PETITIONER: <NAME> Vs. RESPONDENT: STATE OF BIHAR DATE OF JUDGMENT: 19/01/1967 BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. HIDAYATULLAH, M. VAIDYIALINGAM, C.A. CITATION: 1967 AIR 1167 1967 SCR (2) 423 CITATOR INFO : R 1977 SC1172 (17) R 1978 SC1568 (4) R 1979 SC 339 (3,10) ACT: Code of Criminal Procedure (Act 5 of 1898), ss. 190(1) (b) and 2O7-Magistrate taking cognizance of offence on police report-Jurisdictlion to proceed against accused not sent up by police. Discharge of accused-Whether possible, when accused not included in the charge-sheet. HEADNOTE: The police investigated into a complaint against the appellant and others, accepted the appellant's plea of alibi and filed a charge sheet against the others for offences, under ss. 302 , 201 and 149 I.P.C., before the Sub-Divisional Magistrate. The Magistrate recorded that the appellant was discharged -and transferred the case for enquiry to another Magistrate, who, after examining two witnesses, ordered the issue of a non-bailable warrant against the appellant, for proceeding against him along with the other accused under s. 207-A Cr. P.C. The order was confirmed by <ORG> and <ORG>. In appeal to this Court, HELD:(1) There could be no discharge of the appellant when he was not included as an accused in the charge-sheet submitted by the police. [426 C] (2)The appellant could be proceeded against along with the other accused under S. 207-A . [426 B] The Sub-divisional Magistrate had taken cognizance of the offence upon the written report of the police, that is, under s. 190(1)(b) , Cr. P.C Therefore, the proceeding was instituted under s. 207(a) and not under s. 207(b) . The cognizance, however, was of the offence only and not of the offenders. Having taken cognizance of the offence, he had to find out who the real offenders were, and if he came to the conclusion that apart from the persons sent up by the police some other persons were involved. It was his duty to proceed against those persons also. The summoning of the appellant as an additional accused was part of the proceeding initiated by his taking cognizance of the offence. [427 B-C, 4Z8 <CITATION> .  1 S.C.R. 269, followed. JUDGMENT:

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 189 of 1964.

Appeal by special leave from the judgment and order dated April 10, 1964 of <ORG> in Criminal Revision No. 896 of 1961.

<NAME> and <NAME>, for the appellant. <NAME>, for the respondent.

The Judgment of the Court was delivered by <NAME>, J. This appeal by special leave is directed against the judgment of <ORG> dismissing Criminal Revision No. 896 of 1961 filed by the appellant <NAME>. The relevant facts for appreciating the points raised before us are as follows :- The appellant was one of the 15 persons mentioned as assailants in the First Information Report dated July 29, 1959, lodged by one <NAME>. The police investigated the case and during the investigation the appellant set up an alibi. The police accepted the alibi and did not include his name as an accused in the final report under s. 173 of the Code of Criminal Procedure. His name was, however, mentioned in column No. 2 of the Charge Sheet under the heading "not sent up". On April 5, 1961, the Sub-divisional Magistrate passed the following order "C. S. No. 12 dated 234-3-61 u/s 149/302/201

1. P. C. received against the accused noted in col. 3 and 4 of C. S.

Cog. taken u/s 149/302/201 1. P. C. and case transferred to Sri <NAME>........ class for enquiry under Chapter XVIII Cr. P. C. Accused not sent up for trial is discharged."

On transfer, <NAME>, Magistrate, took up the hearing of the case on May 1961. In the meantime a petition had been filed on April .1, 1961, praying that the appellant be summoned by the Magistrate. On May 2, 1961,. <NAME>, P. W. 1, was examined and in his examinations he implicated the appellant as one of the persons who were present in the mob which is alleged to have killed <NAME>. On the same day <NAME>, P. W. 2, also implicated the appellant in his examination-in-chief. It appears that the counsel for <NAME>, the person who lodged the F.I.R., requested the Magistrate to summon the appellant as well for trial, as prayed for in the petition dated April 11, 1961, The Magistrate, after hearing the Assistant District Prosecutor as well as the counsel for the informant and the accused, passed the following order " <NAME> is named in F. I. R. and as submitted by A. D. P. 5 witnesses have named him before police and P. W. 1 examined before me has also named him. So in my opinion it is , proper to add <NAME>. <NAME> also in this enquiry as accused. 'At this stage one petition has been filed by lawyer of accused that cross-examination of <NAME>s be allowed to be done after appearance of <NAME>. This contention is quite reasonable otherwise cross-examination will have to be done again after appearance of <NAME> and so prayer .of defence is allowed. Examined <NAME> in chief. He has also named <NAME> to be a member of the mob of these accused at the time of occurrence. So issue non-bailable W/A against <NAME> <NAME> according to address given by <NAME> today as the allegation against <NAME> be very serious one. Send the process peon returnable by 3-6-1961. Other accused will reattend."

The appellant challenged this order before the Sessions Judge. it was urged before him that the Magistrate had no jurisdiction to summon the appellant because the Sub- divisional Magistrate had already dismissed a protest petition on merits. The Sessions Judge rejected the argument and held that it was open to the Magistrate to summon any person against whom he found sufficient evidence in the case.

The appellant then filed a criminal revision before <ORG>. Before <ORG> it was urged, first, that the petition dated April 11, 1961, was';, a petition of complaint and, therefore, summoning the appellant on the basis of a petition of complaint would result in a separate complaint case and he could not be tried along with the other accused under s. 207A of the Code of Criminal Procedure. Secondly, it was urged that the order of the Magistrate was irregular as he had summoned the appellant on the same grounds on which the Sub.divisional Magistrate had discharged him. On the first point <ORG> held that the order of the Magistrate did not result in a separate complaint case against the appellant as "the present case was instituted when the sub-divisional Magistrate took cognizance of an offence reported by the Police, and therefore, the case shall be deemed to have been instituted oft the police report." <ORG> further observed that "it is' therefore, clear from the language of section 190 of the Code that the Magistrate takes cognizance of an offence made out in the police report or in 1 the petition of complaint and there, is nothing like taking cognizance of the offenders at that stage. It has to be decided on the materials on record as to who actually the offenders may be only after cognizance of the offence has been taken. On the facts of the instant case, therefore, cognizance of the offence has been taken on a police report, and the order of the transferee Magistrate summoning <NAME> does not amount to taking cognizance of an offence." On the second point <ORG> held that the Magistrate did not summon the appellant only on those grounds which were before the Sub-divisional Magistrate as the materials before the two Magistrates were not identical. The Sub-divisional Magistrate had acted on the Police report alone but the Magistrate took into consideration the evidence of the two prosecution witnesses examined in court as well. The learned counsel for the appellant, Mr. <NAME>, raises two points before us; first that the discharge of the appellant by the order dated April 5, 1961, by the Sub- divisional Magistrate was final, and secondly, that the proper procedure to be observed on the facts of this case was not under s. 207A but under the subsequent sections in Chapter XVIII of the Criminal Procedure Code . We see no force in these points.

