JUDGMENT judgment of court was delivered by Sanjiv Khanna J.-This appeal by assessee pertains to assessment year 2005-06 and was admitted for hearing, vide order dated October 19, 2012, on following substantial question of law: "Did Tribunal fall into error in holding that assessee had set up its business with effect from June 1, 2004, and not with effect from April 1, 2004, as held in impugned order?" appellant-assessee was incorporated on March 19, 2004, as subsidiary of one M/s. Omniglobe International, USA, as business process service provider. appellant-assessee had claimed deduction under section 10B of Income-tax Act ("the Act", for short), for period commencing from April 1, 2004, to May 31, 2004, contending that it had obtained approval as 100 per cent. export oriented unit under STPI scheme and had commenced operations from April 1, 2004. Assessing Officer as well as Tribunal have held that appellant-assessee had commenced its operations only from June 1, 2004, i.e., date on which appellant-assessee entered into "service agreement" with its parent company and, therefore, expenditure incurred between April 1, 2004 and May 31, 2004, should be capitalised. Tribunal, in its impugned order, had also observed that appellant-assessee had entered into lease agreement and had hired premises as its office only on June 15, 2005. Commissioner of Income-tax (Appeals), however, had decided issue/question in favour of respondent-assessee. In order to determine and decide controversy, we must examine nature of business activity undertaken by appellant-assessee and operation/activities between April 1, 2004 and May 31, 2004, when expenditure of Rs. 59,02,448 was incurred. appellant-assessee, as recorded above, was in business of voice activation and local number portability, i.e., business process outsourcing (BPO) services, which were made available to M/s. Omniglobe International, USA. activities fall in category of "service industry". appellant- assessee had placed on record, before Commissioner of Income-tax (Appeals), copy of agreement dated March 30, 2004, between M/s. Agilis Information Technologies International Pvt. Ltd ("M/s. Agilis", for short) and appellant company. Under said agreement, appellant-assessee was entitled to use premises taken on lease by M/s. Agilis, during 2000 hours to 0800 hours. It stipulated that appellant-assessee was entitled to use personal computers of M/s. Agilis or install their new personal computers in premises but upon termination of agreement, personal computers belonging to assessee would be removed. appellant-assessee could use furniture and fixtures of M/s. Agilis. However, appellant-assessee was to pay on pro rata basis, charges for water, electricity, energy, or power consumed. Lastly, it was agreed that appellant-assessee would not use internet facility of provider, i.e., M/s. Agilis, but would install separate internet link from internet service provider. break-up of amount of Rs. 59,02,448, which was disallowed as revenue expenditure but capitalised is as under: S. Expenses head Amount No. 01. Salary and wages 22,83,936 02 Employer contribution to PF 46,658 03 Employer contribution to ESI 46,919 04 Admin charges PF/EDLI 4,316 05 ESLI charges 1,943 06 Medical expenses 151 07 Books and periodicals 986 08 House keeping expenses 42,493 09 Generator running maintt. 25,121 10 Employee activities 13,200 11 Uniform expenses 3,24,692 12 Professional charges 9,35,308 13 Projector hire charges 3000 Electricity charges/water/sewerage 14 92,070 charges 15 Recruitment charges 4,47,646 16 Computer hire charges 2,44,355 17 Bank charges 50 18 Filing charges 1,000 19 Computer maintenance 2,740 20 Pantry charges 1,70,485 21 Printer cartridge 22,800 22 Office maintenance 23,724 23 Transportation charges 6,28,284 24 Stationery 18,375 25 Lease line charges 2,74,331 26 Telephone expenses 68,182 27 Printing charges 7,350 28 Travelling expenses International 7,732 Total expenses pertaining to April and May, 2004 59,02,448 This break-up was noticed in assessment order itself and is not disputed. What is clearly noticeable is that appellant-assessee had incurred substantial expenses on wages and salary in addition to recruitment and housekeeping expenses. Payments were also made towards generator running maintenance, water, electricity, sewerage and transportation charges and, importantly, lease line charges, which were in respect of internet importantly, lease line charges, which were in respect of internet connection. agreement between appellant-assessee and M/s. Agilis was taken on record by Commissioner of Income-tax (Appeals) under rule 46A of Income-tax Rules, 1962. Tribunal has not given any adverse finding or held that said evidence should not have been admitted and taken on record under said Rules. Revenue had, thereafter, filed appeal before Tribunal and it was their duty to place said agreement on record in case they wanted to challenge findings/observations of Commissioner of Income-tax (Appeals). It appears that Revenue did not file said agreement and Tribunal has recorded that they did not have benefit of reading agreement. Thus, finding of Tribunal are without examining vital and important document. It is obvious that between April 1, 2004, and April 