Case Law Details
Case Name : Indian Railway Stations Development Corporation Ltd. Vs Pr. CIT (Delhi High Court)
Appeal Number : W.P.(C) 6782/2018
Date of Judgement/Order : 26/03/2019
Related Assessment Year : 2013-14
Courts :
All High Courts Delhi High Court
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Indian Railway Stations Development Corporation Ltd. Vs Pr. CIT (Delhi High Court)
Conclusion: Where in service sector, the entity has involved itself in various kinds of steps, some of which are preliminary to setting up the main substantial commercial venture such as appointment of key personnel, preparation of draft model development agreement and initiation of process to tender financial and advisory services, then, claim for deduction of depreciation, preliminary expenses and employee’s remuneration was to be allowed.
Held: Assessee-company declared loss to the tune of ₹44,70,035/-. Upon scrutiny, AO observed that assessee claimed expenditure amounting to more than ₹1.92 crores, but had not claimed any business income from its activity. An amount of ₹85,83,365 shown in the P&L accounts, was held to be income from other sources. Assessee therefore preferred a revision petition filed under Section 264, which was declined. Assessee in furtherance of its claim before the CIT had urged that it had, in fact, set up a business inasmuch as various preliminary steps had been taken by it which included the appointment of key personnel, preparation of draft model Development Agreement and initiation of process to tender financial and advisory services. CIT however rejected the assessee’s claim for revision affirming the view of the AO. It was held in case of the service sector, where the entity has involved itself in various kinds of steps, some of which are preliminary to setting up the main substantial commercial venture, the linkage between these preliminary steps and nature of the ultimate activity may be a relevant factor to be taken into account. Therefore, certain kinds of preliminary steps, such as engaging in negotiation or employment of personnel, could be relevant even though actual activity might not be involved. Therefore, assessee’s activity, which it claimed to be preliminary steps towards the fulfillment of the purpose, which was embodied in the MoU, clearly indicated that it had set up its business and that these steps were for the ultimate fulfilment of its purposes, which was the preparation of development plans leading to the projects and the same was allowable.
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