By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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14 (2007) 110 TTJ 445 (Del.)
ITO v. Mokul Finance (P.) Ltd.
ITA Nos. 4562 & 4563 (Del.) of 2005
A.Ys. 2002-03 & 2003-04. Dated : 13-7-2007
S. 37(1) of the Income-tax Act, 1961 — Company having not
closed its business, expenditure incurred during the period of dormancy of
business in order to keep the company afloat is allowable business expenditure.
During the relevant assessment year, the company had income
only from interest and dividend and no business activity was carried on.
The Assessing Officer disallowed the loss claimed by the
assessee, holding that since there was no business activity during the year, no
expenses could be allowed. The CIT(A), however, allowed the assessee’s claim of
loss.
The Tribunal, relying on the decisions in the following
cases, allowed the assessee’s claim :
(a) CIT v. Ganga Properties Ltd., (1993) 199 ITR 94
(Cal.)
(b) Nakodar Bus Service (P) Ltd. v. CIT, (1990) 85
CTR (P & H) 25/(1989) 179 ITR 506 (P & H)
(c) CIT v. Rampur Timbery & Turnery Co. Ltd., (1981)
21 CTR (All.) 76/(1981) 129 ITR 58 (All.)
(d) L. VE. Vairavan Chettiar v. CIT, (1969) 72 ITR
114 (Mad.)
The Tribunal noted as under :
(a) The assessee being an artificial juridical person, it
needs to incur certain expenditure to keep itself afloat and have its
continued existence. Unlike a natural person, a company can only operate
through other natural persons — whether employees or others.
(b) In the case of corporate assessees, such expenses have
to be allowed as deduction, irrespective of whether or not the assessee is
engaged in active business and even if assessee has only passive incomes.
(c) Not carrying on business activity in a particular
period cannot be equated with closure of business, as it takes an
unsustainably narrow view of the scope of cessation of a business.
(d) Unless the business is abandoned or closed and even if
business is at a dormant stage waiting for proper market conditions to
develop, the expenditure incurred in the course of such a business is to be
allowed as deduction.
