TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 964
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....the deduction of business expenditure under Section 37 of the Income Tax Act 1961 [Hereinafter, 'the Act'.], as well as carrying forward of unabsorbed depreciation under Section 32(2) of the Act for the Assessment Years 1996-1997, 1997-1998 and 1999-2000. FACTS: 2. Relevant facts for adjudication of the appeals are set out hereinunder: a. Appellant is a non-resident company incorporated in France and is engaged in oil drilling activities. In 1983, the appellant was awarded a 10-year contract for drilling operations in offshore Mumbai from 1983 till 1993. b. Thereafter, the appellant was awarded another drilling contract in October, 1998, which came to be formalised in January, 1999. c. In the interregnum i.e., during the relevant assessment years, though no drilling contract was awarded, the appellant carried on business correspondences with ONGC from its office at Dubai and headquarters at France and had also submitted a bid for oil exploration in 1996. d. During this period, appellant undertook various expenditures including administrative charges, audit fees etc. with the intention of carrying out its business activities as well as....
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....is going through a lean period of transition and it could be revived if proper circumstances arise. In the present case, the period between 1993 and 1998 was of such temporary discontinuance only which can be termed as a "lull in business". Thus, when the intention of the assessee was never to go completely out of business, it cannot be concluded that the assessee had discontinued its business. To our mind, it makes no difference if the correspondence was by the Dubai Office of the assessee or by its office in France as was one of the contentions of the ld. DR. In fact, in the accounting year 1995-96, the assessee had also paid consultancy Charges to follow up the aforesaid ONGC bid. Further, the receipts from this contract were offered for taxation in assessment year 2000-03 as reflected by the copy of the statement of total income placed on record. Another factor which weighed with the revenue authorities to conclude that the assessee had discontinued business in India, was the so called admission by the assessee that it had no permanent establishment in India. No doubt, the authorized representative had averred in the affidavit dated 22.1.01 that the assessee did not establish n....
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....ars 1996-1997, 1997-1998 and 1999-2000 were reheard analogously and disposed of by the impugned order. 7. The High Court while agreeing with the proposition that mere lull in business does not mean the assessee had ceased to do business in India, reversed the finding of ITAT, holding as follows: "..when the assessee has neither permanent office, nor any other office in India, nor any contract was in execution during the relevant period, it cannot be said that they were in business in India, as such, it cannot be said that assessee was entitled to set off claimed by it under Section 71 of the Act." ISSUE: 8. Having heard learned counsel for the parties, we are of the opinion that the moot issue which falls for our consideration is: 'Whether, in the facts of the case, the appellant can be said to have been carrying on business during the relevant period, so as to avail deduction of business expenditure under Section 37(1) read with Section 71 of the Act, and carry forward unabsorbed depreciation of previous years under Section 32(2) of the Act?' ANALYSIS: 9. Section 37(1), inter alia, provides any expenditure (not being an expenditure in the nature de....
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....man, evinces intention to carry on business, mere failure to obtain a business contract by itself would not be a determining factor to hold the appellant had ceased its business activities in India. [CIT v. Vikram Cotton Mills, (1988) 169 ITR 597 (SC), para 15.] 14. The Tribunal rightly noted a business going through a lean period of transition which could be revived if proper circumstances arose, must be termed as lull in business and not a complete cessation of the business. 15. The word 'business' has a wide import and connotes some real, substantial and systemic or organised course of activity or activity with a set purpose. [Narain Swadeshi Weaving Mills v. Commissioner of excess Profits Tax (1954) 2 SCC 546.] In CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC)., this Court further underlined that the expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profits' and would encompass in its fold "many other acts incidental to the carrying on of a business". The Bench observed as follows: "The expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profi....