9911796707
|
Home
Issues involved: Determination of whether the business had been set up before October 1972 for the purpose of allowing deduction of certain expenditure incurred by the assessee.
Summary: The High Court of Bombay was presented with a reference under section 256(1) of the Income-tax Act, 1961, regarding the establishment of the business by the assessee before October 1972. The assessee, a company incorporated in March 1968 to run a hotel, actually commenced business in April 1973. The dispute arose from the deduction claim of expenditure amounting to Rs. 3,96,431 incurred between October 1972 and March 1973. The Income-tax Officer initially disallowed the claim, stating that the hotel business was not set up by the assessee before March 1973. The Commissioner of Income-tax (Appeals) allowed a portion of the expenditure, which was upheld by the Income-tax Appellate Tribunal. The court considered additional facts such as employee appointments in June 1972, tariff approval in October 1971, and the letting out of the banquet hall in November 1972. Despite these actions, the hotel building was not completed until March 1973, delaying the commencement of business. Citing relevant case law, including CWT v. Ramaraju Surgical Cotton Mills Ltd., the court emphasized that a business must be ready to function to be considered set up. Referring to the judgment in CIT v. Forging and Stamping Pvt. Ltd., the court reiterated that readiness to commence production signifies the establishment of a business. Ultimately, the court concluded that the hotel business was not set up by the assessee before October 1972, as the hotel building was incomplete during the relevant period. Therefore, the expenditure claimed could not be considered as business expenditure. The question was answered in favor of the Revenue, and no costs were awarded based on the circumstances of the case.
|