Regarding the first point NV. <NAME> urges that judicial refusal to summon amounts to discharge. There is no force in, this contention because there cannot be any question of discharge when the appellant was not sent' up upon the charge-sheet submitted by the police. Coming to the second point the learned counsel for the ap- pellant contends that no proceeding was instituted against the appellant on a police report within the meaning of s. 207A of the Code because the appellant's name was not included in the charge sheet. He says that although cognizance might have been taken of an offence under s. 190(1)(b) no proceeding as such was instituted against the appellant at this stage; the proceeding was instituted when a non-bailable warrant was issued against the appellant and this proceeding was instituted not on the basis of a police report but on the basis of evidence taken before the Ma- gistrate, and, therefore, he says, t is a proceeding falling within s. 207(b) .

Section 190(i) and 207 of the Code read as follows " 190(1) Except as hereinafter provided, any Presidency Magistrate, District Magistrate or Sub-divisional Magistrate, and any other Magistrate specially empowered in this behalf, may, take cognizance of any offence-

(a) upon receiving a complaint of facts which constitute such offence;

(b) upon a report in writing of such facts made by any police officer;

(c) upon information received from any person other than a police-officer, or upon his own knowledge or suspicion, that such offence has beer. committed."

"207. In every inquiry before a Magistrate where the case is triable exclusively by a court of Session or <ORG>, or, in the opinion of the Magistrate, ought to be tried by such Court, the Magistrate shall-

(a)in any proceeding instituted on a police report, follow the procedure specified in s. 207A ; and

(b)in any other proceeding, follow the procedure specified in the other provisions of this Chapter." It seems to us that s. 207(a) refers back to s. 190(1)(b) ; in other words, the police reportmentioned in s. 207(a) is the report mentioned in s. 190(1) (b), and once cognizance is taken under s. 190(1)(b) , a proceeding is instituted within s. 207(a) . <NAME>, J., speaking for the <ORG>, while considering the interpretation of s. 251-A of the Code of Criminal Procedure in <CITATION> () observed as follows "In our judgment the meaning which is sought to be given to a 'police report' is not correct. In s. 190 , a distinction is made between the classes of persons who, can start a criminal prosecution. Under the three clauses of s. 190(1) , to which we have already referred, criminal prosecution can be initiated (i) by a police officer by a report in writing, (ii) upon information received from any person other than a police officer or upon the Magistrate's own knowledge or suspicion, and (iii) upon receiving a complaint of facts. If the report in this casefalls within (i) above, then the procedure under s. 251A , Criminal Procedure Code , must be followed. If it falls. in (ii) or (iii) then the procedure under s. 252 , Criminal Procedure Code , must be followed. We are thus concerned to find out whether the report of the police officer in writing in this case can be described as a 'complaint of facts' or as 'information received' from any person other than a police officer.' That it cannot be the latter is obvious enough because the information is from a police officer. The term 'complaint' in this connection has been defined by the Code of Criminal Procedure and it 'means the allegation made orally or in writing to a Magistrate, with a view to his taking action under the Code , that some person, whether known or unknown, has committed an offence, but it does not include the report of a police officer.' [see s. 4(1) (h].

It, therefore, follows that s. 252 , Criminal Procedure Code , can only apply to those cases which are instituted otherwise than on a police report, that is to say, upon complaints which are not reports of a police officer or upon information received from persons other than a police officer."

(1) [1965]1 S.C.R. 269.

Similarly S. 207(b) Can Only apply if the case was instituted ,otherwise than on a police report. On the facts of this case it is quite clear that the case does not fall within s. 190(1)(a) or s. 190(1)(c) because the Sub- divisional Magistrate had taken cognizance of the offence on April 5, 1961. But, says Mr. <NAME>, that though it is true that cognizance was taken on April 5, 1961, the cognizance was taken of the offence as far as the other accused were concerned and not as far is the appellant was concerned, as a Matter of fact the appellant had been rightly or wrongly discharged. in our opinion once cognizance has been taken by the Magistrate, he takes cognizance of an offence and not the offenders; once he takes cognizance of an offence it is his duty to find out who the offenders really are and once he comes to the Conclusion that apart from the persons sent up by the police 'Some other persons are involved it is his duty to proceed against those persons. The summoning of the additional accused is part of the proceeding initiated by his taking cognizance of an offence. As pointed out by this Court in <CITATION> (1) the term "complaint" would include allegations made against persons unknown. If a Magistrate takes -cognizance under s. 190(1)(a) on the basis of a complaint of facts he would take cognizance and a proceeding would be instituted ,even though persons who had committed the offence were not 'known at that time. The same position prevails, in our view, under s. 190(1)(b).

Mr. <NAME>, the learned counsel for the respondent brought

-to our notice some decisions which have taken the same view. <ORG> in <CITATION> ( ), following the <ORG> decision of the Judicial Commissioners, Sind, in <NAME> v. <NAME>( ), held that when a Magistrate takes 'Cognizance under s. 190(1) b) on a police report he takes cognizance of the offence and not merely of the particular persons named in the charge sheet, and therefore, the Magistrate is entitled ,to summon additional accused against whom he considers that there was good evidence, after perusal of the statements recorded by the police under s. 161 and the other documents referred to in s. 173 even without examination of witnesses in court. <ORG> in <CITATION> (4) and the

-Allahabad High Court in <NAME> v. The State(5) also expressed a :similar view.

In the result the appeal fails and is dismissed.

<ORG> dismissed.

(1) [1965] 1 S.C.R. 269. (2) A.I.R. 1962 Cal. 133. (3) A.I.R. 1924 Sind 7 1. (4) A.I.R. 1964 Pun. 351. (5) [1963] 1 Cr. L.J. 66.


