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Commissioner of Income Tax-5 Versus Jcdecaux Advertising India (P) Ltd.

2015 (4) TMI 983 - DELHI HIGH COURT

Disallowance of businesses expenditure - ITAT allowed the claim - commencement of business - whether assessee has not commenced business operations during the previous year (the assessment year being 2007-08)? Held that:- As decided in Western India Vegetables Products Ltd. v. CIT [1954 (3) TMI 59 - BOMBAY HIGH COURT] the important question that has got to be considered is from which date are the expenses of this business to be considered permissible deductions and for that purpose the section t .....

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ions because those expenses would be incurred at a point of time when the previous years of the business would not have commenced. Thus the decision of the ITAT does not call for any interference - decided against revenue. - ITA 241/2015 - Dated:- 23-4-2015 - Hon'ble Mr. Justice S. Ravindra Bhat And Hon'ble Mr. Justice R. K. Gauba,JJ. For the Appellant : Mr. Rohit Madan, Advocate For the Respondent : Mr. Pawan Kunal, Advocate ORDER S. Ravindra Bhat, J. (Open Court) 1. The Revenue is aggr .....

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ure (i.e. advertising on bus shelters, public utilities, parking lots etc.) bill boards and transportation (such as advertisement in airports, railway stations etc.). It was awarded its first contract by New Delhi Municipal Corporation (NDMC) in March 2006 for construction of 197 Bus Queue Shelters (BQSs) on Build-Operate Transfer (BOT) basis. In terms of the contract, the assessee was required to undertake preliminary investigations, study, design, finance, construct, operate and maintain BQSs .....

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l expenditure. The assessee accepted this. The other head of expenditure i.e. one in advertisement in the present case was ₹ 3,17,91,180/-; it was claimed as deductible. The AO treated the same as revenue expenditure but refused to allow deduction on the ground that the business of the assessee had not commenced and while so concluding, the AO held that the business would commence when the BQSs would be ready for providing space for advertisement, being the very reason for which the assess .....

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ctions for which it is set up. Pre-setting up would mean doing of all the necessary things culminating into the attainment of the stage of ready to discharge functions. In the case of a manufacturing unit, the setting up would mean installing all the necessary machines for manufacture; and pre-setting up would mean the phase during which the place for business is acquired, machinery purchased and then finally installed so that the stage of setting up of business is attained. In the case of a tra .....

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ducing activity. In the case of a manufacturing unit, the stage would come when raw material etc. is procured for the start of actual manufacturing. A trader can be said to have commenced his business on purchasing material to be sold to the customers. Similarly, a building contractor can be said to have commenced his business when he undertakes the actual contract work pursuant to the award of contract. The second stage can be termed normally as a waiting period between the ready to start‟ .....

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ear. On 30th March, 2006, it entered into a manufacturing agreement with Uttam Sucrotech International Pvt. Ltd. for manufacture and installation of BQSs and also made advance payment. In the preceding year, the assessee arranged for credit facility and obtained overdraft limit and also paid a security deposit of ₹ 1 crore to the NDMC. Noting that, according to the authorities below, the business would have commenced only when the BQSs are ready for providing space to the assessee for adve .....

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assessee was given the contract in the preceding year. Not only that, the assessee started the execution of the contract in the preceding year itself by taking steps such as entering into manufacturing agreement with a third person for manufacture and installation of BQSs on making advance payment. The project of NDMC for construction of BQSs was not set up but insofar as the assessee is concerned, it had certainly commenced its business with the execution of contract awarded by NDMC. The ITAT .....

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m NDMC. It cannot be in relation to the completion of construction of BQSs. As the setting up of the business was over in the preceding year, at the maximum, on entering into manufacturing agreement for manufacture and installation of BQSs on 30th March, 2006, it was held that not only the business of the assessee was set up but had also commenced in the instant year. As Section 3 read with Section 4 refers to the starting of previous year from the date of setting up of a new business, the ITAT .....

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sioner of Income Tax v. Samsung India Electronics Ltd. (2013) 356 ITR 354 (Del). The latter of these decisions was relied upon in a subsequent ruling in ITA No. 42/2014 Carefour WC&C India Private Limited v. Deputy Commissioner of Income Tax, 2014 ITR 392. 8. The Court in Carefour crucially observed that activity or exercise which is a perquisite to the commencement or proposed set up would be treated as that connected with commencement of business. After quoting the observations in ESPN Sof .....

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