By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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44 302 ITR (AT) 1 Pune
Styler India Pvt. Ltd. v. JCIT 2008
SS ITA 1961 S. 28, S. 37
A.Y. : 1998-99. Dated : 8-4-2008
When business can be said to be set up is a question of fact
and would depend upon the circumstances involved in a particular case.
The assessee-company was set up as a 100% sub-sidiary of S of
Austria with the aim to make available technical expertise to the Indian
industry in three main areas — technical design and con-sultancy services,
systems supplier with respect to vehicle components and parts, sourcing of
vehicle components and parts from India for the global market.
The assessee filed a return for the A.Y. 1998-99 showing a
receipt of Rs.3,91,780 as interest on fixed deposit with the banks and claiming
expenses of Rs.49,27,336 as administrative and selling expenses as against the
receipt. The Assessing Officer was of the opinion that expenses of Rs.17,92,600
were capital in nature and that exhibition and launch expenses of Rs.15,65,239
should be disallowed as preliminary expenses.
The assessee explained that repairs, improvement and
innovation expenses were incurred for carrying on the business which was done by
obtaining long lease and in regards to exhibition and launch expense of
Rs.15,65,239, these were incurred after the company was formed on September 15,
1997.
For substantiating its claim, the assessee stated that it had
attended an exhibition in January 1998 at Expo ’98 at Delhi and it had taken a
stall and participated in the exhibition to promote the business interest of the
company and to increase its visibility in the eyes of Indian automotive
industry. The Assessing Officer held that interest income was liable to be
assessed under the head ‘Other Sources’ and expenses claimed amounting to
Rs.49,27,336 were not admissible and were to be disallowed.
The Commissioner (Appeals) held that there was no sufficient
proof to hold that the business had commenced, that all expenses were incurred
by the assessee before setting up of the business and
were not permissible. He upheld assessment of interest income under the head
‘Other Sources’ and did not allow any expenses against the above receipt.
On appeal to the Appellate Tribunal :
Held :
1. That there were details of various activities handled by
the Managing Director during his stay in India and the corporate offices he
visited to carry on discussion with different persons. Even the names of the
persons he met were given. The assessee had also furnished the detailed
qualification of the general manager, marketing, who had met various
prospective clients and given a summary of various activities carried on by
the employee. The assessee had placed on record correspondence exchanged with
various manufacturers of automobiles.
2. The expenditure clearly showed that the assessee had a
building on which rent of Rs.3,10,400 was incurred. It further carried on an
advertisement related to the business it had set up and other miscellaneous
expenses connected with the consultative services the assessee intended to
provide.
3. The assessee participated and took a stall in ‘Auto
Fair’ held in Delhi with the objective of advancing the assessee’s business of
consultancy. The assessee had a place of business; it had qualified people who
could give advice on automobile industry. There was material to show that the
assessee contacted various clients who entered into agreement with the
assessee in the subsequent years and paid fees for consultation to the
assessee.
4. Merely because actual receipts were not shown, it could
not be said that the assessee did not set up its business. When the assessee
was ready to offer advice on matters and problems indicated in the
correspondence with the clients, it was im-material that no fees for the
consultancy were received in the year under consideration. The assessee had an
office from which advice could be given in the automobile industry. All the
correspondence was addressed to a particular address in Pune. The assessee had
machinery to render advice in the technical field. On the above facts, it
could not be held that the assessee did not set up business in the relevant
period.
Cases referred to :
(i) CIT v. Sarabhai Management Corporation Ltd.,
(1991) 192 ITR 151 (SC) (para 84)
(ii) Neil Automation Technology Ltd. v. Deputy CIT,
(2002) 120 Taxman 205 (Mum.) (Tribunal) (paras 4,18, 31, 57, 59, 62)
(iii) Western India Vegetable Products Ltd. v. CIT,
(1954) 26 ITR 151 (Bom.) (paras 4, 10, 13, 17, 29, 35, 52, 59, 60, 61, 75, 77,
81, 85, 92) and many more.
