Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment years 1946-47 to 1949-50 - Assessee who was running sugars mills as its principal business decided to start manufacture of butyl alcohol - Plant actually went into productions on 5-3-1945 - Consequently, assessee claimed deduction of expenses with effect from 5-3-1945 as revenue expenditure - Assessing Officer disallowed assessee's claim on ground that plant never went into production - Whether since in respect of assessment year 1946-47, there was consumptions of raw materials of small value while there was absolutely no production at all of finished products, it could not be said that actual work of manufacture of products had been commenced and, therefore, assessee was not entitled for deduction under section 10(2)(xv) of 1922 Act - Held, yes - Whether, however, in respect of assessment years 1947-48 and 1948-49, since plant was run for substantial periods raw materials had been consumed with sole object of turning out finished products and finished products were produced and offered sale for actually sold, it could be said that business of manufacture had commenced and therefore assessee would be entitled for deduction under section 10(2)(xv) of 1922 Act - Held, yes - Whether in respect of assessment year 1949-50, since distillery which was most essential part of business of manufacture had not been worked at all during this year, it could be said that business of manufacture was not carried on at all and, therefore assessee was not entitled for deduction under section 10(2)(iv) of 1922 Act - Held, yes FACTS The assessee-company who was running the sugar mills at its principal business, decided to start the manufacture of butyl alcohol, which were a by-product of the sugar mills. The fabrication of the plant was completed on 4-3-1945, and the plant actually went into production on 5-3-1945. Consequently, all the expenses incurred up to 4-3-1945, in respect of this plant were capitalised by the company and treated as capital expenditure while the expenses with effect from 5-3-1945, were…

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