land. This mining leases was obtained by Nanji Kalidas because he intended to set up a cement manufacturing plant and limesone is an essential raw material in the manufacture of cement. Nanji Kalidas Mehta, thereafter, obtained form the Goverment of India on 16th December, 1955, a licence to establish a cement manufacturing plant in the name of "Saurashtra *cement Works ltd." The assessee was in the meantime incorporated on 11th June, 1956, and it took over the beneift of the mining lease as also of the licence to set up a cement manufacturing plant. On 12th December, 1956, the assessee palced an order for plant and machinery of the value of about rupees one crore and on 9th January, 1957, the Ragistrar of Companies granted to the assessee a certificate to commence business. The assessee purchased machinery of considerble value for the purpose of carrying on quarrying oprations and started extracting limestone form the leased area form April, 1958. The plant and machinery which had been ordred by the assessee arrived in the meantime and the assessee completed the installation of the plant and machinery in JUne, 1960, and started manufacture of cement in octber, 1960. Now certain expenditure was incured by the asesse by way of salary, travelling expenses, broker age, bank gurantee, dead rent, electricity charge, salary, ibnsurance charges, etc., in connection with the insatllation of the plant and machienry as also for carrying on oprations for quarrying limestone and in the course of the assessment of the assessee to income-tax for the assessment years 1960-61 and 1961-62, the assessee claimed that this expenditures should be allowed as a premissble deduction. The assessee also claimed to be entitled to an allowance in respect of depreciation and devolpment rebate on the machinery emplyoed in the extraction of limestone. the Income-tax Officer took the view that the expenditure in so far as it rebated to extraction of limestone was allowable as revenue expenditure, but the expenditure incurred in connection with the installation of the palnt and machinery was capital expenditure and could not be deducted in computing the trading profits of the assessee. So far as the claim of the assessee for depreciation and devlopment rebate on the machinery installed in the extraction of limestone was concerned, the Income-tax Officer allowed that claim on the basis though there was no express statement to that effect that extraction of limestone was part of the business of the assessee and the machinery being thus used for the purpose of businessm depreciation and development rebate on it were property chargeable against the trading results of the assessee. The assessee was dissatisfied with the decision given by the Income-tax officer in so far as it disallowed expenditure incurred in connection with the installation of the plant and machinery, and, hence, it preferred appeals to the Appellate Assistant Commissioner, there being a separte appeal in respect of each assessment year. The Appeallate Assistant Coommissioner took the view that extraction of limestone was not a separate business of the assessee, but it was merely an activity for obtaining raw mateiral for the manufacture of cement and though this activity was carried on form April, 1958, the business of manufacture and sale of cement could not be said to have commenced till the end of the relevant accounting years since the installation of the plant and machinery was going on during the relevant years of account and it was completed only it June, 1960, and manufacture of cement did not start untill October, 1960, The expenditure incurred for the purpose of extraction of limestone as also depreciation allowance and deveolpment rebate were, therefor, in the opinion of the Appellatre Assistant Commissioner, wrongly allowed by the Income-tax Oficer. These items could be allowed as permisble deductions in computing the taxable profits of the assessee only if the assessee carried on business during the relevant years of account and since the business of the assessee was not commenced until after the end of the relevant years of account, the assessee was not entitled to deduction in respect of these items. The Appellate Assistant Commissioner, accordingly, enhanced the assessment of the assessee by disallowing these itmes and adding them back. The assessee being aggrieved by the decision of the Apellate Assistant Commissioner preferred appeals to the Tribunal. The assessee contended before the Tribunal that the Appellate Assistant Commissioner had no juridiction to enhance the assessment by disallowing expenditure incurred for the purpose of extracting limestone as also depreciation allowance and deveolpment rebate in respect of machinery employed for that purpose, but this contention was negatived by the Tribunal and the power of the Appellate Assistant Commissioner to enhance the assessment by disallowing these deduction was upheld. However, so far as the merits of the disallowance were