Business commencement follows a binding letter of intent, with later regulatory approvals not postponing tax deductibility.

Business commencement for tax purposes was treated as occurring when the assessee secured and accepted the binding letter of intent on 13 April 1981, because the contract made that date operative for the project timetable and related obligations. Subsequent Reserve Bank permission and Companies Act registration were regarded only as compliance steps for a foreign company and did not postpone commencement. Expenditure incurred after the letter of intent was held to be in furtherance of the business activities and therefore deductible from that date.

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Issues: Whether the assessee commenced its business in India on 13 April 1981 when it secured and accepted the letter of intent, and whether the expenditure incurred from that date was allowable.

Analysis: The Tribunal's finding showed that the assessee had secured the letter of intent on 13 April 1981 and that the subsequent Reserve Bank permission and Companies Act registration were only compliance steps for a foreign company. The contract itself treated the letter of intent date as the operative date for the project timetable and related obligations. On that basis, the business activities had in fact commenced from that date, and the expenditure incurred thereafter was pursuant to those activities.

Conclusion: The assessee commenced its business in India on 13 April 1981, and the expenditure from that date was deductible.

Ratio Decidendi: Where a business has in fact commenced operations pursuant to a binding letter of intent, later regulatory approvals and formal registrations do not postpone the commencement date for tax purposes if the expenditure is incurred in furtherance of those operations.

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