INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Investment made by assessee in the subsidiary companies engaged in same line of business -

Revenue denied the entire business expenditure claimed by assessee on the ground that assessee was not engaged in any business activity, being no business was set up or was commenced during the relevant assessment year. There were no fixed assets, no receipts and expenses relatable to main objects as per Memorandum of Association. Assessee submitted that as investment was made in subsidiaries, which were carrying on similar business as specified in its main object, the same was reason enough to hold that business was set up in terms of its objects. Held: Acquisition of controlling interest in the companies could be in furtherance of business purpose of the assessee. Further, there is no legal or statutory requirement of direct and first hand business operations to be conducted by assessee himself and indulgence in business activities through subsidiaries that were in same line of business activities as stipulated in Memorandum of Association also qualify as carrying out business activity. Hence, as the investment was made by assessee in the subsidiary companies engaged in same and specified line of business, in terms of its objects, entire business expenditure claimed by assessee was allowable as deduction.

Relied:SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0833 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2008-09

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