concerned, the Tribunal disagreed with the veiw taken by the Appellate Assistant Commission. The Tribunal in a well-reasoned judgment pointed out that the business of the assessee consisted of the three atages : the first stage was procurment of raw materials, the the second stage : the second stage was manufacture of cement and the third stage was sale of assessee. But all the three stages together constitute the business of the assesssee. But all the three stages could not be simultaneously commenced. the first stage had to be commenced earlier so that by the time the plant and the machinery was installed, the raw mateirals would be ready ofr commencement of the process of manufacture and the plant and machinery purpshased at a huge cost of about reupees one crore would not rmain idle. The extraction of limestone which consistitued the first stage of the business was as important an activity of the business as utilisation of limestone in the manufacture of cement, and the business of the assessee must, therefor, be held to have commenced when the assessee started the first stage of the business by extraction of limestone. The Tribunal held that, in the circumstances, the assessee must be regarded as carrying on business form April, 1958, when it started the activity of extraction of limestone and the expenditure incured in carrying on this activity was accordingly allowable as a permisssible deduction. The reveune being dissatisfied with this view taken by the Tribunal applied for a reference and, on the application of the revenue, the following question of law was refered by the Tribunal for the opinion of this court :
" (1) whether, on the facts and in the circumstances of the case, the expenditure, depreciation and deveolpment rebate in respect of extraction of limestone form mines could be allowed as business expenditure?"
2. The assessee at the hearing of the reference application submitted that another question of law arose out of the order of the Tribunal, namely, whether, the Appellate Assistant Commissioner was competent to enhance the assessment and this question of law should also be referred by the Tribunal and accordingly the Tribunal, at the instance of the assessee, referred the follwoing further question to this court for its opinion :
" (2) whether, on the facts and in the circumstances of the case, enhancement of assessment by the Appellate Assistant Commissioner was within his competence and, therefor, justified in law?"
3. The second question relates to the competence of the Appellate Assistant Commissioner to enhance the assessment, but that question against the assessee. Let us, therefor, first consider the first question.
4. Now, it is elementary that expenditure in order to be deductible as revenue expenditure must be incurred for the purpose of the business which is carried on by the assessee in the relevant accounting year. it is a sine qua non of expenditure which is a permissible deduction that there should be a business cassried on by the assessee in the reelvant accounting year and the expenditre must be for the purpose of that business. The expendite claimed by way of deduction in the present case was incurred during the accounting years ending 30th June, 1959, and 39th June, 1960, and it was laid out wholly and exclusively for the purpose of carrying on the activity of exyraction of limestone. It could, therefor, be allowed as a permissible deduction only if it could be shown that the assessee commenced its business when it started extraction of limestone or, in other wards, extraction of limestone marked the commencement of the business of the assessee. It was common ground between the parties that extraction of limestone did not constitute a disinct and independent business of the assessee. Though quarrying limestone was within clauses (b) and (f) of the objects clasue of the memorandam of association of the assessee and the assessee could have, therefor, lawfully engaged in the business. the assessee quarried and extracted limestone merely as raw mateiral for manufactue of cement and the question is, whether in carrying on this activity, the assessee could be said to have commenced its business. the Tribunal, on a consideration of the relevant facts, found that the assessee commenced business when it started extraction limestone and the business commenced business when it started extracting limestone and the business was, therefore, carried on by the assessee during the relevant accounting years. This finding is clearly one of fact unless it can be said that in arriving at it, the Tribunal misdirected itself in law by not properly apriciating the legal connotation of what is "commencement of business" or applied a wrong legal test for the purpose of determining the question. That cannot be said in the present case and the only question can, therefore, be whether this finding of the Tribunal could be characterised as unreasonbale or preverse or contrary to evidence or based on no evidence at all.
