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TMI Blog2021 (4) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The finding recorded by the Tribunal that the assessee set up its business only on 02.02.2012 was perverse and erroneous in law. Assessee, having acquired the necessary wherewithal and physical infrastructure for carrying on its business - it was only waiting for the approval of its application for commencement. Tribunal failed to appreciate the difference between the assessee being ready to commence business and the date from which it conducts business or, as in this, allowed to conduct. It has to be understood that business does not conform to, metaphorically speaking, the cold start doctrine. There is, in most cases, hiatus between the time a person or entity is ready to do business and when business is conducted. During this period, expenses are incurred towards keeping the business primed up. These expenses cannot be capitalized as suggested by the authorities below. We are of the view that if Mr. Bhatia s submission was to be accepted, then, it is quite likely that if, in a given situation, the statutory authority, which is required to grant the approval, delays the issuance of the license, the expenses incurred, in the interregnum, would not be allowed as busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned questions of law, the following facts are required to be noticed: - 2.1. The assessee was incorporated on 24.11.2010. The first meeting of its board of directors was held on 29.11.2010 when certain decisions were taken including, according to the assessee, setting-up of its business; appointment of the Chief Executive Officer and the Principal Officer; approval of the draft application for obtaining a broker s license in the prescribed form under Regulation 6 of IRDA (Insurance Brokers) Regulations, 2002 [in short 2002 Regulations ] (this application had to be filed for obtaining the license); a decision as to the registered office of the assessee; and a decision concerning the opening of a current account with HDFC bank at Surya Kiran Building, 19, K.G. Marg, New Delhi - 110001. 2.2. The assessee claims that, on 29.11.2010 itself, an agreement was executed between the assessee and Maruti Suzuki India Limited (MSIL). Via this agreement, the persons, who were employees of MSIL, were sent on deputation to the assessee, and to meet its objective, were made to undergo a minimum of 100 hours of mandatory training as insurance brokers. 2.3. These steps were a precursor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by both CIT (A) as well as the AO. 2.9. It is in this backdrop that the assessee preferred the instant appeal. Submissions on behalf of the assessee: 3. Mr. Ajay Vohra, learned senior counsel, who appears for the assessee, has submitted that the findings returned by the Tribunal, that the business of the assessee was set up on 02.02.2012 when it was issued the direct- broker s license, was perverse. According to Mr. Vohra, the Tribunal lost sight of the fact that there was a difference between the setting-up and the commencement of the business. Mr. Vohra contended that the reliance placed on the judgment of the Supreme Court rendered in CWT vs. Ramaraju Surgical Cotton Mills Ltd., AIR 1967 SC 509 [in short Ramaraju Case ] was misplaced. According to him, apart from anything else, the said judgment was rendered under the Wealth Tax Act, 1957 [in short W.T.A. ], and did not pertain to the Act-in-issue. Mr. Vohra went on to submit that there are several judgments in which Courts had distinguished the judgement rendered in the Ramaraju Case in the context of the Act-inissue (i.e., Income Tax Act, 1961). In this context, in particular, Mr. Vohra relied upon the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the following entities, i.e., MSIL, Track Component Ltd., Sunbeam Auto Pvt. Ltd. and IFB Automotive Pvt Ltd. (ii) The object and purpose for which the assessee was set up, was to conduct the business of soliciting and procuring life and/or general insurance business. (iii) Within days of its incorporation, the assessee held its first board of directors meeting on 29.11.2010 whereat various decisions were taken, which included, approval of the draft application for obtaining broker s license and submission of the same to the IRDA and conferring authority on its CEO to sign the same. A decision was also taken to open a current account with the HDFC bank to facilitate its business. It appears that, on the same date, i.e., 29.11.2010, the assessee also had employees of one of its shareholders i.e., MSIL, deputed to it; as noticed above. The employees, who were deputed to the assessee, were made to undergo mandatory training as insurance brokers for the stipulated minimum period of 100 hours. The assessee, followed this up, by preferring an application with the IRDA for issuance of a direct broker's license. This application was filed on 01.12.2010. (iv). In further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to tax under Section 28 of the Act. This income, in terms of Section 29 of the Act, is required to be computed in accordance with the provisions contained in Sections 30 to 43D of the Act. The fact that, in the instant case, the assessee took the stand that it had set up its business when it filed its return of income for AY 2011-2012 attains significance. When this was put to Mr. Bhatia, he did submit that since the return was not put to scrutiny it would not have much relevance. While this may be true insofar as the assessment of income is concerned, to our minds, it is an indicator that insofar as the assessee is concerned, it had taken a stand that it was ready to do its business. 5.3 The judgments cited above, both on behalf of the assessee as well as the revenue, have a common thread running through them. The common thread, according to us, is that: Firstly, there is a difference between setting up and commencement of business. Secondly, when the expression setting up of business is used, it, merely, means that the concerned assessee is ready to commence business and not that it has actually commenced its business. Therefore, when, the commencement of business is spok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the provisions of the W.T.A. considered in Ramaraju Case. Pertinently, the deduction was available under the W.T.A. to that portion of the net wealth of a company/assessee, [which was established with the object of carrying on industrial undertaking in India] as was employed by it, in a new and separate undertaking that was set up after the commencement of the said Act by way of substantial expansion of its undertaking. The deduction was, however, available only for five successive assessment years commencing with the assessment year next following the date on which the company commences operations for the establishment of such unit . As noticed by the Supreme Court, the word set up was found only in the principal clause. The Supreme Court was thus, called upon to inter alia determine as to whether operations for establishment of the new unit had commenced, as claimed by the assessee. Having found so, it sustained the view of the High Court. 5.5 Likewise, in our view, the judgement rendered in Marvel Polymers (P.) Ltd. Case is distinguishable from the facts obtaining in the instant case. The assessee, in that case, was said to be in the business of manufacturing and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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