Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Commencement of business ---Assessee, a non­resident-company---Securing letter of intent for project in India on 13-4-1981---Thereafter, setting up site office .on 1-10-1981---Business commenced on 13-4-1981---Expenditure from that date deductible---Indian Income Tax Act, 1961, S.37. Held, that the assessees had commenced its business in India from April 13, 1981, when it secured and accepted the letter of intent from Neyveli Lignite Corporation and not from October 1, 1981, when it opened its site office at N and, therefore, the assessee was entitled to the expenditure claimed by it from that date, viz., April 13, 1981. THIS JUDGMENT DELIVERED BY R. JAYASIMHA BABU, J.---At the instance of the Revenue, the following question has been referred to us: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee had commenced its business in India from April 13, 1981, when it secured and accepted the letter of intent from Neyveli Lignite Corporation and not from October 1, 1981, when it opened its site office at Neyveli, and, therefore, the assessee is entitled to the expenditure claimed by it from that date viz., April 13, 1981?" The assessee is a non-resident company, which secured a letter of intent from Neyveli Lignite Corporation on April 13, 1981, for carrying out certain works to establish a project office and to commence activities in India from that date. However, it secured the approval of the Reserve Bank of India for establishing its project office only subsequently. It also obtained the registration under the Companies Act subsequent to April 13, 1981. The Income-tax Officer disallowed the expenditure incurred for the period prior to October 1, 1981, on the ground that during that period, .the permission of the Reserve Bank was not in force. The fact that the expenditure had been incurred was not doubted. The Tribunal, disagreeing with the Commissioner of Income-tax, allowed the assessee's claim. While doing so, it set out its conclusion thus: "On the above facts, it has to be…

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