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Issues involved: Interpretation of commencement of business for a non-resident company in India and allowance of expenditure incurred prior to official permissions.
Judgment Summary: Issue 1: Commencement of Business The case involved determining the commencement of business for a non-resident company in India. The company secured a letter of intent from Neyveli Lignite Corporation on April 13, 1981, to establish a project office and commence activities. Despite subsequent approvals from the Reserve Bank of India and registration under the Companies Act, the Income-tax Officer disallowed expenditure incurred before October 1, 1981, citing lack of permission during that period. The Tribunal disagreed with the Commissioner of Income-tax, holding that the company had indeed commenced business activities on April 13, 1981, in line with the letter of intent, and allowed the claim based on this commencement date. Issue 2: Allowance of Expenditure The Tribunal's decision was based on the fact that the company had initiated operations on April 13, 1981, and the expenditure incurred was in accordance with the letter of intent from Neyveli Lignite Corporation. The Tribunal emphasized that the subsequent steps taken by the company to comply with legal requirements were a result of the initial letter of intent. As per the contract terms, the time schedule and establishment of a project office were linked to the date of the letter of intent. Therefore, the expenditure incurred by the company prior to October 1, 1981, was deemed valid for the assessment year 1981-82. Consequently, the question was answered in favor of the assessee, allowing the claimed expenditure against the Revenue's objection.
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