Maruti Insurance Broking Private Ltd Vs DCIT
Forum- Delhi High court
Date- 12th April, 2021
When a business can be said to have been set up ? What is the difference between setting up of a business as compared to commencement of business.

The Delhi High court in this case was called upon to decide when a business can be said to have been setup for the purpose of allowing expenditure which were incurred. In the context of the appellant, the department contended that the business can be said to have been set up only when it got the license from the IRDA to operate as a Broking house. The court noted that 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 spoken of, in contradiction to the expression “setting up of business”, it only refers to a point in time when the assessee actually conducts its business. The court thereafter noted that The 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. The 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. On these facts the court following several decisions allowed the assessees appeal.

This judgement will be important in dealing with cases where the dispute is there with respect to setting up of the business.

Ramesh Patodia
02-05-2021