There are many grounds raised by assessee in this appeal running s many as 12 in number. sum and substance of all grounds is that expenses incurred by assessee after commencement of business should have been allowed by two lower authorities. As matter of fact, grounds can be splitted into three alternative grounds: one being that immediately after incorporation of company whatever expenses were incurred should have been allowed, second ground in alternative is that at least after business of company was set-up, expense should have been allowed and third ground gains in alternative that at least after purchasing and selling activity was there with company, expenses should have been allowed. In other to appreciate issue, facts if stated briefly would be of immense help. assessee is private limited company which was incorporated on 22nd June, 1978. It had decided to do two businesses, one relating to fruits handling and fruit canning business at Simla and other was manufacture of abrasive powder which is used in grinding of optical instrument which was to be run at Kanpur. It was on 1st June, 1979 that Kanpur branch was established because manager was appointed there and assessee s claim of expenses from 1st June, 1979 to 31st Dec., 1979 is about Rs. 7,350 whereas up to end of accounting year on 31st May, 1980 is about Rs. 13,350. third alternative ground of assessee is that from 22nd June, 1979 there was purchase admissible as first chemical was purchased on 22nd June, 1979 and sold on 25th June, 1979 at least from that date expenses should have been allowed. All details of expenses have been furnished by ld. counsel for assessee which is placed on assessee s compilation, even P&L a/c for period 1st June, 1979 to 31st Dec., 1979 which resulted in loss of Rs. 12,991 giving all details of expenses is also placed. Even expense from 1st June, 1979 to 3rd Sept., 1979 have been placed. In support of assessee s contention ld. counsel for assessee submitted that accounting year relevant for assessment year under consideration returns from 1st June, 1979 to 31st May, 1980 and all expenses incurred deserve to allowed. Here also placed on record vouchers of purchase form Chemical & Engineering Industries, Kanpur, which is dt. 22nd June, 1979. He submitted that Kanpur Branch was actually established no sooner manager was appointed, as it was on 1st June, 1979 that leasehold premises at Kanpur were secured by assessee and it was from this date that Manager was engaged. He relied on following decisions: (i) W. I. Vegetable Products Ltd. vs. CIT (1954) 26 ITR 151 (Bom); (ii) Prem Conductors (P) Ltd. vs. CIT 1976 CTR (Guj) 324: (1977) 108 ITR 654 (Guj); (iii) CIT vs. Ralliwoff Ltd. (1979) 8 CTR (Bom) 129: (1980) 121 ITR 262 (Bom); and (iv) CIT vs. Saurashtra Cement & Chemical Industries (1973) 91 ITR 170 (Guj). He, however, did not seem to be very serious about pressing very first contention of right from incorporation of company should be allowed. He submitted however that expenses were looked into by two lower authorities and only one item which was found to be of capital nature was disallowed which is Dunlop house pipe Rs. 777.24 in price. ld. Departmental Representative, on other hand, relied on order of two lower authorities and submitted that in light of decision in cases of CWT vs. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC) n d L. G. Balakrishnan & Bros. Ltd. vs. CIT (1985) 151 ITR 270 (Mad), assessee s claim has rightly been rejected. He also supported order of AAC and submitted that even 1976 CTR (Guj) 324: (1977) 108 ITR 654 (Guj) supports contention of Revenue. After taking into consideration rival submission and going through facts available on record, we hereby accepted contention of assessee that from 1st June, 1979 when for purposes of one of two activities undertaken by assessee company office was taken on lease at Kanpur and general manager was appointed and eve order for purchases of chemical was placed in June itself which was sold also, assessee had set up its business. We placed in June itself which was sold also, assessee had set up its business. We are, however, unable to accept contention of assessee s ld. counsel that expenses right from date of incorporation i.e., 22nd June, 1978, should be allowed. from date when company is incorporated, it is only empowered to commence its business. We, however, accept second contention of assessee s counsel that from 1st June, 1979 onwards all expenses incurred should be allowed because out of two activities planned to be run by company, one pertaining to vegetable plant at Mashobra, Simla, was got registered on 28th May, 1979 and for this company had already acquired 4-1/2 bighas of agricultural land and necessary sanction from Himachal