(Appeal from the judgment and order dated August 27, 1975, of the Gujarat High Court in I.T.R.No.7 of 1974.

Income-tax--

----Business expenditure---Business---Commencement---Business of acquiring immovable property and giving it on lease and licence basis or on lease with all appurtenant amenities---Business commences when property made ready and assessee is in a position to offer services to licensees---Expenses thereafter allowable as deduction.

The main object of the respondent, a private company, was to acquire immovable property and to give it out either on lease and licence basis or on lease as residential or, in the alternative, business accommodation, with all appurtenant amenities including the amenities of storage, watch and ward facilities, canteens, refreshment rooms, etc. A bungalow together with the appurtenant compound at Ahmedabad was purchased by the respondent on March 28, 1964. Thereafter, repairs, rewiring, installation of lift, etc. were carried out by it for the purpose of converting the residential accommodation to business and storage accommodation and to render the premises more serviceable to its licensees or lessees. The respondent claimed that it was in a position to offer services to licensees on and from October 1, 1964, and claimed deduction, in computing its profits, of expenditure incurred by it between October 1, 1964, and March 31, 1965, comprising mainly salaries to gardeners, servants and others, repairs and rewiring, legal and stationery charges, registration, printing, stationery and conveyance charges. The income tax authorities and the Appellate Tribunal rejected the claim holding that the respondent could not be said to have been ready to commence business prior to May 1, 1965, the date on which it gave on lease and licence basis a part of the building. On a reference, the High Court reversed the decision of the Appellate Tribunal and allowed the respondent's claim for deduction holding that, from October 1, 1964, the respondent could be said to have commenced its business activity, viz., to put the building accommodation and lands and gardens into proper shape and set up the appurtenant services so that the property could be given on lease or licence basis and that, therefore, the respondent had commenced business from October 1, 1964, and the expenses incurred thereafter were allowable as business expenditure. The Department preferred an appeal to the Supreme Court:

Held, affirming the decision of the High Court, that, even if the acquisition of the property for being let out could be said to be only a preparatory stage, the subsequent activities constituted activities in the course of the carrying on of the respondent's business. It was not correct to treat the respondent as having commenced business only when the licensee or lessee occupied the premises or started paying rent. The Tribunal had proceeded on a misapprehension regarding the nature of the respondent's business and the High Court was right in interfering with the finding of tile Tribunal which was based on a misdirection in law.

Sarabhai Management Corporation Ltd. v. C.I.T. (1976) 102 ITR 25 affirmed.

Dr. V.Gauri Shankar, Senior Advocate (S. Rajappa and Ms. A Subbashini Advocates with him) for Appellant.

Joseph Vellapally, Senior Advocate (Ms. A.K. Verma, Advocate of J.B. Dadachanji & Co., with him) for Respondent.

ORDER

The question in this appeal which arises out of an income-tax reference is as to the date of commencement of the respondent assessee's business. The Tribunal was of the opinion that the business of the assessee could not be said to have commenced during the year which ended on March 31, 1965. The High Court has, however, taken a contrary view [vide judgment reported m (1976) 102 ITR 25 (Guj.)J and answered the question in favour of the assessee. Hence, this appeal by the Department.

Dr. Gauri Shankar, learned counsel for the Union of India, vehemently contends that the finding arrived at by the Tribunal was a finding of fact. He refers to a number of decisions of this Court as well as of High Courts to the effect that, where a finding of fact is given by the Tribunal, the High Court, in its advisory. Jurisdiction, will not interfere with it unless it is a case of no evidence or one of misdirection in law or one of a conclusion being reached which no reasonable man would arrive at on the proved facts. There can be no quarrel with the proposition put forward by Dr. Gauri Shankar. However, the High Court has pointed out rightly, in our opinion, that in this case the Tribunal has proceeded on a misapprehension regarding the nature of the assessee's business. It has analysed the various component activities of the assessee's business and pointed out that two categories of the activities of the business had been carried on during the previous year in question. The assessee had purchased a property; it. was on the look-out for persons to whom it could be let out; it had been able to get a customer; and it had carried out repairs, rewiring, installation of lift and other steps in the process of getting the premises converted from a residential house into a business and storage accommodation confirming to the requirements of the customer. Even if, as submitted by Dr. Gauri Shankar the first category of activity referred to by the High Court, viz., the 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. It would not be correct, as rightly pointed out by the High Court, to treat the assessee as having commenced its business only when the licensee or lessee occupied the premises or started paying rent. In these circumstances, we are of the opinion that the High Court was right in interfering with the finding of the Appellate Tribunal which was based on a misdirection in law.

We, therefore, find no merit in this appeal which is dismissed. We, however, make no orders regarding costs.

M.B.A./1276/T??????????????????????????????????????????????????????????????????????????????????? Appeal dismissed.