Pride Foramer S.A. Vs CIT & Anr. (Supreme Court of India)
No Contract ≠ No Business: SC Says Lull Doesn’t Stop Depreciation & Deductions- Commercial Reality Over Technicality – SC Restores Deductions & Set-Off
The Appellant, a non-resident French company engaged in offshore drilling, had a 10-year contract with ONGC (1983–1993). After that contract ended, it did not have any drilling contract in India until 1998-99, but during the intervening years it:
- Maintained continuous correspondence with ONGC,
- Submitted a bid in 1996 for a new contract (though unsuccessful),
- Incurred administrative & professional expenses, and
- Received interest on income-tax refunds, which was offered to tax.
It filed NIL returns but claimed business expenditure deduction u/s 37(1) and set-off of unabsorbed depreciation u/s 32(2).
AO & CIT(A): Disallowed both, saying business had ceased.
ITAT: Allowed deduction & set-off, holding there was only a “lull in business,” not cessation and that efforts to obtain contracts proved continuation of business.
High Court: Reversed ITAT, holding that absence of contract, permanent office, or activity in India meant no business was carried on, thus no deduction or depreciation set-off.
Supreme Court’s Key Findings:
Temporary lull ≠ Business closure
A business may go through a lean or transitional period. As long as the intention to continue exists, it does not amount to cessation.
