1998 (11) TMI 42 - HC - Income Tax

Summary

Issues involved: Interpretation of business activities post-acquisition of undertaking by State Government, validity of expenses claimed by assessee, continuity of business operations during pending legal proceedings.

Interpretation of business activities: The assessee, a private electric company, had its undertaking vested with the State Government due to the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1973. The Assessing Officer initially held that the assessee was not carrying on any business, limiting salary and audit fee payments. However, the Tribunal disagreed, stating that the assessee was indeed carrying on business and was entitled to the deductions claimed.

Validity of expenses claimed: The Tribunal considered the expenses incurred by the assessee while awaiting the Supreme Court's decision on the validity of the Act. It noted that the assessee had not permanently closed its business, as indicated by maintaining an establishment and the potential for business resumption if the Act was struck down. The Tribunal viewed the expenses as connected to the business of supplying electricity, with the intention to resume operations pending the apex court's decision. The Tribunal found the expenses not substantial and ruled in favor of the assessee.

Continuity of business operations: The Tribunal addressed two key questions: whether all expenses incurred in running the establishment should be allowed as deductions, and whether there was a discontinuation of business by the assessee-company. Both questions were answered in favor of the assessee, indicating that the Appellate Tribunal was justified in allowing the expenses as deductions and in holding that there was no discontinuation of business by the assessee-company.