TMI Blog2005 (1) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... s and providing funds on interest. It had shown toll tax receipts of Rs. 6,93,06,756 from the execution of work on BOT basis and after claiming operating and maintenance expenses at Rs. 3,60,63,552, showed a profit of Rs. 3,32,43,204. This amount was claimed as deductible under section 80-IA(4)(i) of the Act. On being called upon to show the eligibility of deduction, it was stated on behalf of the assessee that the firm M/s. Chetak Enterprises, a partnership firm, which was being assessed to tax for the last several years, continued to remain as a partnership firm upto 28th March, 2000. The said firm was converted into company, namely, M/s. Chetak Enterprises (P.) Ltd., under Part IX of the Companies Act, 1956, and certificate of incorporation was issued by the Registrar of Companies, Jaipur, on 28th March, 2000. Regarding the eligibility for deduction under section 80-IA(4)(i), it was stated that the company had been sanctioned a tender for the construction of road for 10 kms. It was put forth that the designate authority, Chief Engineer (Roads), Rajasthan, Jaipur, sanctioned the tender and made direction to the Ex. Engineer, PWD, Chittorgarh, for the construction of the road effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm into company as per Part DC of the Companies Act, 1956, the assessee obtained the status of tenderer so as to execute the agreement entered into by the erstwhile firm. The Assessing Officer negatived the claim of deduction under section 80-IA(4)(i) on two counts; viz.- (i) The bid for the said work was made by the firm M/s. Chetak Enterprises. The work order was issued to the said firm. Agreement for construction of the said road on BOT basis was signed by the Government of Rajasthan with the said firm, and the work was also completed on 27th March, 2000 for which certificate was issued in favour of the firm on 31st Marc, 2000. Hence, the mandatory requirement of sub-clause (a) or section 80-IA(4)(i), being the company owning the infrastructure facility was not complied with. (ii) No agreement in terms of sub-clause (b) of section 80-IA(4)(i) was made by the assessee-company with the Government of Rajasthan for collection of toll tax on 1st April, 2000 in supersession of original agreement dated 1st Dec, 1999 signed by the Government of Rajasthan with the firm M/s. Chetak Enterprises. It was also held that proviso to sub-clause (c) of section 80-IA(4)(i) was not applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereinafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during Which the transferor enterprise would have, been entitled to the deduction, if the transfer had not taken place." E. Finding (i) Section 80-IA(4)(i), sub-clause (a) (a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the other conditions prescribed under the Companies Act, 1956 are fulfilled. It has further been clarified that a partnership firm cannot be prevented from being registered as a company under Part DC of the Companies Act, 1956 subject to the fulfilment of other requirements of company law. Section 575 of the Companies Act provides that all properties, movable and immovable (including actionable claims) belonging to or vested in a company at the date of its registration in pursuance of this Part, shall, on such registration, pass to and vest in the company as incorporated under this Act. It, therefore, becomes clear that the property acquired by a promoter can be claimed by the company after its incorporation without any need for conveyance. The vesting being statutory, no registered instrument of transfer is necessary. The Hon'ble Andhra Pradesh High Court in the case of Valli Pattabhirama Rao v. Sri Ramanuja Ginning Rice Factory (P.) Ltd. [1986] 60 Comp. Cos. 568 has held that if the constitution of the partnership firm is changed into that of a company by registering it under Part IX of the present Act, there shall be statutory vesting of title of all the properties of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a limited company. On the vesting of all the properties statutorily in the company, the cloak given to the firm is replaced by a different cloak and the same firm is now treated as a company after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by section 45(1) of the Act." Similar view has been taken consistently by the various Benches of the Tribunal including the Amritsar Bench in the case of Sachdeva Sons (EOU) v. Dy. CIT [2004] 82 TTJ (Asr.) 847 in the context of the chargeability of capital gains on conversion under Part IX of the Companies Act. The sum and substance of the above discussion is that on conversion of a firm into a company under Part IX of the Companies Act, 1956, the firm ceases to exist and gets substituted with the company and all the assets and liabilities of the erstwhile firm become the assets and liabilities of the company. Reverting to the facts of the instant case, it is gathered from the main object of the company that the earlier firm named as M/s. Chetak Enterprises was genuinely converted under Part