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Issues Involved:
1. Whether the Tribunal was justified in disallowing expenses incurred prior to February 24, 1968, as revenue expenses. 2. Whether the assessee is entitled to a deduction of Rs. 45,708 as revenue expenses. 3. Whether the Tribunal was justified in disallowing specific expenses (municipal taxes, salary, advertisement expenses, interest, license fees) incurred prior to February 24, 1968. 4. Whether the Tribunal was justified in disallowing Rs. 4,525 for linen and crockery as initial expenses. Issue-Wise Detailed Analysis: Issue 1: Disallowance of Expenses Incurred Prior to February 24, 1968 The Tribunal disallowed expenses incurred before February 24, 1968, arguing that the business was not set up until the hotel was inaugurated on that date. The Tribunal emphasized four key factors: the building's previous use for offices, lack of common facilities, substantial architectural fees, and the recruitment of staff only by February 1968. The Tribunal concluded that the business was not ready to commence before the inauguration date. However, the court disagreed, stating that the business of a boarding and lodging house comprises various integrated activities that do not necessarily need to be completed simultaneously. The court cited multiple precedents, including Western India Vegetable Products Ltd. v. CIT and Sarabhai Management Corporation Ltd. v. CIT, to emphasize that a business is considered set up when it is established and ready to commence, not necessarily when it starts full operations. The court concluded that the business was set up when the building was placed at the firm's disposal on July 1, 1967. Issue 2: Entitlement to Deduction of Rs. 45,708 as Revenue Expenses Given the court's conclusion on Issue 1, the court held that the expenses incurred after the business was set up (July 1, 1967) and before the formal inauguration (February 24, 1968) qualify as revenue expenses. The court referenced the AAC's re-appraisal, which accepted the claim that the business commenced from the date the building was handed over and allowed the amount of Rs. 45,708 as revenue expenditure. Issue 3: Disallowance of Specific Expenses Incurred Prior to February 24, 1968 The Tribunal disallowed Rs. 7,672 for municipal taxes, salary, advertisement expenses, interest, and license fees incurred before February 24, 1968. The court, however, reiterated that these expenses were incurred after the business was set up on July 1, 1967, and before the formal inauguration. Therefore, these expenses should be allowed as revenue expenses. Issue 4: Disallowance of Rs. 4,525 for Linen and Crockery The Tribunal disallowed Rs. 4,525 for linen and crockery, considering them initial expenses. However, this issue was not pressed by the assessee, and thus, the court did not address it. Conclusion: 1. Question 1: Answered in the negative, in favor of the assessee. 2. Question 2: Answered in the affirmative, in favor of the assessee. 3. Question 3: Answered in the negative, in favor of the assessee. 4. Question 4: Not required to be answered as it was not pressed. The Commissioner is directed to pay the costs of this reference to the assessee.
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