Pradesh Government. Regarding buffing and lapping powder to be manufactured at Kanpur it was on 1st June, 1979 that company had acquired leasehold premises at Kanpur and had appointed manager for Kanpur branch for which necessary for papers and resolutions are placed on assessee s compilation. Identical issue had been considered by their Lordships by Bombay High Court in case of Western India Vegetable Products Ltd. vs. CIT (1954) 26 ITR 151 (Bom), difference between setting up business and commencing business had been dealt with by their Lordships. There Lordships in said case observed as under: "There is clear distinction between person commencing business and person setting up business and for purposes of Indian IT Act setting up of business and not commencement of business that is to be considered. It is only after business is set up that previous year of that business commences......." This case actually supports assessee s second alternative ground and goes against first i.e., it is not date of incorporation which is material but it is date when business is set up. Similarly in case of Prem Conductors (P) Ltd. vs. CIT 1976 CTR (Guj) 324: (1977) 108 ITR 654 (Guj) assessee s contention is also supported because i n this case it was held that company can be said to have set up its business from date when one of categories of its business is started and it is not necessary that all categories of its business activities must start either simultaneously or that last stage start before it can be said that business was set up. If his judgment is read as whole, we find reliance of Departmental Representative on it is misplaced in support of his contentions. case CIT vs. Ralliwoff Ltd. (1979) 8 CTR (Mad) 129: (1980) 121 ITR 262 (Bom), again in this case their Lordships observation about distinction between setting up and commencement and allowability of expenses between setting up and commencement in following words: "Held that expression "setting up" means, as defined in Oxford English Dictionary "to place on foot" or to establish in contradistinction to commence. distinction is that when business is established and is ready to be commenced, 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. Any expenditure during interval between setting up of business and its commencement would be permissible deduction under s. 10(2) of Act." We are also fortified by Gujarat High Court decision reported in (1973) 91 ITR 170 (Guj). reliance of ld. Departmental Representative on Supreme Court decision in case of Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC) in support of Revenue s contention is misplaced. This case, on other hand, supports contention that of assessee. As per one of findings of this case, their Lordships made following observation: "A unit cannot be said to have been set up unless it is ready to discharge function for which it is being set up. It is only when unit has been put into such shape that it can start functioning as business or manufacturing organisation that it can be said that unit has been set up." As per above observation, Kanpur business was not only set up but had been started after premises were taken on lease, Manager was appointed, purchases and sale of chemical though in small amount was effected. reliance of ld. Departmental Representative on case of Balakrishnan & Bros. Ltd. vs. CIT (1985) 151 ITR 270 (Mad) is also misplaced because that was case in which facts were quite different. In that case their Lordships held that m e r e inauguration of company would not show that it was ready to commence production. In instant case, we are accepting contention of assessee only from 1st June, 1979 when concern was not only set up to commence business but business was already commenced, in respect of one of 2 units. Under these circumstances, we accept contention of assessee that expenses from 1st June, 1979 are admissible. Since both lower authorities dealt with admissibility of expenses on main basis whether same was admissible or not as business was set up or was commenced, accepting contention of assessee that expenses are admissible from 1st June, 1979, we direct ITO to allow same. However we confirm action of CIT(A) in deleting sum of Rs. 770.24 being cost of Dunlop hose pipe which was considered by him as capital expenses, all expenses therefore, from 1st June, 1979 would be allowed barring cost of hose pipe. assessee had also raised certain other grounds pertaining to charge of interest under s. 217 and charge of surcharge but we were not addressed on same and learned counsel for assessee did not seem to be serious about same. same as such are dismissed. In result, assessee s appeal is partly allowed. *** BONDOCHY AGRO PRODUCTS PVT. LTD. v. INCOME TAX OFFICER