IX of the Companies Act into company as going concern acquiring all the assets, rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was owned by a 'company' registered in India. (c) There is still another important dimension of this case. It is noted that the erstwhile partnership firm in its first communication to the Chief Engineer on 23rd Oct., 1998, at the time of replying to the notice inviting bids, made it categorically clear that "the firm will be converted into a limited company under Chapter IX of the Companies Act, 1956. As such, you are requested to allows us change in constitution as accordingly change of name in agreement after converting firm into company with the existing partners as its directors". This letter is available at p. 5 of the paper book. The Chief Engineer vide letter dated 27th Aug., 1999, copy placed at p. 10 of paper book, took note of the assessee's letter dated 23rd Oct., 1998 and informed that their offer was accepted subject to terms and conditions specified therein. Thereafter, an agreement was entered into between the Government of Rajasthan and M/s. Chetak Enterprises, a copy of which is available at p. 11 onwards of the paper book, in which the aforesaid letter of Chief Engineer dated 27th Aug., 1999, was considered as part of the agreement. Page 14 of the paper book is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, as per Part IX of the Companies Act, an intimation to this effect was sent to the Chief Engineer, PWD (Road), Government of Rajasthan, who vide office order dated 11th May, 2000 accepted the same, allowed registration to the assessee-company, cancelled the registration to the erstwhile firm and held the company to have all the pre and post-qualifications of the erstwhile firm which is engaged in the eligible business. Sub-clause (b) of section 80-IA(4)(i) mandates that the enterprise which is engaged in the eligible business, should have entered into agreement with the State Government, so as to qualify for deduction under this section. When the agreement was entered into with firm M/s Chetak Enterprises, which subsequently got converted into the assessee-company and no objection was raised by the concerned authorities on intimation sent in this regard, it cannot be stated that there was no agreement of the assessee-company with the State Government. On the contrary, they accepted the position and granted fresh registration to the assessee-company in lieu of the earlier registration granted to the erstwhile firm. Not only this, the State Government allowed the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Other aspects (a) It is of utmost importance to consider the order passed by the Indore Bench in the case of Ayush Ajay Construction Ltd. which was relied upon before the Assessing Officer and the same was not accepted by holding that it was not known as to whether the said decision has been accepted by the Department. The learned CIT(A) distinguished it by holding that in that a case tripartite agreement) was entered into. A glance at the facts of that case indicates that 'A' was originally granted tender for construction of bridge by the State Government. He entered into an agreement with 'U' promoter of the company and assigned the tender for construction of the bridge on BOT basis. 'U' undertook the construction work and after the incorporation, the company carried it on. On the basis of tripartite agreement between the company, 'A' and the State Government, the assessee claimed deduction under section 80-IA(4)(i), which was rejected by the Assessing Officer, but finally allowed by the Tribunal. The learned CIT(A), in the present case distinguished it by observing that the facts were materially different. We are unable to appreciate any such distinction, which mars the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised judicial improprietory but also erred in law in refusing to follow the order of the Tribunal. In the light of the legal position enunciated by the aforesaid different High Courts, we do not approve the course of action adopted by the Assessing Officer by getting satisfied with the applicability of the said order but refusing to follow the same. This tendency needs to be deprecated. After having given our anxious consideration and thoughts to the factual backdrop emerging from the record of the present case, coupled with the relevant proposition of law and in particular, the material provisions of section 80-IA, we hold that the assessee is entitled to deduction under section 80-IA(4)(i) and the learned CIT(A) erred in not accepting the assessee's claim. This ground is, therefore, allowed. 3. The assessee has raised second ground, as alternative to ground No. 1. Since the first ground is allowed, this alternative ground becomes academic. 4. Last effective ground is on the charging of interest under section 234B. The facts of this ground are that the Assessing Officer gave direction for charging of interest under section 234B in the assessment order and in the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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