TMI Blog2006 (2) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer. On incorporation of company, consequences as per the provisions of Companies Act and other statutory provisions follow ensue. Thus, there is merely statutory vesting. In the case of the assessee, neither the period of five years nor the block period of eight years expired when the amendment replacing the word ten for five was introduced by Income-tax (Second Amendment) Act, 1998 with effect from 1-4-1999. Since the assessee was entitled to exemption in the year in which amendment became effective and operative, the assessee will be entitled to the extended period of exemption because the period of five years had not exhausted up to assessment year 1999-2000. Since the right of the assessee was continuing in the year of amendment and was not lost on the date when the amendment came into existence, the view taken by the learned CIT(A) cannot be upheld. So far as the objections of the learned CIT(A) regarding conduct of the assessee-firm in not claiming the exemption in earlier year is concerned, the approach of the learned CIT(A) raising this objection, cannot be legally justified because if the assessee is entitled to any benefit under any statutory provision then the past co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds are merely argumentative, we do not consider it proper to reproduce the same here. 4.The facts concerning this matter, as they borne out from the orders of authorities below, are as under: 4.1 There was a company by the name of M/s. Tech Enterprises Inc., USA. This company was incorporated in USA and was engaged in the activity of software development and processing of data etc. This USA company was a family concern and had the following persons as owners : (i) Sh. Subodh C. Gupta (ii) Smt. Promilla Gupta W/o Subodh C. Gupta (iii) Sh. Rakesh Gupta S/o Shri Subodh C. Gupta (iv) Miss Anita Gupta D/o Shri Subodh Gupta (v) Sh. Jay Neil Gupta S/o Sh. Subodh C. Gupta. 4.2 Out of the above family members, three persons, namely, Shri Subodh C. Gupta, Smt. Promilla Gupta and Sh. Jay Neil Gupta formed a partnership firm under the name of M/s. Pinnacle Exports. Permission for setting up a 100 per cent Export Oriented Undertaking ( EOU in short), under Software Technology Park Scheme was granted by Software Technology Park of India (STPI) on 14-12-1992. Later on, the firm was also granted approval by STPI under the provisions of section 14 of the Industries (Development Regulation) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm filed option under section 10B(7) while filing its return for assessment year 1994-95. 4.8 After its incorporation the company also did not claim exemption in financial years 1988-89 and 1999-2000. 4.9 In assessment year 2000-01 the assessee claimed deduction under section 10B of the Act. This claim was examined by the Assessing Officer who was of the opinion that the assessee-company was not qualified to claim the exemption because it was formed by the reconstruction of a business already in existence. The Assessing Officer, therefore, required the assessee to explain as to why benefit under section 10B should not be disallowed it. In reply, it was submitted by the company that it was fully qualified to claim eligibility for complete tax holiday for a period of ten years starting from the year in which it started production and as the production was commenced during the financial year 1993-94 relevant to assessment year 1994-95, it would be entitled to avail deduction/exemption in respect of profits derived from export activities until assessment year 2003-04 under section 10B of the Income-tax Act. It was explained that conversion from firm to company was a mere change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d option under section 10B(7) to claim the benefit in subsequent years. This option was filed in the form of declaration which was filed along with the return of income whereas the option should have been exercised before the date of filing of return under section 139 of the Act. (b) The firm started business activities in assessment year 1994-95. It did not exercise option in assessment years 1995-96 and 1996-97. The option should have been exercised by filing declaration before the due date for each assessment year. As the firm did not claim exemption under section 10B nor exercised option and continued to claim deduction under section 80HHE, it appears that the firm was never interested to claim benefit of section 10B. The assessee-company also did not claim exemption in assessment years 1998-99 and 1999-2000 nor exercised option. Thus, it was never the intention of the company to claim exemption under section 10B. (c)There is no merit in the argument of the assessee that it is entitled for exemption under section 10B for a period of ten years; and (d)The amendment introduced subsequently, was not to operate retrospectively and the extended period shall not be available to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries Ltd. [1982] 137 ITR 851 2 [Delhi] CIT v. Gedore Tools India (P.) Ltd. [1980] 126 ITR 673 (Delhi); Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC); approving the aforesaid judgment of Delhi High Court in the case of CIT v. Ganga Sugar Corpn. [1973] 92 ITR 173; Hindustan Malleables Forgings Ltd. v.ITO [1978] 112 ITR 389 (Pat.); CIT v. Indian Aluminium Co. Ltd. [1973] 88 ITR 257 (Cal.); Bajaj Tempo Ltd. v. CIT [1972] 196 ITR 1883 (SC). 7.3 The period of exemption has been extended for ten years in place of five years with effect from assessment year 1999-2000. Since the assessee started manufacture/production in assessment year 1994- 95, the exemption is available to it till assessment year 2003-04. In support of this argument, the learned counsel made reference to the mandate provision of section 10B as amended by the Finance Act, 1993 with effect from 1-4-1991 and also placed reliance on Circular No. 528, dated 16-12-1988. 