31, 2004, appellant-assessee was operating from some premises and, therefore, they had incurred expenditure, like electricity, water, computer hire, pantry charges, etc. As per case of appellant-assessee, expenses incurred during months of April and May, 2004, were on account of training given to recruited employees. This is clear from reply given by appellant- assessee dated November 14, 2007. issue which arises is, whether business had been set up as on April 1, 2004, or was it set up only on June 1, 2004. There is distinction between "setting up of business" and "commencement of business". In Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom), this distinction was highlighted and elucidated in following words (page 158): "That is why it is important to consider whether expression used in Indian statute for setting up business is different from expression Mr. Justice Rowlatt was considering, viz.,'commencing of business'. It seems to us, that expression'setting up' means, as is defined in Oxford English Dictionary,'to place on foot' or'to establish', and in contradistinction to'commence'. distinction is this that when business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be interregnum, there may be interval between business which is set up and business which is commenced and all expenses incurred after setting up of business and before commencement of business, all expenses during interregnum, would be permissible deductions under section 10(2). Now, applying that test to facts here, company actually commenced business only on 1st day of November, 1946, when it purchased groundnut oil mill and was in position to crush groundnuts and produce oil. But prior to this there was period when business could be said to have been set up and company was ready to commence business, and in view of Tribunal one of main factors was purchase of raw materials from which inference could be drawn that company had set up its business; but that is not only factor that Tribunal has taken into consideration. Tribunal has, as pointed out in statement of case, scrutinised various details of expenses given in order of Appellate Assistant Commissioner and having scrutinised those expenses Tribunal has come to conclusion even on interpretation more favourable to assessee than one we are giving to expression'setting up' that these expenses do not show that business was set up prior to 1st day of September, 1946. In our opinion, it would be difficult to say that decision of Tribunal is based upon total absence of any evidence. As we have often said, we are not concerned with sufficiency of evidence on reference. It is only if there is no evidence which would justify decision of Tribunal that question of law would arise which would invoke our advisory jurisdiction which after all is very limited jurisdiction." said case, related to assessee, who was engaged in business of manufacturing of edible oils and was in process of setting up of groundnut oil mill. In that case, moment groundnuts, raw material, was purchased, it was held that business had been set up and, accordingly, expenditure incurred should be allowed as revenue expenditure. It would be appropriate in this regard to refer to proviso to section 3 of Act, which refers to and defines term, "previous year" in relation to newly setup business or profession and not with reference to date of commencement. Section 28 of Act postulates that profit and gains of business or profession carried out at any time during previous year, shall be taxed under head "Profits and gains of business or profession". Delhi High Court in CIT v. Samsung India Electronics Ltd. [2013] 356 ITR 354 (Delhi)-(I. T. A. No. 131 of 2010) decided on July 9, 2013, had held as under (page 359): "The aforesaid distinction is relevant when we examine and refers to definition of'previous year'. Following said judgment, in case of CIT v. L. G. Electronic (India) Ltd. [2006] 282 ITR 545 (Delhi), it has been observed that date of setting up of business and date of commencement of business may be two separate dates. This decision in case of L. G. Electronics (supra) has been followed in CIT v. ESPN Software India P. Ltd. [2008] 301 ITR 368 (Delhi) wherein it has been held that business will'commence' with first purchase of stock-in-trade and date on which first sale is made is immaterial. Similarly, for manufacturing, several activities in order to bring or produce finished products have to be undertaken, but business commences when first of such activities is taken." In CIT v. Arcane Developers P. Ltd. (I. T. A. No. 41 of 2013)-since reported in [2014] 368 ITR 627 (Delhi), decided on October 8, 2013, it was observed (page 631): "Setting up of business takes place when business is ready and first steps are taken. In case of real estate business, said setting up of business was complete when first steps were taken by respondent- assessee to look around and negotiate with parties. There can be gap between setting up and when first steps were taken by respondent and finalisation of first written agreement. Business activities of respondent did not require construction of factory, machinery, etc. Negotiations are required to enter into written understanding and it is obvious that