The assessee, a French company engaged in oil drilling activities, had no subsisting drilling contract in India during the relevant assessment years, but continued correspondence with ONGC, explored fresh opportunities and submitted bids. During this interregnum, it incurred administrative, audit and legal expenses and earned interest on income-tax refunds. The Assessing Officer disallowed the business expenditure and denied set-off of brought forward unabsorbed depreciation on the ground that no business was being carried on in India. The Tribunal held that there was only a temporary lull in business and not cessation, and allowed the claim. The High Court reversed the Tribunal. On appeal, the Supreme Court held that failure to secure a contract by itself does not mean cessation of business. The assessee’s continuous efforts to secure business in India established that it was carrying on business in India. The Court also held that the Act does not require a non-resident to have a permanent establishment or office in India for being regarded as carrying on business in India. Accordingly, business expenditure was allowable, such expenditure could be set off against interest on tax refunds under section 71, and unabsorbed depreciation was eligible for carry forward and set-off. The Supreme Court restored the Tribunal’s orders and set aside the High Court judgment. (AY. 1996-97, 1997-98, 1999-2000)