Law: Income Tax Act, 1961

Section: 37(1)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1965-66 - Main object of assessee-company was to acquire immovable properties and to give residential or business accommodation with all appurtenant amenities - Assessee on 26-3-1964 purchased a building and thereafter carried on various activities for procuring necessary facilities - Said building was given on lease on 1-5-1965 - Assessee claimed deduction of expenditure incurred by it between 1-10-1964 and 31-3-1965 on ground that it was in a position to offer services on and from 1-10-1964 - Income-tax authorities held that business of assessee commenced only on 1-5-1965 when said premises was actually given on lease and licence - Whether business of assessee could be said to have commenced on 1-10-1964 when assessee started activities of making residential accommodation with all appurtenant services available to intended licensee - Held, yes - Whether therefore, expenditure incurred by assessee on and after 1-10-1964 was an allowable business expenditure - Held, yes FACTS The main object of the assessee-company was to acquire immovable property and to give out either on leave and licence basis or on lease, office accommodation or residential accommodation together with all appurtenant amenities. The assessee on 26-3-1964 purchased a building with appurtenant land. Thereafter, it started procuring material for providing necessary facilities with which the building was to be given on licence. The building was given on lease on 1-5-1965. According to the assessee, it was in a position to offer services to licensees on and from 1-10-1964, it, thus, claimed that expenditure of incurred by it between 1-10-1964 and 31-3-1965, was a business expenditure. The ITO rejected the assessee's claim on the ground that it had not started or commenced its business in the year of account as it had commenced business only from 1-5-1965, the day on which it gave on leave and licence part of the said building. The Commissioner (Appeals) as well as the Tribunal upheld the orders of the revenue authorities and dismissed the appeal filed by the assessee. On reference : HELD From the…

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