loan was taken for business and to proceed further and conclude deal. aforesaid facts have been examined and highlighted by first appellate authority. said findings of fact have been affirmed by Tribunal. pragmatic and practical view has to be taken." In Century Spg. and Mfg. Co. Ltd. v. CWT [1978] 112 ITR 497 (Bom), it has been observed (page 501): "This interpretation put by this court upon expression'set up' has been followed by Madras High Court in case of Ramaraju Surgical Cotton Mills Ltd. v. CWT [1962] 46 ITR 820 (Mad). This is case under Wealth-tax Act and expression'set up' came to be interpreted in context of section 5(1)(xxi) as exemption was claimed as new and separate unit set up after commencement of Act. Madras High Court at page 824 observes: 'Unless factory is erected and plant and machinery installed therein, it cannot be said to have been set up. resolutions of board of directors, orders placed for purchasing machinery, licence obtained from Government for constructing factory, are merely initial stages toward, setting up, however necessary and essential they may be to further achievement of end. It is not, however, actual functioning of factory or its going into production that can alone be called setting up of factory. setting up is perhaps stage anterior to commencement of factory.'" This brings us to moot question: whether business of BPO (business process outsourcing) had been set up by respondent-assessee on April 1, 2004, or was it set up only on June 1, 2004? We have already quoted factual position elucidated in assessment order to effect that appellant had employed several employees and salary and wages were paid to them. However, these employees were given training in months of April and May, 2004, and expenditure was incurred on various heads, During months of April and May, 2004, actual BPO services to parent company were not rendered. When said services actually were rendered or assessee did start rendering of services to third party, business commenced. This, according to us, does not mean that business had not been set up by appellant assessee. In order to determine whether business had been set up or not, we have to look at factual matrix of case, especially, nature and character of business activity with activities actually undertaken. appellant-assessee had entered into agreement with their sister concern, M/s. Agilis, to use their premises between 2000 hours and 0800 hours between April 1, 2004, and June 30, 2004. M/s. Agilis was paid on pro rata basis for water, electricity, energy and power consumption charges. Further, appellant- assessee had to install separate internet link from internet service provider. appellant-assessee had choice to use personal computers of M/s. Agilis or install their own. Break-up of expenditure of Rs. 59,02,448, incurred during this period included expenses for lease line charges of Rs. 2,74,331, telephone expenses of Rs. 68,182, computer hire charges of Rs. 2,44,355 and some small amounts towards computer maintenance. In addition, appellant-assessee had paid substantial amount of Rs. 22,83,936 as salary and wages to its employees. Keeping in view nature of business activity of appellant-assessee, we do not think that it can be held that training, imparting skills to employees recruited, or, testing their performance can be treated as pre-set up expenditure. appellant-assessee had either employed or taken help of trainers/seniors for said purpose. moment employees were recruited and enrolled and infrastructure to use their service was in place, set up was complete. It was indicative of fact that business operations had been set up. In BPO industry, training of employees is important, essential and integral element of business activities and when assessee has infrastructure in place, business can be treated as set up. As service industry, first step is to recruit right kind of employees, then to interact, train or check their performance. Unlike manufacturing activity, where requisite plant and machinery has to be procured, installed and then business operations start, in BPO industry, process starts with recruitment of employees, who are to work in said industry. Training or introduction after recruitment would be akin to trial production or first step in production undertaken by manufacturer of goods. Of course it has to be seen, whether infrastructure to utilise their services was in place or not. One may postpone actual rendering of services to be zero error company. In CIT v. E Funds International India [2007] 162 Taxman 1 (Delhi), assessee was engaged in business of information technology like software development/consultancy, business process management and electronic banking schemes. claim of assessee therein was that business of software development was set up moment they had employed 30-40 employees in relevant previous year. This claim was accepted by High Court after noticing that assessee had certain infrastructure facilities at relevant time. In CIT v. Hughes Escorts Communications Ltd. [2009] 311 ITR 253 (Delhi), assessee was in business of setting up of satellite communication systems. It was held that first step required was purchase of VSAT equipment. said purchase order was placed on July 28, 