INCOME TAX ACT, 1961

Business loss - Chargeability -Whether acquisition of license would be treated as commencement of business

Assessee was incorporated on 1-8-1995 and had acquired a license from its parent company to sub-license ESPN services for distribution of programmes in India on 15-8-1995. It had entered into an agreement on 1-10-1995 with company M and appointed it as its sole distributor. It claimed certain expenditures incurred as business expenditures. AO contended that agreement with parent company to distribute ESPN services was dated 15-8-1995, while agreement with M was dated 1-10-1995, therefore, it could not be said that, assessee had commenced business before that date. Accordingly, AO treated all expenses was incurred prior to commencement of business. Held: It was rightly held by CIT (A) and confirmed by Tribunal that assessee had commenced its business on date of acquisition of license as on 15-8-1995 and, therefore, all expenses incurred on or after that date were allowable as revenue expenditures. Hence, business would be treated as commenced when essential activity of that business was started.

Income-tax Act, 1961, Section 28(i)

A.Y. : 1997-98
Decision: In favour of assessee.

Case Law Analysis:CIT v. Saurashtra Cement & Chemical Industries Ltd. [1973] 91 ITR 170 (Guj.) [Para 12].