COMMISSIONER OF INCOME-TAX VS FRANCO TOSI INGEGNERIA
2001 P T D 1782
[241 ITR 268]
[Madras High Court (India)]
Before R. Jayasimha Babu and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF INCOME‑TAX
Versus
FRANCO TOSI INGEGNERIA
Tax Case No. 221 of 1988 (Reference No. 160 of 1988), decided on 02/02/1999.
Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Commencement of business ‑‑‑Assessee, a non resident‑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.
Mrs. Chitra Venkataraman for the Commissioner.
Nemo for the Assessee.
JUDGMENT
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 held that the appellant company has commenced its business activities in India on April 13, 1981, when it secured the letter of intent from Neyveli Lignite Corporation. The requirements of permission from the Reserve Bank of India under section 29 of the Foreign Exchange Regulation Act for establishing a project office in India at Madras and for registration under the Companies Act are all steps taken by the appellant company to comply with the legal requirements imposed on a foreign company by the laws of our country, but all these steps are only in pursuance of the letter of intent secured by it from Neyveli Lignite Corporation on April 13, 198J. According to clause 5.9. of the contract entered into between the parties on June 8, 1981, pursuant to this letter of intent, the time schedule for provisional take over was calculated from the date of issue of the letter of .intent for each of the three units. Similarly, the establishment of project office at Neyveli at the project site preparatory to mobilisation of erection establishment is also one of the conditions to be fulfilled by the appellant company as per clause 7.8 of the contract for receiving 10 per cent. of the total erection price as advance.
It is clear from this finding of the Tribunal that the assessee had in fact commenced operations on April 13, 1981, and incurred expenditure and the expenditure so incurred was pursuant to the letter of intent granted to it by the Neyveli Lignite Corporation. The assessee is, therefore, entitled to regard the expenditure so incurred as the expenditure incurred by it during the previous year relevant to the assessment year 1981‑82. The question referred to us is answered in favour of the assessee and against the Revenue.
M.B.A./580/FC Reference answered.