Temporary lull in business not cessation, deductions allowed: SC

The Supreme Court has ruled that a lull in operations does not amount to business activities of an organisation ceasing and the entity can continue to show on its books “business expenditure” and “unabsorbed depreciation costs”.

- BHAVINI MISHRA

In a ruling on October 17, the court held that as long as the company concerned made efforts to revive the business and pursue its stated trade, it remained “in business” for tax purposes.

In its ruling, it upheld the plea of oil-drilling company Pride Foramer SA, which claimed business expenditure and unabsorbed depreciation for the assessment years 1996-97, 1997-98, and 1999-2000.

As a result of this judgment, it can set off business expenditure against income from other sources and carry forward unabsorbed depreciation for the relevant years.

“In an era of globalisation whose life blood is transnational trade and commerce, the (Uttarakhand) High Court's restrictive interpretation that a nonresident company making business communications with an Indian entity from its foreign office cannot be construed to be carrying on business in India is wholly anachronistic with India’s commitment to sustainable development goals relating to ‘ease of doing business’ across national borders,” the court said.