CASE NO.: Appeal (crl.) 20 of 2003 PETITIONER: <NAME> RESPONDENT: State of Jharkhand DATE OF JUDGMENT: 28/11/2003 BENCH: <NAME> & <NAME>. JUDGMENT:

J U D G M E N T ARIJIT PASAYAT,J One <NAME> (hereinafter referred to as the deceased) paid price for changing his loyalty from one trade union to another and <NAME> (hereinafter referred to as the 'accused') was said to be instrumental in taking away his life. Four persons faced trial for alleged commission of offence punishable under Section 302 read with Section 34 of the Indian Penal Code, 1860 (for short the ' IPC '). <ORG> convicted them accordingly. The matter was carried in appeal before <ORG> which by the impugned order dismissed the appeal filed by the accused appellant and held that accusations under Section 302  have been made out against him who was accused No.4 before the trial Court. <NAME> (A-1) died during the pendency of the appeal before <ORG>. <NAME> (A-2) and <NAME> (A-3) were given the benefit of doubt and their acquittal was directed.

Prosecution version as unfolded during trial is as follows:

At about 9.30 a.m. on 1.8.1995 the deceased and his son <NAME> (PW-4) had gone to take tea near the shop of one <NAME> (PW-5). <NAME> (PW-1) and <NAME> (PW-2) were also sitting near the shop. Suddenly, the four accused persons came from the side of the road. Accused <NAME> came towards the informant (PW-4) and the deceased and directed that the deceased should be assaulted. On hearing this, accused appellant <NAME> took out a pistol from his waist and fired at the deceased. The bullet hit left eye of the deceased. After such firing all the four accused persons fled away. On receiving the bullet injury, deceased fell down and became unconscious. The informant with the help of others took him to nearby hospital where he was declared dead. According to the information given at the police station on which investigation was started, the four accused persons were working in the Katras Colliery. The deceased was a labour leader. Since he left the union to which the accused persons belonged and joined another union, this has caused annoyance to the accused persons and because of this, the murder was committed. After completion of investigation charge sheet was placed. The accused persons pleaded false implication.

Placing reliance on the evidence of the eye-witnesses, <ORG> convicted the accused persons and the conviction was maintained by <ORG> so far as only the accused appellant is concerned. <ORG> judgment is under challenge in this appeal.

Learned counsel for the appellant submitted that the information given by the informant cannot be treated as a first information report as the police officials had already received information about the incident. Therefore, the statement made was hit by provisions of Section 162 of the Code of Criminal Procedure, 1973 (in short the ' Cr.P.C .'). The place of occurrence has been changed as no blood was seized from the cot where the deceased was purportedly sitting at the time of attack. The so-called eye witnesses had stated that blood had spilled over to the cot. Though the prosecution case is that one bullet was fired, the investigating officer at certain stages in his statement in Court has stated that he recovered a pellet. Bullet and pellet are different things. The prosecution has suppressed the actual scenario and this is evident from the different types of ammunition deposed about. The bullet which was found embodied on the body of the deceased was extracted by the doctor who had handed it over to the police officials. The same was not sent for chemical examination. Therefore, the conviction cannot be maintained. Additionally, the investigating officer had accepted that the accused appellant was found at a distance of about 50 feet from the place of occurrence in an injured and unconscious stage which necessitated his admission to hospital. The injuries on the accused were not explained by the prosecution and the investigation was perfunctory as is evident from the accepted fact that the medical report of the accused-appellant was not even collected and seized bullet was not sent for ballistic examination. Strong reliance was placed on the decision of this Court in <CITATION> (AIR 1995 SC 1601) to contend that same was fatal to the prosecution case. In the statement under Section 313 of the . the accused appellant had taken a definite stand that a shot was fired by the deceased which did not hit him and the deceased and <NAME>, <NAME>, <NAME> and <NAME> assaulted him and made him senseless. The injuries were of serious nature. The defence version was more probable and therefore the conviction should be set aside was the plea.

In response, learned counsel for the <ORG> submitted that three eye-witnesses specifically deposed regarding the place of occurrence, the manner of assault and gave detailed description of the entire scenario. <ORG> and <ORG> have analysed their evidence and found to be credible, cogent and trustworthy. That being the position, there is no scope for interference in this appeal. Further, there was a confusion between bullet and pellet which has been clarified by the investigating officer. Merely because the bullet which was extracted by the doctor was not sent for chemical examination, it would not be a factor which would outweigh the testimonial worth of the eye-witnesses. The injuries have not been established by the accused to have been sustained in course of the incident as per the prosecution version. There was not even any suggestion about the defence version to any of the prosecution witnesses and for the first time while giving statement under Section 313 . the plea has been taken.

We shall first deal with the question regarding non-explanation of injuries on the accused. Issue is if there is no such explanation what would be its effect? We are not prepared to agree with the learned counsel for the defence that in each and every case where prosecution fails to explain the injuries found on some of the accused, the prosecution case should automatically be rejected, without any further probe. <CITATION> (1968 (3) SCR

525), it was observed:

"...In our judgment, the failure of the prosecution to offer any explanation in that regard shows that evidence of the prosecution witnesses relating to the incident is not true or at any rate not wholly true. Further those injuries probabilise the plea taken by the appellants."

In another important case <CITATION> (1976 (4) SCC 394), after referring to the ratio laid down in <NAME> case (supra), this <ORG> observed:

"Where the prosecution fails to explain the injuries on the accused, two results follow:

(1) that the evidence of the prosecution witnesses is untrue; and (2) that the injuries probabilise the plea taken by the appellants."

It was further observed that:

"In a murder case, the non-explanation of the injuries sustained by the accused at about the time of the occurrence or in the course of altercation is a very important circumstance from which the Court can draw the following inferences:

(1) that the prosecution has suppressed the genesis and the origin of the occurrence and has thus not presented the true version;

(2) that the witnesses who have denied the presence of the injuries on the person of the accused are lying on a most material point and, therefore, their evidence is unreliable;

(3) that in case there is a defence version which explains the injuries on the person of the accused assumes much greater importance where the evidence consists of interested or inimical witnesses or where the defence gives a version which competes in probability with that of the prosecution one."

