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Issues: Whether the assessee's business was set up only on grant of the IRDA licence, so as to justify disallowance and capitalisation of the business expenditure incurred before that date.
Analysis: The expression "setting up of business" is distinct from commencement of business. For the purpose of the Income-tax Act, a business is set up when the assessee is ready to commence operations, and not only when it is actually permitted to begin business. The assessee had, after incorporation, taken all preparatory steps necessary to place the insurance broking business in a state of readiness, including appointment of personnel, training, execution of leases, establishment of offices, and filing of the licence application. The delay by the statutory authority in issuing the licence could not defer the date of setting up of the business or convert the intervening expenditure into pre-operative capital expenditure. The contrary view proceeded on a misappreciation of the legal distinction between readiness to commence and actual commencement.
Conclusion: The finding that the business was set up only on 02.02.2012 was held to be perverse and erroneous in law. The expenditure incurred before grant of the licence was allowable as business expenditure and not liable to be capitalised.
Ratio Decidendi: A business is set up, for income-tax purposes, when it is put into a state of readiness to commence operations, even if actual commencement awaits regulatory approval; expenditure incurred during that intervening period remains revenue expenditure if the business is otherwise ready to operate.
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