Friday, September 12, 2014

Erecting bus queue shelters by advertising Co. isn’t preoperative exp. even if they aren’t yet ready for advertisement


a)The assessee was incorporated to carry on the business of advertisement, consisting of street furniture (such as advertising on bus shelters, public utilities, parking lots, etc.). The first contract was awarded to it by NDMC in March, 2006 for construction of Bus Queue Shelters (BQSs) on Build-Operate-Transfer basis.

b)In consideration, the assessee was allowed to commercially exploit the space allotted in these BQSs by means of display of advertisement, etc., for a period of 15 years. In assessment year 2007-08, the assessee had claimed deduction of certain revenue expenditure incurred on construction of BQSs. The AO refused to allow deduction on the ground that the business of the assessee had not commenced.

c)The AO further held that the business would commence only when the BQSs would be ready for providing space for advertisement to the assessee, being the very reason for which the assessee company entered into an agreement with the NDMC. On appeal, the CIT (A) upheld the order of AO. The aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In the instant case, the assessee had started the execution of contract in the preceding year itself (i.e., previous year 2005-06) by taking steps such as, entering into manufacturing agreement with a third person for manufacture and installation of BQSs.

2)Thus, it could be said that the project of NDMC for construction of BQSs was not set-up, yet the assessee had commenced its business with the execution of contract awarded by NDMC. The authorities had tagged the setting-up of business with the provision of space for advertisement by NDMC. This was certainly a post-commencement business stage of the assessee.

3)Such an event would mark the generation of actual income on commencement of business and it could not be construed as the setting-up of business. Thus, the assessee's business was set up when it prepared itself for undertaking the activity of building BQSs on receipt of contract from NDMC. It could not be related to the completion of construction of BQSs.

4)Thus, it was to be held that the business was set up in the preceding year. Hence, deduction of impugned expenditure was to be allowed to the assessee.- JCDECAUX ADVERTISING INDIA (P.) LTD. V. DY.CIT [2014] 49 149 (Delhi - Trib.)