In <NAME> case (supra) it is made clear that failure of the prosecution to offer any explanation regarding the injuries found on the accused may show that the evidence related to the incident is not true or at any rate not wholly true. Likewise in <NAME> case (supra) it is observed that any non-explanation of the injuries on the accused by the prosecution may affect the prosecution case. But such a non- explanation may assume greater importance where the defence gives a version which competes in probability with that of the prosecution. But where the evidence is clear, cogent and creditworthy and where the <ORG> can distinguish the truth from falsehood the mere fact that the injuries are not explained by the prosecution cannot by itself be a sole basis to reject such evidence, and consequently the whole case. Much depends on the facts and circumstances of each case. These aspects were highlighted by this <ORG> in <CITATION> . (AIR 1990 SC 1459).

Non-explanation of injuries by the prosecution will not affect prosecution case where injuries sustained by the accused are minor and superficial or where the evidence is so clear and cogent, so independent and disinterested, so probable, consistent and creditworthy, that it outweighs the effect of the omission on the part of prosecution to explain the injuries. As observed by this <ORG> in <CITATION> (AIR 1972 SC 2593) prosecution is not called upon in all cases to explain the injuries received by the accused persons. It is for the defence to put questions to the prosecution witnesses regarding the injuries of the accused persons. When that is not done, there is no occasion for the prosecution witnesses to explain any injury on the person of an accused. In <NAME> and <NAME>. v. State of Bihar (AIR 1988 SC 863), it was observed that the obligation of the prosecution to explain the injuries sustained by the accused in the same occurrence may not arise in each and every case. In other words, it is not an invariable rule that the prosecution has to explain the injuries sustained by the accused in the same occurrence. If the witnesses examined on behalf of the prosecution are believed by the <ORG> in proof of guilt of the accused beyond reasonable doubt, question of obligation of prosecution to explain injuries sustained by the accused will not arise. When the prosecution comes with a definite case that the offence has been committed by the accused and proves its case beyond any reasonable doubt, it becomes hardly necessary for the prosecution to again explain how and under what circumstances injuries have been inflicted on the person of the accused. It is more so when the injuries are simple or superficial in nature. In the case at hand, trifle and superficial injuries on accused are of little assistance to them to throw doubt on veracity of prosecution case.

So far as the non seizure of blood from the cot is concerned, the investigating officer has stated that he found blood stained earth at the place of occurrence and had seized it. Merely because it was not sent for chemical examination, it may be a defect in the investigation but does not corrode the evidentiary value of the eye-witnesses. The investigating officer did not find presence of blood on the cot. <ORG> and <ORG> have analysed this aspect. It has been found that after receiving the bullet injury the deceased leaned forward and whatever blood was profusing spilled over to the earth.

So far as the effect of the bullet being not sent for chemical examination, it has to be noted that <NAME> case (supra) is not an authority for the proposition as submitted that whenever a bullet is not sent for chemical examination the prosecution has to fail. In that case one of the factors which weighed with this <ORG> for not finding the accused guilty was the prosecution's failure to send the weapon and the bullet for ballistic examination. In the instant case, the weapon was not seized. That makes a significant factual difference between <NAME> case (supra) and the present case.

It has to be noted that there was not even a suggestion to any of the prosecution witnesses that the injuries were sustained by the accused-appellant in the manner indicated by him, as stated for the first time in the statement under Section 313 .

So far as the confusion relating to bullet and pellet is concerned, the same has been clarified by the doctor's evidence. In his examination the doctor (PW-3) has categorically stated that there was only one injury on the body of the deceased and no other injury was found anywhere on the person of the deceased. Therefore, the question of the deceased having received any injury by a pellet stated to have been recovered by the investigating officer is not established. The investigating officer has clarified that the bullet embodied was given to the police officials by the doctor which was initially not produced as it was in the Malkhana but subsequently the witness was recalled and it was produced in Court.

Though it may not be having any determinative value, certain suggestions given to the witnesses make interesting reading. A question was put to PW-4 in cross examination which reads as follows:

"x x x x x It is not correct that Hira, Ravindra did not run to catch the accused persons, rather they themselves ran away".

This in a way probabilises the prosecution version and does not in any way establish the defence version as is indicated for the first time in the statement under Section 313 . and has pleaded before this Court to be a ground for doubting the veracity of the prosecution version.

The well reasoned judgments of <ORG> and <ORG> do not need any interference. The appeal is without any merit and is dismissed.


PETITIONER: <NAME> Vs. RESPONDENT: <NAME> & OTHERS DATE OF JUDGMENT: 17/10/1969 BENCH: ACT: Waiver-Need not be found on contract or agreement, Pre- emption Bengal Tenancy Act, s. 26(f). HEADNOTE: The appellant filed an application under s. 26(f) of the Bengal Tenancy Act claiming right of preemption over the land purchased by the respondent. The respondent took up the position that the appellant was not a co-sharer in the land which had been purchased by her and that he along with his uncle had acted as brokers in the transaction and received brokerage; the appellant had thus waived his right of preemption. The trial Judge allowed the application. The appeal Court held that the appellant's claim was barred owing to waiver on his part. A revision to <ORG> was unsuccessful. In appeal to this Court it was urged that waiver could be brought about only by a contract and since no consideration had passed it could not be said that there had been any waiver. HELD, : Under the Indian Law neither consideration nor an agreement would be necessary to constitute waiver. A waiver signifies nothing- more than an intention not to insist upon the right. It is well known that in the law of preemption the general principle which can be said to have been uniformly adopted by the Indian courts is that acquiescence in the sale by any positive act amounting to relinquishment of a preemptive right has the effect of forfeiture of such a right. So far as the law of preemption is concerned the principle of waiver is based mainly on Mohammedan Jurisprudence. The contention that the waiver of the appellant's right under s. 26F of the Bengal Tenancy Act must be founded on contrast or agreement cannot therefore be acceded to. [927 <CITATION> .,  Supp. 2, S.C.R. 217, 226 and Dawson's <CITATION> , 62 I.A. 100, 108 referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2170 of 1967. Appeal from the judgment and order dated September 5, 1963 of <ORG> in Civil Rule No. 2864 of 1952. <NAME> and <NAME>, for the appellant.

<NAME> and <NAME>, for respondent No. 1. The Judgment of the Court was delivered by <NAME> This is an appeal by certificate from a judgment of <ORG> arising, out of a petition filed by the appellant under s. 26F of the Bengal Tenancy Act, 1885 claiming a right of preemption over certain lands purchased by respondent No. 1.

