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TMI Blog2012 (3) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... t March 1970 were not eligible for relief under section 35D on the ground that the expenditure was incurred by the promoters before 1.4.1970; 2 Whether the Tribunal ought to have held that the assessee was entitled to deduction under section 35D in respect of the amounts of ₹ 1,37,117/- and ₹ 75,548/-; 3 Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the assessee was not entitled to development rebate in respect of the amounts of ₹ 1,10,68,991 and ₹ 1,04,21,835/-? 2 The Assessment year in relation to which the reference arises is Assessment Year 1975-76. 3 The Assessee is a Public Limited Company. In its return of income the Assessee claimed a deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred any expenditure prior to its incorporation. The expenditure was incurred by the Assessee only after it agreed to accept the liability which had been incurred by the promoters. The Assessee would be bound only after it accepted that liability. The expenditure was incurred by the Assessee after the specified date and hence, it was urged, the Assessee would be entitled to a deduction under Section 35D. 5 On the other hand it was urged by the learned Counsel appearing on behalf of the Revenue that the expenditure was incurred by the promoters of the Assessee prior to 31 March 1970. The requirement of Section 35D is that the expenditure ought to have been incurred after 31 March 1970 which would not be fulfilled. The Assessee merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of the business in connection with the extension of the undertaking or in connection with the setting up a new unit. If those conditions are met a deduction to the extent provided in the provision is admissible. In the present case, it is not in dispute that the expenditure was initially incurred by the promoters of the Assessee. 8 Under the common law, a company could not ratify a contract made by a promoters before its incorporation. Under Section 15(h) of the Specific Relief Act, 1963 specific performance of a contract may be enforced against a company in respect of a contract entered into by the promoters on behalf of the company if such a contract is warranted by the terms of the incorporation and the company has accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not exist. The assessee-company did not exist when the income with which we are here concerned was earned. It is, therefore, not the assessee -company which earned the income when it accrued and it is not liable to pay tax thereon. The same result is reached by a somewhat different process of reasoning. A company can enter into an agreement only after its incorporation. It is only after incorporation that a company may decide to accept that its promoters have carried on business on its behalf and appropriate the income thereof to itself. The question as to who is liable to pay tax on such income cannot depend upon whether or not the company after incorporation so decides. It is he who carried on the business and received the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date 31 March 1970. The fact that the promoters had incurred the expenditure prior to 31 March 1970 would not detract from the position that the same represented expenditure incurred by the assessee only after the acceptance of the liability which took place after the specified date. Hence, for the aforesaid reasons, the first question which has been referred by the Tribunal would have to be answered in the negative. 11 On the second question which has been referred by the Tribunal, the learned Counsel appearing on behalf of the Assessee states that the same stands covered against the Assessee by the Judgment in Commissioner of Income Tax Vs. Arvind Mills Ltd. (1992) 193 ITR 255. 12 The reference is answered accordingly. No order as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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