1994, and, thereafter, assessee had obtained licence from Department of Telecommunications and started receiving satellite signals. It was held that moment assessee purchased VSAT equipment, it could be said that business had been setup. This, it was held, was relevant date for determining nature and character of expenses incurred and whether they were revenue or capital in nature. Similarly, in CIT v. Whirlpool of India Ltd. [2009] 318 ITR 347 (Delhi), assessee was engaged in business of providing financial services and same question, i.e., whether business had been set up or not came for consideration. It was observed that this question could only be answered by looking at, and was dependent on, facts of each case. Different considerations would apply and answer would depend on whether business was for manufacture of product or for providing services. Even in case of services, it would depend upon nature of service to be rendered. In case of financial company authorised to advance loans for interest to facilitate customers to purchase consumer durables, business was set up when directors were appointed; staff, such as regional and branch managers were appointed and their salaries were paid. In other words, it can be said that at that time, company was ready to commence business. There need not be actual commencement of business as such. It would be appropriate, in this regard, to reproduce findings recorded by Commissioner of Income-tax (Appeals), who had called for remand report from Assessing Officer in view of contentions raised: "I have considered comments of Assessing Officer given by him in remand report and rejoinder filed by appellant on same. During course of remand proceedings, it is seen that appellant has submitted note on training imparted to employees during month of April and May, 2004, in premises taken from M/s. Agilis Information Technologies International P. Ltd. appellant also filed copies of ledger accounts of pantry expenses, professional expenses, recruitment expenses, computer hire charges, transportation charges, lease line charges. Copies of audited balance-sheet of M/s. Agilis Information Technologies International P. Ltd. and addresses of employees who are still working with appellant company to whom salaries were paid in months of April and May, 2004. appellant has also filed name and address of parties to whom expenses of pantry, professional charges, recruitment expenses, computer hire charges were paid and TDS deducted. appellant has also filed copy of ESI/ PF paid for month of April and May, 2004. All these comments prove that appellant had started its business during this period and employees and staffs were being trained to handle business of call centre which cannot be done by novice. BPO business requires trained and skillful persons who cannot commence full scale on live tele-calling with end clients till time employees get proper training and adequate skills sets have been developed by staffs and employees. Further, employees have to go through process of making and operating in developing environment before final call, etc., can be made and end client can be handled. All these skills are possible only if proper training to staff is imparted. fact that salaries, transportation charges, travelling expenses, etc., were incurred during these two months is itself evidence that company has started its business." Before first appellate authority, appellant-assessee had filed full particulars with explanation along with details of each employee. Biodata of 17 employees have been enclosed. They had also enclosed details of recruitment agencies engaged for recruitment of employees along with copy of ledger account of recruitment charges. Details of pantry expenses and of ledger account of recruitment charges. Details of pantry expenses and other professional expenses including name of parties to whom said expenses were paid were filed. Details of party to whom computer hire charges and transportation charges were paid during months of April and May, 2004, were also furnished. Copy of ledger account along with tax deducted at source was made available. Commissioner of Income-tax (Appeals) held that, keeping in view nature of business, training itself was integral part of business activity and moment training commenced on infrastructure that was made available by M/s. Agilis, business was set up. agreement between appellant-assessee and M/s. Agilis was genuine agreement, which was clear from nature of expenses incurred, which included pantry expenses, computer hire charges, transportation charges, etc. Tribunal, after referring to Whirlpool of India Ltd. (supra), allowed appeal of Revenue observing: "4.7 When we look to facts of our case, it is clear that although staff had been recruited, it was not ready for rendering services as staff had to be trained with systems. assessee had not taken premises on rent and, therefore, installation of computer therein had not been done. Therefore, assessee was not in position to solicit custom till end of May, 2004. advances were received from parent company but these were used for training personnel and paying salaries and incidental charges, necessary for setting up business. Thus, in nut-shell, it is held that