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Bombay High Court (HC) holds business can be said to be set up when it is ready to operate and not on actual commencement of business activity
The Bombay High Court (HC), in the case of Modi Business Centre Pvt. Ltd.[1] , held that the business of renting commercial property (office premises) commences from the stage of repairing and furnishing the property to make it rent-ready, not merely when the premises are actually let out. It relied on the Supreme Court's decision in CIT vs Sarabhai Management Corporation Ltd. [2] , which established that activities like making a property suitable for tenants constitute the commencement of business. The HC found the Income Tax Appellate Authority’s (ITAT‘s) contrary conclusion that the business was not set up because the centre was not fully operational to be erroneous.
Furthermore, the HC held that lending money to sister concerns in tax year 1991-92 was part of the assessee’s business activities, as evidenced by the assessee’s Memorandum of Association, which included financing as one of its objects. The HC noted that the ITAT itself, in the subsequent tax years 1992-93 and 1993-94, had treated the same lending activity as a business operation. The HC found the ITAT’s reasoning for tax year 1991-92—that the lending was a "fortuitous circumstance" and not a business activity—to be inconsistent and perverse, creating an illogical situation where the same transaction was treated differently across years.
[1] Modi Business Centre (P.) Ltd. v. DCIT [2025] 177 taxmann.com 602 (Bombay HC)
[2] CIT v. Sarabhai Management Corpn. Ltd. [1991] 192 ITR 151 (SC)