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TMI Blog2019 (4) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) TMI 793 - DELHI HIGH COURT] dealt with this trading related aspect and stated that even certain kinds of preliminary steps, such as engaging in negotiation or employment of personnel, could be relevant even though actual activity might not be involved. Keeping this principle in mind, this Court is of the opinion that the petitioner’s activity, which it claims to be preliminary steps towards the fulfillment of the purpose, which is embodied in the MoU and extracts of which have been reproduced above, clearly indicates that it had set up its business and that these steps were for the ultimate fulfillment of its purposes, which was the preparation of development plans leading to the projects. The Principal Commissioner of Income Tax, in the impugned order, was plainly wrong in holding otherwise. For the aforesaid reasons, we are of the opinion that this writ petition is to succeed. The impugned order of the CIT, as well as the AO are set aside.he matter is remitted to the AO to give tax effect and to ensure that the deduction claims are appropriately granted. - W.P.(C) 6782/2018 - - - Dated:- 26-3-2019 - MR. S. RAVINDRA BHAT AND MR. PRATEEK JALAN JJ. Petitioner Throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unless (i) the key persons of the assessee company have been appointed who can decide how to go about tendering, selecting the consultants and advisors are in place; (ii) the draft model development agreement is finalized (iii) financial and bid advisory services are appointed and (iv) at least one of the consultants for Architectural and technical feasibility studies is appointed; in my considered view; the business is not established. As far as the certificate of commencement from the ministry of Corporate Affairs is concerned, this is given an application by the company and actual establishment of setting up of business is not a criteria for them. Now, I will proceed to decide when the above key elements of the business were available to the assessee. (a) Appointment of key persons on its Rolls: Mr. S.P. Mahi as Chief Executive Officer Joined on November 12 th 2012. Mr. Parag Verma as Chief Operating Officer Joined on July 13 th 2012 2. Mr. B.B. Walecha as Manager, Confdl. Joined on June 25 th 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as per the provisions of that section. Hence, I refuse to revise the impugned order dated 15.01.2016, passed under section 143 (3) of the Act, on the grounds raised by the Assessee Petitioner. The petition is decided accordingly. 4. It is contended by Mr. G.C. Srivastava, learned counsel for the petitioner that the Principal Commissioner s view is erroneous in law. It is urged that the assessee, as an SPV, does not engage itself in procuring material or goods or even manufacturing unit, rather, is engaged in providing services. These services involve taking various steps towards the ultimate aim of preparing separate project plans for the railway stations which need to be developed. The project plans are, in fact, coterminous with the development and its finalisation for each of the station. 5. It is emphasised that the preliminary steps involving appointment of management and key personnel were completed during the assessment year and that process for engaging other services, such as financial and bid advisory service were, in fact, commenced. 6. In these circumstances, the claim for deduction against expenditure towards employees remuneration, depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be presented with a development plan. Not only was the SPV/petitioner required to draw a development plan but also engaged itself in the entire project. 10. The MoU entered between the petitioner s promoters i.e. IRCON and RLDA, inter alia, states certain provision which are as follows:- 2. BROAD SCOPE OF WORK AND REVENUE STREAM OF THE SPV 2.1 The scope of the Project(s) will be to develop/redevelop the existing/new railway station(s) which will consist of upgrading the level of passenger amenities by new constructions/renovations including redevelopment of the station buildings, platforms surfaces, circulating area to better standards so as to serve the need of the passengers. Details are given in the succeeding paragraphs. 2.2 SPV shall be responsible for design, construction, financing, maintenance, generation and collection of revenues through identified passenger amenities, retail and such other commercial activities at the station in such a manner that each Project becomes financial viable. 2.3 Implementation of Projects will be through self financing mechanism in which the scope and parameters of a Project will be selected in such a manner that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subcontracting the Project work. Maintaining the station areas handed over to the zonal railway, if the zonal railway so desire, through a separate contract to be executed with the zonal railway. xxxx xxxx xxxx xxxx 7.0 PROJECT TERM The rights assigned by RLDA to the SPV in respect of each Project shall continue till the expiry of lease period mentioned for each project from the date of assignment. After the expiry of this period all the rights shall get reverted/transferred to RLDA/Railway. 11. The extract of the CIT s order makes it clear that during the assessment year the assessee had, in fact, engaged all key personnel. The Chief Executive Officer (CEO) took charge sometime in the beginning of November, 2012. It finalised a tender for obtaining financial bid and tender advisory service on 17.12. 2013 and the first consultant was appointed on 01.02.2013. As to what is setting up of a business, the judgment in Hughes Escorts Communications (supra) interestingly deals with this question and had held as follows in:- 10. A plain reading of the above provision shows that for a new business the previous year is the period beginning with the date of sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was the first assessment year, the AO was of the view that it had not commenced business because its commercial activity was aborted. This Court in its judgment turned down the Revenue s contentions, and held as follows :- 8. On a careful consideration of the issue in the light of the facts and the rival contentions, it seems to us that the decision of the Tribunal is based on the relevant tests that have been handed down judicially for the purpose ascertaining as to when a business can be said to have been set-up. The question as to when a business can be said to have been set-up is a question of fact to be ascertained on the facts and circumstances of each case and considering the nature and type of the particular business and no universal test or formula applicable to all types of businesses can be laid down. In recognition of this position the Indore Bench of the Madhya Pradesh High Court in Precision Electricals Electronics (P.) Ltd. v. CIT [1989] 176 ITR 453/[1988] 41 Taxman 108 has held that the question as to when the business of the assessee had commenced is a question of fact and if the Tribunal as, after appreciating the entire material on record, found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y connection may be relevant point to determine setting up but in case of a property dealer, the moment, he puts up a chair and table, or starts talking, his business is set up. The present assessee was engaged and incorporated for carrying on trading activities in different commodities. The word trade even though not defined in the Act is used to denote operations of a commercial character by which a trader provides to customer for reward, some kind of goods or services. In other words, when the trader start providing such goods and services, the business is said to have commenced but the same may not hold good for set up of a business, which is a stage before the commencement. To set up a business, the following activities become relevant:- Preparation of a business plan; establishment of a business premises; research into the likely markets or profitability of the business; acquiring assets for use in the business; registration as an entity and under the local laws etc. The said list of activities are not exhaustive and facts of each case need to be considered. Indeed purchase of goods would amount to commencement of business, but before the said act, spade work an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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