TMI Blog2017 (11) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 88,39,340/-. It has claimed that it spent for the assessment year 2008-09 ₹ 50.31 Lakh to renovate and modernize its transmission network. So, the amount spent is over 50% of the then existing establishment's book value. Indeed, the undertaking squarely falls under Section 80-1A(4)(iv) (c) of the Act. The renovation or modernization, admittedly, took place between 01.04.2004 and 31.03.2011. To be specific, the assessee claims that the undertaking’s renovation or modernization has brought about “substantial improvement in the 'line loss.' Substantial renovation and modernization has been done by replacement of High Tension distribution lines and installation of new CT/PT units.” Conclusion: In the above circumstances, the Assessing Officer’s disallowing under section 80-IA of the Act, as affirmed by the Appellate Authority and the Tribunal, cannot be sustained. - Decided in favour of assessee. - I.T. Appeal No.48 of 2015 - - - Dated:- 16-11-2017 - MR. ANTONY DOMINIC AND MR. DAMA SESHADRI NAIDU, JJ. For The Appellant : Sri.Joseph Markose, Sri.V.Abraham Markos, Sri.Binu Mathew, Sri.Tom Thomas (Kakkuzhiyil) Sri.Abraham Joseph Markos Sri.Isaac Thomas And Sri.N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as drawn our attention to a clarificatory circular issued by CBDT and also the legislative purpose of Section 80-IA as spelt out in the Finance Act, 2004. He contends that the statutory provision enables an assessee to claim certain deductions if the investment has led to renovation and modernisation of the transmission and distribution network. 8. To sum up, the learned Senior Counsel has contended that one company taking over the entire undertaking of another company hardly makes any difference to the undertaking itself. According to him, the tax benefits are undertaking-specific, and they do not run with the undertaking s owner. So he urges us to answer the questions of law in assessee s favour and restore the deductions under Section 80-IA of the Act. Revenue s: 9. Sri P. K. Ravindranatha Menon, the learned Senior Counsel for the Revenue, has contended that the assessee s business is not a new industrial undertaking. According to him, the assessee has also miserably failed to establish that it has spent more than 50% of the plant s book value on any renovation or modernisation. 10. The learned Senior Counsel has strenuously contended that the plant and machinery use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial undertakings or enterprises engaged in infrastructure development, etc.-[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.] ( 2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park [[or develops a special economic zone] referred to in clause (iii) of sub-section(4)] or generates power or commences transmission or distribution of power [or undertakes substantial renovation and modernisation of the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of the installation of machinery or plant by the assessee. Explanation 2.-Where in the case of an [* * *] undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. ( 4) This section applies to- * * * ( iv) an [* * *] undertaking which, - ( a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on [the 31st day of March, 2010]; ( b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on [the 31st day of March, 2010]: Provided that the deduction under this section to an [* * *] undertaking under sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te any infrastructure facility, (b) start telecommunication service, (c) develop an industrial park, (d) develop a special economic zone [referred to in clause (iii) of subsection( 4)], (e) generate, transmit, or distribute power, (f) substantially renovate or modernise the existing transmission or distribution lines, or (g) lay and operate a cross-country natural gas distribution network. But the fifteen-year period will be extended by five more years if the assessee develops; or operatives and maintains; or develops, operates, and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4). ( 3) This section applies to an undertakings referred to in clause (ii) or clause (iv) or clause (vi) of sub-section (4)] fulfilling all these conditions:- ( i) the undertaking is not formed by splitting up or by reconstructing an existing business: But this condition will not apply to an undertaking if the assessee re-establishes, re-constructs, revives the business as referred to in Section 33-B and in the circumstances and within the period specified in that section; ( ii) it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (b) only if they are derived from the network of new transmission or distribution lines. ( c) substantially renovates or modernizes the existing network of transmission or distribution lines between 1st April 2004 and 31st March 2010. Explanation.-For sub-clause (c), the renovation or modernization must have increased at least by fifty per cent the book value of the plant and machinery as it stood on 1st April 2004. Analysis: Are the Conditions Cumulative? 19. Section 80-IA of the Act, to begin with, is the beneficial provision, carving out an exception from the rigors of tax payment. An assessee can deduct his total profits for ten consecutive assessment years if it earns those profits from any of those businesses enumerated under sub-Section (4) of the provision. Indeed, the deduction is subject to certain limitations. Undoubtedly, the assessee's business is covered by sub-Section (4) of Section 80-IA. As seen from sub-Section (2) of Section 80-IA, the assessee can deduct the profits in any consecutive years out of the initial 15 years when he started his business or when he first met the conditions imposed in the provision. 20. We may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment. 25. Section 80IA, evidently, applies to an undertaking referred to in clause (ii) or clause (iv) or clause (vi) of sub-section (4) if it fulfils the enumerated conditions. We have already held that the assessee s undertaking falls in clause (iv) of sub-section (4). 26. As per the conditions stipulated, the assessee ought not to have formed the undertaking by splitting up or reconstructing an existing business. Here there is neither splitting up nor reconstructing; nor is it the Revenue s case, either. Equally mandatory is the other condition that the assessee has not formed the undertaking (ii) by transferring to a new business any machinery or plant used earlier for any purpose. The Revenue, true, latches on to it. We will see whether it can sustain this plea: the assessee formed the undertaking by transferring used machinery or plant to a new business. 27. Of course, the restriction under clause (ii) will not apply to the machinery or plant used abroad by any other person than the assessee, as stated in the Explanation I. But it does not apply to this case; nor does the Explanation 2, which permits an assessee s new business to use less than 20% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking and not to the owner thereof. The successor may have the benefit for the unexpired period of five years provided the undertaking is taken over as a running concern. Has the Assessee s Undertaking Fulfilled the Eligibility Criteria? 2(1)[] Section 84. Income of newly established industrial undertakings or hotels. (1) Save as otherwise hereinafter provided, income tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking or business of a hotel or from any ship, to which this section applies, as does not exceed six per cent. per annum on the capital employed in such undertaking or business or ship, computed in the prescribed manner. ( 2) This section applies to any industrial undertaking which fulfils all the following conditions namely: ( i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; ( ii) it is not formed by the transfer to a new business of a building, machinery or plant previously used for any purpose; 33. Repetitive it may be, the assessee acquired in March, 2005 certain tea estates at Munnar, as a going concern. This ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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