TMI Blog2011 (8) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee since the undertaking continues to carrying on its business without any reconstruction of business already in existence. - ITA No.531/2011 - - - Dated:- 8-8-2011 - MR. JUSTICE A.K. SIKRI, MR. JUSTICE M.L. MEHTA, JJ. For Appellant: Ms. Rashmi Chopra, Advocate For Respondent: Mr.Prakash Kumar with Mr. Vikas Dhawan, Advocates M.L. MEHTA, J. (Oral) 1. Admit on the following substantial questions of law: (a) Whether on the facts and in the circumstances of the case, the ITAT erred in law and on merits in holding that the assesse was entitled to deduction under Section 801A of the Income Tax Act, 1961 on income from internet services and internet telephone? (b)Whether the ITAT erred in law and on merits in holding that deduction under Section 80IA of the Income Tax Act, 1961 cannot be denied after having been granted in the 1st year of claim? 2. With the consent of the counsel of parties, we have heard the matter finally. 3. This is an appeal preferred by Commissioner of Income Tax (CIT) against the order dated 26.2.2010 passed by learned Income Tax Appellate Tribunal ( the Tribunal for short) whereby the Tribunal set aside the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed deduction under Section 80IA (4) of the Act for the assessment year 2001-02, 2002-03 and 2003-04 and the first year of claim under section 80IA (4) was 2004-05 and as it had been granted deduction under Sections 80IA(4) of the Act for the assessment year 2004-05 and 2005-06, it was entitled to deduction for the relevant assessment year i.e. 2006-07. 5. The AO has rejected the claim of assessee for deduction of Rs.11,12,41,929/- under Section 80IA of the Act. While rejecting the claim for deduction, the AO has reasoned as under: 7.The perusal of the record reveals that originally the license agreement was granted initially for a period of 15 years to M/s CG Faxmail Limited. Another license agreement was executed on 19 April, 2002 which was issued in the name of Primus Telecommunication India Limited which was already in existence. There was only change of name of company from M/s CG Faxmail Limited to Telecommunication India Limited on 27.9.2000 as per certificate of the ROC. It clearly establishes that a company was already in existence in 1999 also. Therefore, it is not a new business but has been formed by continuing the business- the old business with the old assets. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said the issue has been found as a fact so as to invoke the law of consistency. Thus, the contention of the assessee that the issue of deduction u/s 80IA stands duly examined and allowed in earlier asstt years is not tenable. I reject the same accordingly. 9.1 Coming to the legal requirements, it may be appreciated that deduction u/s 80IA is available only to an undertaking i.e. an undertaking which is not formed by splitting up or the reconstruction of a business already in existence. Accordingly, it is held that the deduction u/s 80IA claimed by the assessee is hit by the mischief of provisions of section 80IA(3) (ii). 6. The assessee went in appeal before the CIT(A) which dismissed the appeal holding that the assessee had violated the restrictive condition as laid down under Section 80IA(3) of the Act. The CIT(A) also rejected the contentions of the assessee that since it was a providing telecommunication services it was eligible for deduction under Section 80IA; the provisions of section 80IA(3) are not applicable since the business of telecommunication services was commenced prior to 1.4.2004; the change of ownership does not affect the claim of relief under Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, it was submitted by learned counsel for the revenue that the company was incorporated in 1994 and the assessee had itself in the case of assessment for the year 2003-04 confirmed that the business of the assessee was started in 1997. He submitted that the assessee had been originally in the business of fax and email services and in October 2000 it had ventured into the new business of internet services by entering into the agreement with DOT on 5.1.1999. It was submitted that vide an agreement dated 19.4.2002, the assessee had started another business of internet telephony and accordingly it had three lines of business being fax and email started in 1997, internet services started in 2000 and telephony services were started in 2002. Based on this, it was submitted that the internet and telephony services being a new business were formed on splitting up and reconstruction of business of fax and email already being done by the assessee and the plant and machinery of the whole business was used by it for the new business. Based on this premise, it was submitted that the provisions of Section 80IA (3) of the Act were applicable and consequently the assessee was not entitled to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy in existence, it is entitled to the deduction under Section 80IA for subsequent years. Since the assessee had been granted claim of deduction right from the assessment year 2004-05 under Section 80IA, consequently it cannot be denied deduction for the subsequent years inasmuch as restrain of Section 80IA(3) cannot be considered for every year of claim of deduction, but can be considered only in the year of formation of the business. 11. Be that as it may, Clause (ii) of Section 4 of Section 80IA was inserted in sub clause 3 of Section 80IA with effect from 1.4.2005 and the business of the assessee had been formed and started much prior to that. The restriction placed by Section 80IA(3) to the provisions of 80IA(4) (ii) would not bar the assessee for continuing its claim of deduction under Section 80IA. Since the provisions of 80IA(3) are not applicable to the present assessee, it having commenced its business much prior to 1.4.2005, Section 80IA(3) would not disentitle it from claiming deduction under Section 80IA on its income from internet services and internet telephony services. 12. In our view, the Tribunal was right in holding that the assessee could not be said to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd. [1982] 137 ITR 851 (Delhi)]. 11. As observed by Supreme Court in Textile Machinery v. CIT [1997] 107 ITR 19(SC), The term reconstruction‟ implies that the identity of the business should not be lost, and substantially the same business should be carried on by substantially the same person. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the Assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business . 12. As per findings of fact recorded by the Tribunal, it has been stated that in the present case the old undertaking no longer existed and remained identifiable. It was completely submerged in the new industrial undertaking of the assessee. The provisions of Section 80IA of the Act with reference to Explanation 2, do not require that new industrial undertaking should be raised on separate plot of land leaving the earlier undertaking totally untouched. We find that the processes for which the Assessee entered into technological collaborations with M/s Rotacom Industries, B.V., Netherlands and M/s Seppo Ralli OY, Finland were the key ..... X X X X Extracts X X X X X X X X Extracts X X X X
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