business is set up when it reaches stage where it is in position to procure business and not before. However, expenditure becomes deductible from such stage irrespective of date of actual receipt of business. Therefore, it is held that business had not been set up till end of May, 2004. Accordingly, assessee is not entitled to deduction of these expenses. It is held accordingly." In view of aforesaid discussion, we do not think that reasoning given by Tribunal and Assessing Officer shows that business of appellant-assessee had not been set up. business of appellant had been set up as appellant-assessee had acquired necessary infrastructure from their sister concern, M/s. Agilis, and had also started making payment of salary and wages. This training was given by professional experts under supervision and control of appellant-assessee. moment said operations were commenced, business had been set up and subsequent rendering of service to third parties would be at later date when actual services were rendered to parent/holding company. In CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 (Guj), assessee had obtained mining lease for quarrying limestone and had started mining operation but installation of plant and machinery for manufacture and sale of cement was directed to be capitalised. Looking into business of assessee, High Court approved approach of Tribunal that business activities could be classified into three stages, i.e., procurement of raw material; manufacture of cement; and sale of manufactured cement. Extraction of limestone was in nature of acquiring raw material to be utilised for manufacture of cement and was foundation for second activity, i.e., manufacture of cement. Thus, depreciation allowance and development rebate was allowed for machinery employed for extraction of limestone. test laid down was that business would commence when activity, which is first in point of time, must necessarily precede other activities is started; as business connotes continuous course of activity and all activities which go up to make business need not be started simultaneously. Similar view was again taken in Prem Conductors P. Ltd. v. CIT [1977] 108 ITR 654 (Guj) wherein it has been elucidated that one business activity might precede another and what was required to be seen was whether one of essential activities for carrying on business as whole had or had not commenced. When assessee had commenced business of securing orders first and then production then activity of securing business actively commenced when said steps were taken and it did not get postponed to date of actual production. Referring to these decisions and other decisions, Andhra Pradesh High Court in CIT v. Sponge Iron India Ltd. [1993] 201 ITR 770 (AP) observed that whether business had commenced or not was question of fact but what activities constitute commencement of business was mixed question but what activities constitute commencement of business was mixed question of law and fact. Secondly, there was distinction drawn between "setting up of business" and "commencement of business". Business is said to be "set up" when it is ready to commence. Thirdly, when business consists of continuous course of activity, all activities which go to make up business need not be started simultaneously. As soon as activity which is essential in course of carrying on business is started, business is said to be set up, if not commenced. Upon recruitment of employees, factum that expenditure under different heads, as noticed above, was incurred is indicative that business was set up. Training to employees was given to ensure that when work was undertaken and performed, there were no glitches, trouble or problems. It is not indicative of fact that necessary infrastructure was not there and actual business could not have commenced or was not set up. Training was post-set up as employees were recruited. In case of service industry, training and upgradation of skills of employees is part and parcel of business activity, continuous process. business as service provider, cannot exist without said activity being undertaken both at very initial stage and after business has commenced. Training is done to ensure proper performance and to provide services of acceptable quality or ensure zero or minimal errors. It is to ensure proper standards and optimum utilisation of human resources already employed. It helps in improving productivity, maintaining team work and strengthening bonds inter se. In present case, substantial and large numbers of employees after recruitment were kept on payroll, appellant-assessee paid for their provident fund, employees' insurance charges; maintenance charges; distributed uniforms and pantry charges were incurred. details and quantum itself is indicative that business was set up, as training itself was integral to setting up of business line of appellant-assessee. said training continued even when business was in operation. It was part and parcel of business activities as service provider. In view of facts of present case, question of law has to be answered in favour of appellant-assessee and against respondentRevenue. No costs. *** Omniglobe Information Tech India P. Ltd. v. Commissioner of Income-tax