5. It is necessary in order to determine this question to consider what constituted the business of the assessee. Loosely, it may be said that the business of the assessee was manufacture and sale of cement. But in determining question arising under fiscal legislation, loose use of expression often tends to confound the real issue. To determine what was the business of the assessee, we must consider what are the activities which constituted such business without being misguided by loose expressions of vague and indefinite import. The activities which constituted the business of the assessee were divisible into three categories : the first category consisted of the activity was necessary for the purpose by quarryng raw material to be utilised in manufacture of cement. The second category comprised the activity of manufactued cement. the three activities cambined together constituted the busness 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 one of these activities, the business would come to an end. Each one of these activities constituted an itegral 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 form it was as much an activity in the course of carrying on the business as the ohter two activities of manufacture of cement and sale of manufactured cement. The business could not in fact be carried on without this activity. This activity came first in point of time and laid the foundation for the second activity and the second activity, when completed, laid the foundation for the thrid activity, The business consisted of a continous process of these three activities and when the first activity was started with a view to embraking upon the second and the third activities, it clearly amounted to commencement of the business, It may be that the whole business was not set up when the activity of quarrying the leased area of land and extracting limestone was started. Theat would be set up only when the plant and machinery was installed, the manufacture of cement started and an organisation for sale of manufactured cement was established. But, as pointed out above, business is nothing nore than a continuous course of activities and all the activities which go to make up the business need be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede the ohter activities is started. Take, for example, a case where an assessee engaged in the business of a trader which consist of purchasing and selling goods. The assessee must necessarily purchase goods in order to be able to sell them and purchase of goods must, therfor, necessarily precede their sale, Can it be said in such a case that when the assessee purchases goods for the purpose of sale, he dose not commence his business? Is it necessary that he must start the activity of selling goods before he can be said to have commenceed his business? We have to consider the question as to when an assssee can be said to have commenced business form a commonsense point of view. We have to ask ourselves the question as to when a businessman would regard a business as being commenced? Would he not consider a business as having commenced when an essential activity of that business is started? The argument of the revune seeks to confound the commencement of a business withe establishment of the business as a whole and carrying on og all the activituies of the business. This confusion is the result of alosse descrition of the business of the assessee as a business of manufacture and sale of cement. The revenue says that when the business is of manufacture and sale of cement, how can the assessee be said to have commenced the business whenmanufacture has not started? This argument suffers form the fault of voer simplification and ignores the true nature of the activities which constitute the business of the assessee. We are of the view that as soon as an activity which, in other wards, is a business activity in the course of carying on the business, or which, in other woards, is a business. To take any other view would not only be illogical but also irrational. The conclusion reashed by the Tribunal cannot, therefor, be said to be unreasonable or preverse or based no on evidence at all.
6. The revenue sough to cambet conclusion be relying on the decision of the Bombay HIgh Court in Westren India Vegetable Products Ltd. v. Commissioner of Income-tax [1954] 26 I. T. R. 151 (Bom.) We do not see how this decision can be of any help to the revenue in the present case. The only proposition for which this decision can be cited as an authority is that there is a distinction between the setting up a a business and the commencement of a business and that distinction is that when a business is established and is ready to commence business, it can be sadi of that business that it is set up. But before it is ready to commence business, it is not set up. This decision dose not lay down that when a business consists of several activities one of which must necessarily procede the other, the starting of the first activity cannot be said to mark the commencement of the business. We do not find anything in this decision which is contrary before the Bombay High Court in this case was, whether there was any evidence before the Tribunal on the basis of which the Tribunal could come to the conclusion that the assessee commenced its business as from 1st September, 1946, and the Bomaby High Court held that there was such evidence and it consisted of purchase of raw materials and other expense incured by the assessee. This view taken by the Bombay High Court seem to suggest that acquisition of raw materials may in a proper case be regarded as evidence for the purpose of coming to the conclusion that the assesse commenced his business from the date when he acquired the raw materials. But, we do not seek to draw support from this decision for the view we are taking, because each decision must ultimately depend on its peculiar facts and decision given on the facts of one case cannot be regarded as authority for deciding a case based on different facts.