The facts may be briefly stated. On July 23, 1950, the ap- pellant purchased certain portion of land in C.S. <ORG> No. 3605 of Monza Kasba from the occupancy raiyats respondents Nos. 2 and 3 and one <NAME> deceased. By another deed the appellant purchased from the said vendors another plot of land measuring 31 acres. By a Kabala dated October 8, 1950 the said vendors sold 10 acres of land in the same <ORG> number to respondent No. 1 for Rs. 2,700. The appellant filed an application before the Second Subordinate Judge, <NAME> district 24 Parganas under s. 26F of the Bengal Tenancy Act claiming the right of preemption over the land purchased by respondent No. 1. The latter took up the position that the appellant was not a co-sharer in the land which had been purchased by her and that he along with his uncle <NAME> had acted as brokers in the transaction and received Rs. 300 as brokerage; the appellant had thus waived his right of preemption. The learned trial Judge disbelieved the case set up by respondent No. 1 and allowed the application of the appellant for preemption. Respondent No. 1 filed an appeal in the court of,the Additional District Judge, <NAME>. He held that the appellant's claim for preemption was barred owing to waiver on his part. The appellant filed a petition for revision in <ORG> but the same was dismissed on the ground that it was open to the appellant to waive his right and that there had been actual waiver.

The main point which was sought to be raised before us was that waiver could be brought about only by a contract and since no consideration had passed it could not be said that there had been any waiver in the present case. Moreover waiver could not be proved by estopped. Learned counsel for the appellant relied on the observations of Lord <NAME> of Killowen in <NAME>'s <CITATION> (1). While stating the distinction between estopped and waiver, it was said, that "waiver is contractual, and may constitute a cause of action; it is an agreement to release or not to assert a right." According to the appellant all that had been found was that by his act and conduct he had waived his right of preemption. It was pointed out that there was no evidence for any consideration having moved from respondent No. 1 in the matter of abandonment of the appellant's right of preemption. In the well-known work of Sir <NAME> "Principles of the English Law of Contract", 22nd Edn., it has been stated at p. 107 that at Common Law the waiver of existing obligations does not appear to require the presence of detriment in order to make it effective.

(1) 62 I.A. 100, 108.

In India the general principle with regard to waiver of contractual obligations is to be found in s. 63 of the Indian Contract Act. Under that section it is open to a promise to dispense with or remit, wholly or in part, the performance of the promise made to him or he can accept instead of it any satisfaction which he thinks fit. Under the Indian law neither consideration nor an agreement would be necessary to constitute waiver. This Court has already laid down in <CITATION> .(1) that waiver is the abandonment of a right which normally everybody is at liberty to waive. "A waiver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right." It is well known that in the law of preemption the general principle which can be said to have been uniformly adopted by the Indian courts is that acquiescence in the sale by any positive act amounting to relinquishment of a preemptive right has the effect of the forfeiture of such a right. So far as the law of preemption is concerned the principle of waiver is based mainly on Mohammedan Jurisprudence. The contention that the waiver of the appellant's right under s. 26F of the Bengal Tenancy Act must be founded on contract or agreement cannot be acceded to and must be rejected.

A faint attempt was made to assail the finding of <ORG> that on the facts which had been proved waiver had been established. We find no reason or justification for interfering with the conclusion of <ORG> on the point.

The appeal fails and it is dismissed with costs.

R.K.P.S. Appeal dismissed. (1) [1959] Supp. 2 S.C.R. 217, 226.


JUDGMENT <NAME>, <NAME>

1. In this case at the instance of the assessee the following two questions have been referred to us for our opinion :

"(1) Whether, on the facts and circumstances of the case, conclusion reached by the <ORG> in holding that the assessee did not commence its business prior to June 26, 1965, and consequently not entitled to expenditure incurred by it amounting to Rs. 58,600 from January 1, 1965, to June, 26, 1965, was correct in law ?

(2) If the answer to the first question is in the affirmative, whether the <ORG> was justified in disallowing the claim of loss of Rs. 46,970 for the assessment year 1965-66 ?"

2. We are concerned in the instant case with assessment years 1965-66 and 1966-67. The assessee is a private limited company and its year of account is the calendar year. The relevant previous years are January 1, 1964, to December 31, 1964, and January 1, 1965, to December 31, 1965. The assessee-company was incorporated on November 4, 1963. For assessment year 1965-66, it submitted its return for the period November 4, 1963, to December 31, 1964, showing a loss of Rs. 46,970. This amount of loss was made up of various items of expenses, such as, salaries, wages, rates and taxes, postage, printing, travelling, interest, etc. The object of the company is to manufacture aluminium and copper conductors. On a scrutiny of the various statements as well as the directors' report, <ORG> came to the conclusion that the company had not started its business during the year of account and, therefore, the loss as claimed was not allowable. The company actually started production of conductors on June 27, 1965, and for the period from January 1, 1965, to June 26, 1965, the company claimed a loss of Rs. 58,600. For assessment year 1966-67, <ORG> disallowed the claim of loss of Rs. 58,600 for the period prior to the date on which the production was commenced. According to <ORG> the assessee-company commenced its business on June 27, 1965, and, therefore, the expenditure incurred prior to that date from January 1, 1965, onwards was not allowable.

3. The assessee took the matter in appeal but the Appellate Assistant Commissioner confirmed the view of the Income-tax Officer and dismissed the appeal. The matter was taken in further appeal before the <ORG>. According to the <ORG>, the point which required decision in this case was whether the assessee-company could be said to have commenced its business activities from the beginning of the accounting period, viz., November 4, 1963, so as to enable the assessee to claim the expenditure incurred by it from that date as business expenditure. The revenue did not dispute the fact that the business had commenced on June 27, 1965. Therefore, a portion of the expenditure incurred during the accounting year relevant to assessment year 1966-67 was allowable as business expenditure. The <ORG> held that the decision of the Income-tax Officer and the Appellate Assistant Commissioner was correct, namely, that the assessee did not commence its business prior to June 26, 1965, and hence there was no necessity to change that conclusion. Thereafter, at the instance of the assessee, the questions set out hereinabove have been referred to us for our opinion.

4. Section 3(1)(d) of the Income-tax Act, 1961, defines what is meant by "previous year" so far as the facts of this case are concerned. According to that section, for the purposes of the Act, "previous year" means -

"(d) in the case of a business or profession newly set up in the said financial year, the period beginning with the date of the setting up of the business or profession and ending with the said financial year, or if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, ending on that date.... as the case may be."

