If the company has undertaken certain activities as mentioned in its original objects, then it is sufficient to conclude that the business has commenced and that the expenditure incurred by the assessee is allowable
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No 14 of 2010
COMMISSIONER OF INCOME TAX – GANDHINAGAR
GUJARAT URBAN DEVELOPMENT CO. LTD.
Date : 13/06/2011
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against judgement of the tribunal dated 29.4.2009 raising following questions for our consideration :
(A) Whether the Appellate Tribunal is correct in holding that the business of the assessee has already commenced?
(B) Whether the Appellate Tribunal is correct in holding that if the company has undertaken certain activities as mentioned in its original objects, then it is sufficient to conclude that business has commenced?
(C) Whether the Appellate Tribunal is correct in holding that the assessee has already commenced its business and allowing the business expenses against interest income?
2. Central issue is whether during the assessment year in question, assessee had commenced its business activities. The Assessing Officer was of the opinion that the assessee had only invested funds available and earned interest income and had not carried out any business activity. On the other hand, CIT(Appeals) as well as tribunal both on basis of evidence on record disagreed with the view of the Assessing Officer and came to the conclusion that the assessee had commenced its business activities during the year in question.
3. Respondent assessee is a Government company registered under Section 617 of the Companies Act. It was incorporated to implement Gujarat Reforms Project by Urban Development and Urban Housing Department of Government of Gujarat. Assessee is a 100% Government owned company whose Directors are deputed by the Government and the policy and functions are to be carried out as framed by the Government for welfare of the public.
4. During the year in question assessee incurred expenditure of Rs.24,70,524/- and claimed it as business expenditure. Assessing Officer however, disallowed the claim holding that assessee had not yet commenced business activities during the year in question.
5. The tribunal however, was of the opinion that the assessee company had undertaken activities in earlier year in accordance with its main objects contained in memorandum of Articles of Association of the company. Assessee was designated as a Nodal Agency to implement the Urban infrastructure component of the earthquake reconstruction and rehabilitation project through Gujarat State Disaster Management Authority. Entire expenditure incurred for the same was reimbursed by the Gujarat State Disaster Management Authority. Assessee was also appointed as Nodal agency for implementation of Gujarat Reforms Project by the Urban Development and Urban Housing Department of Government of Gujarat. Tribunal therefore, concurred with the view of Assessing Officer and considered that such activities were undertaken in furtherance of the main object of the company. Such activities were considered as preoperative in nature.
6. We find that CIT(Appeals) as well as tribunal both have taken into account relevant evidence and come to the conclusion that the respondent assessee had in fact started its activities at-least during the year in question. Notably assessee was appointed as Nodal Agency for two projects by the Government as well as Semi-Government organizations. In furtherance of such responsibilities, assessee had also undertaken certain tasks. Expenditure was borne by the parent agency. We see no reason to take a different view. No substantial question of law arises. Tax Appeal is dismissed.