|COURT:||Bombay High Court|
|CORAM:||A. K. Menon J., M. S. Sanklecha J|
|SECTION(S):||28, 29, 37(1)|
|CATCH WORDS:||business expenditure, setting up of business|
|COUNSEL:||Dr. K. Shivram, Rahul Hakani|
|DATE:||January 30, 2017 (Date of pronouncement)|
|DATE:||February 3, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 28/29: There is a distiction between "setting up of business" and "commencement of business". All expenditure after "setting up" is deductible business expenditure even if the business has not commenced. A business is "set up" when steps are taken to recruit employees and take premises etc|
(i) A similar issue viz. distinction between setting up of business and commencement of business had come up for consideration before this Court in Western India Vegetable Products Ltd. vs. Commissioner of Income Tax 1954 Vol. 26 ITR Page 151. This Court had held that business is said to have been set up when it is established and ready to be commence. However, there may be an interval between a business which is set up and a business which is commenced. However, all expenses incurred during the interregnum between setting up of business and commencement of business would be permissible deductions. In this case the CIT (A) had disallowed the expenditure as business loss as on the ground only on the ground that it had not commenced business. However, the impugned order of the Tribunal on examination of facts found that the business of the respondent – assessee has been set up in the subject assessment year and consequently, the business loss arising on account of expenditure as claimed by the respondent – assessee was allowable. We also note that the impugned order of the Tribunal placed reliance upon the order of its Co-ordinate bench in HSBC Securities India Holdings Pvt. Ltd. decided in ITA No.3181/M/1999 decided on 28th November, 2001 wherein on similar facts it had held that when executives are employed and the infrastructure is ready to commence business, it can be said that the business has been set up for carrying on business as share brokers.
(ii) Mr.Kotangale, learned counsel for the Revenue has not been able to show any distinction which would warrant taking a different view of meaning of business being set up, as understood by the Tribunal in HSBC Securities India Holdings Pvt. Ltd. (supra). Mr. Kotangale states that the revenue has accepted the decision of the Tribunal in HSBC Securities India Holdings Pvt. Ltd. (supra) with regard to business expenditure being allowed on setting up of business, even if the business is yet to commence. The determination of the issue of whether the business has been set up is essentially one of finding of fact. This finding of fact on the basis of the test laid down by this Court in Western India Vegetable Products Ltd. (supra) and the Tribunal in HSBC Securities India Holdings Pvt. Ltd. (supra) is not shown to be perverse.