7.4 The next argument was that the firm, prior to the incorporation of the company was eligible for exemption for five assessment years within the block of eight assessment years, namely, assessment years 1994-95 to 2001-02. In view of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80HHE or merely because the claim under section 10B was not made in earlier years, the claim cannot be denied to the assessee. According to him, the assessee is entitled to claim benefit of exemption up to assessment year 2003-04 as per the amended provisions of the Act with effect from 1-4-1999. 8. The learned DR, on the other hand, supported the orders of departmental authorities. According to him, there is a change in the ownership of the business undertaking and not only by virtue of incorporation of the company but also by election of new personnel in the management. Hence, it is a case of reconstruction of business and as the assessee did not fulfil various conditions laid down in section 10B, it is not entitled to claim exemption. He also pointed out that various authorities cited on behalf of the assessee are not applicable to the facts of the case. 9. In rejoinder, the learned counsel submitted that it is not the owner of the undertaking who is made eligible for claiming as exemption but the business undertaking or EOU and if there is no change in the business organization of the undertaking or business activity of the undertaking then the disqualification laid down i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hundred per cent EOU was granted to the firm by STPI on 14-12-1992. The firm was also granted approval to claim exemption under sections 10A and 10B. The EOU was making exports to the American company, namely, M/s. Tech Enterprises. It was working under the control of USA company, as even funds were provided by this company to the firm. In 1997, the firm was converted into company. At this time all the assets and liabilities of firm became the property of the company and all the partners of the firm became shareholders of the company. The capital of the partnership firm became the paid-up capital of the company. In view of the undisputed facts, it is clear that on conversion from firm to company, there was merely a change in the ownership of undertaking. There was no change in the business of the undertaking which was already in existence. Neither the business activity was rearranged or reorganized nor the same was reconstructed. The business activity carried out by the firm remained the same without any alteration or change. After incorporation the company continued to carry out the same business i.e., software export. In fact on conversion even in the ownership there was little c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estricted to a sense analogous to a less general. The same rule is thus interpreted in words and phrases. Associated words take their meaning from one another under the doctrine of noscitur a sociis, the philosophy of which is that the meaning of the doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim ejusdem generis. In fact the latter maxim is only an illustration or specific application of the broader maxim noscitur a sociis. 10.3-3 In view of the above maxim of Rule of interpretation, the term reconstruction, is to be seen and considered in the light of splitting up .Otherwise also, as per the dictionary meaning of reconstruction , as given in Judicial Dictionary by K. J. Iyer, Eighth Edition 1980, the word reconstruction is expressed by synonymous rebuild . Thus, if there is change of ownership from one person to another but the business continued to be the same, it cannot be said that the undertaking is formed as a result of reconstruction. 10.3-4 The meaning of the word reconstruction can also be understood in the context in which this word appears. If we consider the scheme of the special provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of EOU owned by the firm. 10.7 The learned counsel for the assessee has successfully assailed the findings of learned CIT(A) and submitted that decision of Hon ble Bombay High Court in the case of Gaekwar Foam Rubber Co. Ltd. (supra), has not been properly appreciated by the learned first appellate authority. His contention that it cannot be said that the company was formed as a result of reconstruction of business already in existence deserves to be accepted. The learned CIT(A) has also held that the assessee is not entitled to the claim of exemption in view of the amended provisions of section 10B. This finding of learned CIT(A) is not based on construction of relevant statutory provisions. The CBDT vide Circular No. 1 of 2005 has clarified the position and, therefore, in view of the provisions of section 10B as amended with effect from 1-4-1999 the assessee shall be entitled to claim exemption in respect of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. Therefore, the EOU which existed before financial year 1998-99 and which was otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to concur with the finding of learned CIT(A) and set aside the same. Consequently, we allow the ground of appeal taken by the assessee and direct that the assessee shall be entitled to claim exemption under section 10B in the assessment year under consideration. 11. The appeal is, therefore, allowed. 12. Ground Nos. 1 to 1.5 raised in this appeal challenge the findings of learned CIT(A) to the effect that the assessee was not entitled for exemption under section 10B of the Income-tax Act in respect of profits derived from 100 per cent export-oriented undertaking. This very ground has been adjudicated by us while deciding assessee s appeal for assessment year 2000-01, as above. Facts and circumstances of the case for the assessment year in question remaining the same, for the very same reasons as given in ITA No. 282/Delhi/04 for assessment year 2000-01, we allow the claim of assessee for exemption under section 10B of the Income-tax Act. Grounds stand allowed accordingly. 13. Ground No. 2: This ground runs as under : That the Commissioner of Income-tax (Appeals) erred on facts and law in reducing the interest income of ₹ 955 received on account of deposits with bank f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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