Business expenditure

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, as held by GujHC in CIT v Gujarat Urban Development Co Ltd — In favour of: The assessee; ITA No 14 of 2010.

The assessee-company had undertaken activities in an earlier year in accordance with its main objects, contained in the memorandum of Articles of Association of the company. The assessee was designated as a nodal agency to implement the urban infrastructure component of the earthquake reconstruction and rehabilitation project through the Gujarat State Disaster Management Authority. The entire expenditure incurred for the same was reimbursed by the Gujarat State Disaster Management Authority. The assessee was also appointed as a nodal agency for the implementation of the Gujarat Reforms Project by the Urban Development and Urban Housing Department of the Government of Gujarat. In furtherance of such responsibilities, the assessee had also undertaken certain tasks. The expenditure was borne by the parent agency. The CIT(A) as well as the Tribunal have both 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.

CIT v Gujarat Urban Development Co. Ltd.

High Court of Gujarat

ITA No. 14 of 2010

Akil Kureshi and Sonia Gokani, JJ

Decided on: 13 June 2011

Counsel appeared:

Mauna M. Bhatt as Adv. for the Appellant

Order

Akil Kureshi, J

Revenue is in appeal against judgement of the tribunal dated 29.4.2009 raising following questions forour 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.