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TMI Blog2014 (11) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the expenses of Rs. 3,17,91,180/-, on the reasoning that the business of the assessee had not commenced during the previous year relevant to the assessment year under consideration. 4. Briefly stated, the facts of the case are that the assessee was incorporated in April, 2005 to carry on the business of out of home advertisement, consisting of street furniture (such as advertising on bus shelters, public utilities, parking lots, etc.) bill boards and transportation (such as advertisement in airports, railway stations, etc.). The assessee was awarded its first contract by New Delhi Municipal Corporation (NDMC) in March, 2006 for construction of 197 Bus Queue Shelters (BQSs) on Build-Operate-Transfer (BOT) basis. As per this contract, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is aggrieved against treating the business as not set up and consequently not allowing deduction for this revenue expenditure. 5. We have heard the rival submissions and perused the relevant material on record. Section 3 of the Income-tax Act, 1961 (hereinafter also called 'the Act') defining "Previous year' provides, inter alia, that in the case of a business or profession, newly set up, the previous year shall be the period beginning with 'the date of setting up of the business' ending with the said financial year. Here it is significant to take note of the charging section 4, which states that the income-tax shall be charged for any assessment year in respect of the total income of the 'previous year' of every person. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly, in the case of a building contractor, setting up of the business would mean that the contractor has obtained all the necessary tools and equipments necessary for carrying on construction activity. The sum and substance of the setting up of a business is to fully gear up for undertaking the work for which the business is to be carried on and reaching a stage when such the business activity can be carried on the blow of a whistle. 7. The third stage is the actual commencement of business. This stage simply means taking a first step in the doing of the overall income producing activity. In the case of a manufacturing unit, this stage would come when raw material etc. is procured for the start of actual manufacturing. A trader can be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding the space to the assessee for advertisement, being the source of its income. In our considered opinion, there is a basic fallacy in the appreciation of the concept of setting up of business. It has been noticed above that the business of a building contractor is set up on his having all the necessary tools and equipments ready to take up the construction activity. Only when he gets construction contract and takes the first step in the direction of doing the construction activity, he commences his business. It cannot be said that the business of the contractor has not been set up till the construction work, undertaken pursuant to contract, goes on. If such construction is done by the contractor for and on behalf of or for the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it prepared itself for undertaking the activity of building BQSs on receipt of contract from NDMC. It cannot be related to the completion of construction of BQSs. As the setting up of the business was over in the preceding year, at the maximum, on entering into manufacturing agreement for manufacture and installation of BQSs on 30.03.2006, we hold that not only the business of the assessee was set up but had also commenced in the instant year. As section 3 read with section 4 refers to the starting of previous year from the date of setting up of a new business, we have no hesitation in holding that the business stood already set up in the preceding year and as such there can be no question of canvassing a view that the business would be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hold that the business was set up in the preceding year. 12. In so far as the claim for deduction of Rs. 3.17 crore is concerned, it is seen as an admitted position that the AO also held such expenditure to be of revenue nature, but, still disallowed as, in his opinion, it was incurred before the commencement of the business and, hence, was in the nature of pre-operative expenses. In view of our decision on the setting up of the business in the preceding year, all the revenue expenses incurred during the year become eligible for deduction. As the nature of such expenses, being that of the revenue, has not been disputed by the AO, we reverse the impugned order on this issue and direct the granting of deduction for a sum of Rs. 3.17 crore. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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