5. It is undoubtedly true that since the company was incorporated on November 4, 1963, and the business of the assessee was newly set up, it would be the date of the setting up of the business which would be material. In this connection there are several decisions specifying what can be said to be the date of setting up of the business. Under the Indian Income-tax Act , 1922, also, section 2(11)(c) defined "previous year" in the same manner and there also it was the period from the date of the setting up of the business or profession which was the material date.

6. <CITATION>  26 ITR 151 (Bom) <ORG> pointed out that there was a clear distinction between a person commencing a business and a person setting up a business and for the purposes of the Indian Income-tax Act , 1922, the setting-up of the business and not the commencement of the business was to be considered. It is only after the business is set up that the previous year of that business commences and any expense incurred prior to the setting up of a business would not be a permissible deduction. When a business is established and is ready to commence business then it could be said of that business that business is set up; but before it is ready to commence business it is not set up. There may, however, be an interval between the setting up of the business and the commencement of the business and all expenses incurred during that interval would be permissible deductions. Mr. <NAME> for the revenue has pointed out that in that decision <ORG> did not follow the decision of <ORG> in Birmingham and <ORG> v. Commissioner of Inland Revenue  12 TC 92 (KB) because the language with which <ORG> was concerned was "commencing of the business" and not "setting up of the business". At page 158, <ORG> observed :

"It seems to us, that the expression 'setting up' means, as is defined in <ORG>, 'to place of foot'or 'to establish', and in contradistinction to 'commence'. The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval, between a business which is set up and a business which is commenced......"

and the test which <ORG> laid down was that the company was ready to commence business on a particular date if that date can be ascertained, that is, the date from which the business was set up though actual production might have started later on.

7. <CITATION> .  63 ITR 478 (SC) <ORG> referred to the decision of Chagla C.J. in <ORG>'s case  26 ITR 151 (Bom). <ORG> in that case was concerned with the words "in a new and separate unit set up after the commencement of the Act by way of substantial expansion of its undertaking". At page 482 of the report, <NAME>, delivering the judgment of <ORG>, observed :

"The words 'set up' in the principal clause, in our opinion, is equivalent to the word 'established', but operations for establishment cannot be equated with the establishment of the unit itself or its setting up. The applicability of the proviso has, therefore, to be decided by finding out when the company commenced operations for establishment of the unit, which operations must be antecedent to the actual date on which the company is held to have been set up for purposes of the principal clause. This is also the meaning that <ORG> derived in the case in <ORG> [1954] 26 ITR 151 (Bom), where that court was concerned with the interpretation of the expression 'set up' as used in section 2(11) of the Income-tax Act... The criterion for determining the period of exemption is based on the commencement of the operations for the establishment of the unit. These operations 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 operations for 'establishment of a unit which ultimately culminate in the setting up of the unit."

8. <CITATION> .  90 ITR 318 (Guj), a Division Bench of this High Court has held there is a clear distinction between commencing a business and setting it up. For the purpose of section 3(1)(d) of the Act of 1961 what is required to be considered is the setting up of a business. When a business is established and is ready to start business it can be said to be set up. The business must be put into such a shape that it can start functioning as a business or a manufacturing organization. In that case before <ORG> the assessee, a private limited company, decided to start a new business for the manufacture of scientific instruments and communication equipment. It placed orders for machinery and equipment in January, 1966, and some of the machinery was received in February, 1966. It also placed orders for raw materials and stores and took on lease premises from an industrial estate. These preparations went on and in July, 1966, the machinery was installed and production was commenced. The assessee claimed to deduct a sum of Rs. 16,237 spent in connection with the new business during the period ending March 31, 1966, for the assessment year 1966-67. On these facts it was held that the new business could not be said to be ready to discharge the function for which it was established, namely, the manufacture of scientific instruments and communication equipment until the machinery necessary for the purpose of manufacture was installed. Obtaining land on lease, placing orders for machinery and raw materials, were merely operations for the setting up of the business. In the case before <ORG> the business could not be said to be set up until July, 1966, when the machinery had been installed and the factory was ready to commence business. The revenue expenditure incurred before that date would not be a permissible deduction in the assessment for assessment year 1966-67. <ORG> arrived at these conclusions in the light of the decision of <ORG> in <ORG>'s case  26 ITR 151 (Bom) and the decision of <ORG> in <ORG>'s case  63 ITR 478 (SC). <ORG> held that it was only when the machinery was installed that business could be said to be put into such a shape that it could start functioning as a business or a manufacturing organisation. It was not sufficient that the assessee obtained the land on lease from <ORG> or appointed Dr. <NAME> as the General Manager or placed orders for purchase of raw materials and stores or ordered out the necessary machinery and equipment. These were merely operations for the setting up of the business and the business could be set up only as a culmination of these operations when all that was necessary for the setting up of the business was done and it was only after the machinery was installed and the factory was ready to commence business that it could be said that the new business was set up by the assessee.

9. The three decisions to which we have referred above were again considered by a <ORG> of this court in <CITATION>  91 ITR 170 (Guj). The same, <ORG> which delivered the judgment in <ORG>'s case  90 ITR 318 (Guj) delivered the judgment in <ORG> and Chemical Industries case  91 ITR 170 (Guj) as well. In this case it has been pointed out that "business" connotes a continuous course of activities. All the activities which go to make up the business need not 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 all other activities is started. The facts before the <ORG> in <ORG> and Chemical Industries case  91 ITR 170 (Guj) were as follows : A company was formed in 1956 for the manufacture and sale of cement. As part of its business the assessee obtained a mining lease for quarrying lime-stone and started the mining operations in 1958. It claimed the expenditure incurred for the purpose of extracting limestone as also depreciation and development rebate for the machinery installed for that purpose for assessment years 1960-61 and 1961-62. On these facts it was held that the activities 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 the leased area of land. This activity was necessary for the purpose of acquiring the raw material to be utilised in the manufacture of cement. The second activity comprised the activity of manufacture of cement by use of the plant and machinery set up for that purpose and the third category consisted of selling manufactured cement. These three activities combined together constituted the business of the assessee. 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 activities of manufacture of cement and sale of manufactured cement. 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 third activity. Hence, the assessee commenced its business when it started the activity of extraction of limestone. Since extraction of limestone commenced in 1958, the assessee was carrying on business during the relevant years of account. The expenditure incurred by the assessee in carrying on the activity of extraction of limestone as also depreciation allowance and development rebate in respect of machinery employed in extracting limestone were deductible in computing the trading profits of the assessee for assessment years 1960-61 and 1961-62. At page 175 of the report, <ORG>, delivering the judgment of the <ORG>, observed :

