Tax Tribunal Allows Business Deductions from 1997; Remands Expense and Interest Claims for Further Review.

The ITAT concluded that the assessee's business was set up on 16-12-1997, allowing deductions for revenue expenses incurred thereafter. The matter was remanded to the AO for re-examination of claims, including the nature of expenditure on leased premises and the assessment of income from bank deposits. Interest liability under sections 234A, 234B, and 234C was left for the AO to address. The Third Member agreed with the Accountant Member, allowing certain deductions while disallowing others as capital in nature, and remanded the remaining issues for further examination.

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Issues Involved:
1. Whether the assessee had set up its business during the previous year relevant to the assessment year 1998-99.
2. Whether the expenditure of Rs. 49,27,336 was allowable.
3. Whether the income of Rs. 3,91,780 was assessable as business income.
4. Whether the expenditure of Rs. 17,92,600 incurred on the leased premises was capital or revenue in nature.
5. Whether the assessee was liable to pay interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Setting up of Business:
The primary issue was whether the assessee had set up its business during the previous year relevant to the assessment year 1998-99. The assessee argued that it had set up its business from the date of incorporation, supported by a foreign collaboration agreement dated 16-12-1997 and various correspondences with prospective clients. The Tribunal examined the legal position on the distinction between 'setting up' and 'commencement' of business, referencing cases such as Western India Vegetable Products Ltd. v. CIT and Sarabhai Management Corpn. Ltd. v. CIT. The Tribunal concluded that the business was set up on 16-12-1997, the date of the foreign collaboration agreement, as the assessee had the necessary infrastructure and was ready to provide consultancy services.

2. Allowability of Expenditure:
The assessee claimed an expenditure of Rs. 49,27,336 under various heads, including building repairs, exhibition expenses, and administrative expenses. The Tribunal, after considering the legal precedents and the facts, held that all revenue expenses incurred on or after 16-12-1997 were admissible for deduction. The matter was remanded to the Assessing Officer to examine and decide afresh the assessee's claims in light of the Tribunal's directions.

3. Assessment of Income:
The assessee contended that the income of Rs. 3,91,780 from bank fixed deposits should be assessed as business income. The Tribunal, however, did not specifically address this issue in detail within the provided text. The matter was left to be re-examined by the Assessing Officer on remand.

4. Nature of Expenditure on Leased Premises:
The Tribunal examined whether the expenditure of Rs. 17,92,600 on the leased premises was capital or revenue in nature. Relying on the decision of the Bombay High Court in CIT v. Hede Consultancy (P.) Ltd., the Tribunal directed the Assessing Officer to re-examine this issue in light of the legal principles laid down in that case, which allowed for such expenditures to be treated as revenue if they did not result in the creation of an asset belonging to the assessee.

5. Liability to Pay Interest:
The assessee argued against the levy of interest under sections 234A, 234B, and 234C, claiming it was not liable to pay advance tax. The Tribunal did not provide a specific ruling on this issue within the provided text, leaving it to be addressed by the Assessing Officer on remand.

Separate Judgments:
The Tribunal's members delivered separate judgments. The Accountant Member concluded that the business was set up on 16-12-1997 and remanded the matter to the Assessing Officer for re-examination of the claims. The Judicial Member disagreed, holding that the business was not set up during the relevant period and thus, the expenses were not allowable. The matter was referred to a Third Member, who agreed with the Accountant Member, allowing the deduction of Rs. 15,65,239 for exhibition expenses but disallowing the building repair expenses as capital in nature. The Third Member also remanded the matter for re-examination of other expenses.

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