2008 (3) TMI 90 - HC - Income Tax

Assessee has acquired the license on 15th August, 1995, and after getting the license, the Assessee was in a position to start the business, so, under these circumstances, we have no hesitation in holding that the Assessee has commenced his business on or after 15th August, 1995 hence assessee is allowed to claim deduction as assessee obtained licence & commenced business in relevant previous year deduction for depreciation allowance is also allowed no question of law arise

Summary

Issues:
1. Deduction of expenditure incurred by the Assessee on or after 15th August, 1995.
2. Date of commencement of business for the Assessee.
3. Interpretation of Section 3(1) of the Income Tax Act, 1961.
4. Definition of "setting up" vs. "commencement" of business.
5. Finding of fact regarding the date when the business was set up.

Analysis:

1. The main issue in this case revolved around the deduction of expenditure incurred by the Assessee on or after 15th August, 1995. The Tribunal allowed the deduction, considering this date as the commencement of the business, based on the acquisition of a license from ESPN Inc.

2. The question of when the Assessee commenced its business was crucial. The Assessing Officer argued that the business did not commence during the year as necessary infrastructure was purchased later, and no revenue-generating activities were conducted. However, both the CIT(A) and the Tribunal held that the business was set up on 15th August, 1995, allowing the Assessee to claim all expenses incurred before this date.

3. Section 3(1) of the Income Tax Act defines the "previous year" for newly set up businesses. The section states that the previous year begins with the date of setting up the business. In this case, the Tribunal's decision was based on the interpretation that the business was set up on 15th August, 1995, aligning with the statutory provisions.

4. The distinction between "setting up" and "commencement" of business was crucial. The judgment highlighted that a business commences with the first essential activity, such as acquiring a license or making the first purchase of stock. It was emphasized that not all activities need to start simultaneously for the business to be considered commenced.

5. The finding of fact regarding the date when the business was set up was crucial in this case. The Tribunal's conclusion was based on the Assessee's readiness to commence business after acquiring the license on 15th August, 1995. The Tribunal's findings were upheld, stating that the Assessee had indeed commenced its business on or after the mentioned date.

In conclusion, the judgment upheld the Tribunal's decision, dismissing the Revenue's appeal. The court found no fault with the Tribunal's view, stating that it did not raise any substantial question of law. The decision was based on a thorough analysis of the facts and statutory provisions regarding the commencement of the Assessee's business.