"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 questions 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...... 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. That 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 more than a continuous course of activities and all the activities which go to make up the business need not 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 other activities is started. Take, for example, a case where an assessee engages in the business of trader which consists of purchasing and selling goods. The assessee must necessarily purchase goods in order to be able to sell them and purchase of goods must, therefore, necessarily precede their sale. Can it be said in such a case that when the assessee purchases goods for the purpose of sale, he does not commence his business ? Is it necessary that he must start the activity of selling goods before he can be said to have commenced his business ? We have to consider the question as to when an assessee can be said to have commenced business from a common sense 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 assential activity of that business is started ? The argument of the revenue seeks to confound the commencement of a business with the estabment of the business as a whole and carrying on of all the activities of the business. This confusion is the result of a loose description of the business of the assessee as a business of manufacture and sale of cement."

10. The test which was laid down was of the starting of an activity which is an essential activity in the course of carrying on the business, or, in other words, is a business activity and the moment that activity started, the assessee must be held to have commenced the business. To take any other view would not only be illogical but also irrational.

11. <CITATION>  102 ITR 25 (Guj) we were dealing with the following facts. The assessee was a private limited company. The main object of the company was to acquire immovable property and to give it out either on leave 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 company on March 28, 1964, under a registered sale deed for over Rs. 8 lakhs. Thereafter, building repairs, rewiring, installation of lift, etc., were carried on by the company for the purpose of converting the residential accommodation to business and storage accommodation and to render the premises more serviceable to its prospective licensees or lessees. The assessee claimed that it was in a position to offer services to licensees on and from October, 1964, and, therefore, claimed that expenditure of Rs. 48,004, which was incurred by it between October 1, 1964, and March 31, 1965, was a business expenditure for assessment year 1965-66. The Income-tax Officer, the Appellate Assistant Commissioner and <ORG> all held that the company could not be said to have been ready to commence business prior to May 1, 1965, the day on which it gave on leave and licence part of the said building, and certainly not by October 1, 1964, and disallowed the deduction claimed. <ORG> held on reference that the business activities of the company could be said to fall into three broad categories. The first business activity was to acquire, either by purchase or by any other manner, immovable property, so that the property could be ultimately given out either on leave and licence basis or on lease to others together with the appurtenant services. The second category of the business activity was to put the building accommodation and lands and gardens in proper shape and set up the appurtenant services so that ultimately the property could be given out on leave and licence basis. The third business activity was to actually give out accommodation on lease or on leave and licence basis. The property was acquired on March 28, 1964. Thereafter, for some time, various types of alterations and additions were being carried out and the activity of getting the property ready for its licensees and making it serviceable for its licensees was attended to and it was in the process of making this accommodation available to the intended lessees or licensees that the garden staff and other staff were engaged, pieces of equipment and gadgets. etc., were acquired by purchase or otherwise, lift was installed and ultimately with effect from May 1, 1965, a portion of the accommodation was actually given out on licence basis. Thus, though the company actually let out on leave and licence a portion of the building with effect from 1st May, 1965, the earlier and preceding part of its activities were also business activities to ensure that everything was in shape for the use of the occupier. Under these circumstances it was held that, at any rate from October 1, 1964, the assessee could be said to have commenced its business activity of the second category and, therefore, the assessee-company had commenced business on that date and all expenses incurred by the assessee between October 1, 1964, and March 31, 1965, namely, the amount of Rs. 48,004, could be said to have been incurred by it as business expenditure.

12. Thus, it is clear in the light of the decisions of <ORG> in <ORG> case [1973] 91 ITR 170 (Guj) and <ORG>'s case [1976] 102 ITR 25 (Guj) that what the court has to consider is, whether the business of the assessee consists of different categories and whether the activity which was started earlier than the actual commencement of the production in the instant case could be said to have been an essential part of the business activity of the assessee. The company can be said to have set up its business from the date when one of the categories of its business activity is started and it is not necessary that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. Again, as <ORG> has emphasized in <ORG> case [1973] 91 ITR 170 (Guj), the test to be applied is as to when a businessman would regard a business as being commenced and the approach must be from a commonsense point of view.

13. In the instant case, we find from the memorandum and articles of association of the company that under the objects clause of the company, the object of the company is to carry on the business of manufacture, buy or otherwise acquire, sell, import, export, distribute, deal in and dispose of and turn to account, produce ACSR, all aluminium and copper conductors, aluminium and copper binding wires, strips, covered conductor, and all types of wires, cables, telephonic and telegraphic cables and underground cables, and all other materials used in the manufacture of the above items as dealers in or manufacturers of any other articles or things of a character similar or analogous to the foregoing or any of them or connected therewith. One of the objects of the company was also to acquire, purchase and take over any concern engaged in the manufacture of electrical cables, conductors and accessories and to start such new concerns also in any area of the Indian Union and abroad. Article 3 of the articles of association is included in the articles dealing with capital and the marginal note is "Taking over a concern". The article is in these terms :

"The directors after the incorporation of the company shall enter into an agreement between the company on one part and <ORG> at Ahmedabad on the other part to acquire, purchase and take over as a going concern the business, properties, assets and the undertaking carried on under the name of '<ORG>' at Ahmedabad and all or any of the belongings, stock-in-trade, funds, assets, rights, privileges, liabilities, obligations and contracts of the said concern with all its advantages, goodwill and licence providing for reimbursing for the services rendered by the said concern as the promoters and for the out of pocket expenses incurred by them for formation and promotion of the company and providing for utilising by the company the licence obtained by them from <ORG> for manufacturing aluminium conductors, etc., which licence the said company had obtained for the purpose of such manufacture by and the extent of expenses incurred by them in the matter of investigating the possibilities and the desirability of such manufacture and negotiating with other firms."