7. The revenue also rlied on the decision of the Supreme Court in Commissioner of wealth-tax v. Ramaraju Surgical Cotton Mills Ltd [1967] 63 I. T. R. 478; [1967] I. S. C. R. 761 (S. C) This was a decision given in the context of section 5(1)(XXI) of the wealth-tax Act, 1957, which provided that if a new and separate unit is set up after the commencement f the Act by a company established with the object of carrying on an industrial undertaking in India, that portion of the net wealth of the comapny which is employed by it in such unit would be excludible in computing the net wealth of the company. the question which arose for decision before the Supreme court was whether the factory of the assessee could be said to have been set up after the commencement of the Act so as to entitle the assessee to exclusion of that portion of its net wealth which was employed in the factory. the Supreme Court, while dealing with that question, amde the following observations which were strongly relied on on behalf of the revenue :
"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 sadi that the unti has been set up. The expression used in the proviso, under which the period for which the exemption is available is to be determined, is not the same as the used in the principle clasue. In the proviso, the period of five successive years of exemption has to commence with the assessment year next folwing the date on which the company commences oprations for the establishment of the unit. Orations for the establishment of a unit, from the very nature of that expression, can only signfiy steps that have to be taken to establish the unit. The word 'set up' in the principal clasue, in our opinion, is equivlant to the word 'established', but oprations for establishment cannot be equated with the establishmenbt of the unit itself or its setting up. The applicability of the proviso has, therefor, to be decided by finding out when the company commenced oprations for establishment of the unit, which oprations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principla clasue.. These oprations for establishment of the unit cannot be simultaneous with the setting up of the unit, as urged on behalf of the Commissioner, but must precede the actual setting up of the unit. In fact, it is the oprations for establishment of a unit which ultimately culminate in the setting up of the unit."
8. The argument of the revenue beased on these opservations was that extraction of limestone by quarrying leased area of land was merely in the nature of preparation for the establishment of the business of the assessee and the business of the assessee could be said to have been set up only in June, 1960, when the installation of the plant and machinery was completed and the unit was ready to discharge the function for which it was being set up, namely, manufacture of cement. this argument is, however, fallcious because it overlooks that these observations were made by the Supreme Court while considering the question as to when a unit of an industrial undertaking can be said to have been set up and they were not intended to refer to a totally different question as to when a business can be said to have been set up or when it can be said to have commenced Here in the present case also if the question had been as to when the industial undertaking or factory of the assessee could be said to have been set up, the answere would have undoubetedly been that it was set up only when the plant and machinery were installed and it was ready to dicharge the function for the which it was set up, namely, as to when the business of the assessee coud be said to have commened and on that question no light is thrwn by this decision of the Supreme Court.
9. Then reliance was placed on behalf of the revenue on a recent decision given by this court on court on 21st July, 1972, in Income-tax Reference No, 85 of 1970. * That decision raised the question as to when a certain business caried on by the assessee could be said to have been set up : whether it was set up prior to 31st March, 1966, or subsequent to that date. The Tribunal had found that it was set up prior to 31st March, 1966, and the question was whether this finding of the Tribunal could be said to be unreasonbale or preverse or contrary to evidence or based on no evidence at all. We held on the fact of that case that it was impossible for the Tribunal to have come to the decision that the busines was set up by the assessee prior to 31st march, 1966, and the decision of the Tribunal was contarary to evidence or based on no evidence at all. We fail to see how a decision given on one set of facts can bind us to reach a similar decision on a totally different set of facts. there is nothing in this decision which would deffect us from the view which we are otherwise inclined to take.
10. We must, therefor, hold that the assessee commenced its business when it started the activity of extraction of limestone by quarrying the leased area of land. Since extraction of limestone cmmenced form April, 1958, it must be held that the assessee was carrying on business during the relevant years of account and the Tribunal was right in taking the view that the expenditure incurred by the assessee in carrying on the activity of extraction of limestone as also dereciation allowance and deveolpment rebate in respect of the machinery employed in extracting limestone were deductible in computing the trading profits of the assessee for the assessement years 1960-61 and 1961-62. We, accordingly, answere the first question referred to us in the affirmative. On this view of the first question taken by us, it becomes unnecessary to consider the second question and we do not, therefore, propose to answer it. The Commissioner will pay the costs of the reference to the assessee.
11. First question answered in the affrmative.
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