14. As stated above, the company was incorporated on November 4, 1963. The board of directors of the assessee-company at their meeting held on April 6, 1964, took a note of the report of two of the directors about the value and particulars of machinery, stock and raw materials, stores purchase, furniture, and a statement of expenses incurred by <ORG>, Ahmedabad. After taking note of that report, the directors unanimously resolved that the abovementioned details regarding the stock and value of machinery, raw materials, stores, furniture of <ORG>, Ahmedabad, and the expenses incurred by them were verified and confirmed by the board. Two of the directors were authorised to take over the possession and make payments of all the expenses, rights, privileges, obligations towards know-how agreement and contracts of <ORG> with all its advantages and licence providing for reimbursing for the services rendered by the said concern as the promoters and for the out of pocket expenses incurred by them for formation and promotion of the company, the licence obtained by them from <ORG> for manufacturing aluminium conductors, etc. It is thus clear that the articles of association in terms referred to the taking over the business and assets of Messrs. <ORG>, Ahmedabad. The assessee-company also, as part of the assets of that firm, acquired the know-how for the manufacture of aluminium conductors and other conductors and it got the benefit of the licence which was issued by <ORG> in favour of <ORG>.

15. Mr. <NAME> has contended before us that the assessee-company was formed for the purpose of taking over the business of the going concern of <ORG>, Ahmedabad, and it actually took over some of the contracts which <ORG> had entered into with <ORG> of different States in India. The assessee-company took over the raw materials in the shape of the aluminium wires worth Rs. 1 lakh or so and it also got the benefit of some contracts which the <ORG> had entered into even before the assessee-company was incorporated. It seems that prior to June 26, 1966, the assessee-company had canvassed for and secured orders for the supply of aluminium conductors worth more than Rs. 1 crore. These orders were with different <ORG>. The balance-sheet for the year ending December 31, 1964, shows that the company had secured loan from <ORG> against mortgage of lands, buildings, plants and machinery, furniture and fixtures and other fixed assets of the company to the extent of Rs. 1,85,018. The balance-sheet disclosed that the company had given a counter-guarantee to <ORG>, for guarantee given by bank for Rs. 4,000 for purchase of two cars and a further counter-guarantee to Central <ORG>, for guarantee given to various <ORG> of Rs. 58,750 against which margin deposit of Rs. 5,875 was paid. Thus, it is clear that long prior to the actual commencement of the manufacture of aluminium conductors, the assessee-company had acquired raw materials, had acquired know-how, the licence and also orders against which subsequently it supplied goods after the manufacturing activities started. Annexure "L" to the statement of the case shows that purchases of aluminium had commenced prior to June, 1965, and different quantities of aluminium and steel had been purchased and kept ready before the actual manufacture of aluminium conductors was started by the company. It is true that in the auditors' report it was stated that depreciation was not claimed but, as Mr. <NAME> explained, since there was no production depreciation could not be claimed. This is not a case where altogether new machinery is installed after purchasing the same. The company was taking over the business of a going concern, namely, Messrs. <ORG>, Ahmedabad. It got readymade the know-how, some part of the machinery, some stock of aluminium wire and some orders which had been secured by Messrs. <ORG> from different electricity boards. The details of the contracts, annexure "G" to the statement of the case, shows that the first contract dated October 24, 1963, was from <ORG>, Madras, and the company was actually incorporated on November 4, 1963. Thus, the promoters of the company, Messrs. <ORG>, passed on the benefit of this contract to the assessee-company and that contract was worth Rs. 60,00,000. Over and above these contracts, other contracts were also secured by the company before it actually started production, as shown in annexure "G" to the statement of the case and by the time it was ready to commence the business, it had already secured orders worth Rs. 1,10,00,000.

16. The business of the company was to manufacture aluminium and other conductors and to sell them. In the instant case, the company has started securing orders well in advance of the date on which it actually started production of aluminium conductors. The selling of aluminium conductors manufactured by it is as much a part of the business activity of the assessee-company as the manufacture of the aluminium conductors. The orders acquired by the assessee-company from the different <ORG> ensured ready market for the company when the company actually went into production and it purchased raw materials and stock in advance so that it could go into production on an appropriate scale and supply the goods against the orders which it had already received. As has been pointed out by <NAME> in <ORG> case [1973] 91 ITR 170 (Guj), even the activity of acquiring raw materials can be part of the business activity of manufacturing unit because, unless the raw materials are ready, the production cannot start and unless the production has started, the goods cannot be actually sold. All the time we have to bear in mind that the test is of commonsense and what in the eye of a businessman can be said to be the commencement of the business. Since selling the goods manufactured by the assessee-company is an important part of the business activity, it can be said that the assessee-company in the instant case commenced its business and its business was set up when it started securing orders against further production. One business activity may precede the other. What is required to be seen is, whether one of the essential activities for the carrying on of the business of the assessee-company as a whole was or was not commenced. In this case the assessee-company has commenced its business by securing orders first and going to production later on. While the orders were being secured simultaneously, the installation of machinery, putting up of the buildings, etc., was being attended to and when the company was ready to go into production, it actually started production and supplied goods against the orders which it had already booked. In view of this particular special feature of this case, namely, that the business activity of securing orders had practically started since the very date of incorporation of the company, it is obvious that the business activity of this assessee-company started from the day of its incorporation and not from the day when the production of aluminium conductors commenced. The <ORG> was, therefore, in error in not analysing the activities of the assessee-company in the instant case into the essential components of that business activity and ascertaining whether one or the other of those component activities had commenced before the actual date of going into production. As pointed out in <ORG> case [1976] 102 ITR 25 (Guj) what is material is the date when the company went into one or the other business activity and started one or the other component business activities of the company. In the instant case that was certainly done from the very date of the incorporation of the company. Under these circumstances, the assessee-company was entitled to have the loss of Rs. 46,970 for assessment year 1965-66 treated as business loss and also to have the loss of Rs. 58,600 incurred by it during the period January 1, 1965, to June 26, 1965, in the previous year relevant to assessment year 1966-67, treated as a business loss. The <ORG> was in error when it overlooked this distinction between the component business activity and the business activity as a whole and the <ORG> was in error in holding that the assessee had not commenced its business prior to June 26, 1965.

17. In the light of the above discussion, our answer to the questions referred to us is as under :

Question No. 1. - In the negative as to both the parts, that is, in favour of the assessee and against the revenue as to both the parts.

Question No. 2. - In the negative, that is, in favour of the assessee and against the revenue.

18. The Commissioner will pay the costs of this reference to the assessee.