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2020 (3) TMI 360

..... s Act - HELD THAT:- For the purpose of considering compliance of clause (a) of Section 80IA ( 4)(i), the assessee must be an enterprise carrying on business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility, which enterprise is owned by a company registered in India. That stipulation is fulfilled in the present case, as the registered firm was converted into a company under Part IX of the Companies Act on 28.3.2000, which is before the commencement of Assessment Year 2002-2003. For the assessment year under consideration, the activity undertaken by the assessee is only maintaining and operating or developing, maintaining and operating the infrastructure facility, inasmuch as, the construction of the road was completed on 27.3.2000 and the same was inaugurated on 1.4.2000, where after toll tax was being collected by the assessee-Company. In the present case, the agreement was initially executed between the erstwhile partnership firm and the State Government, but with clear understanding that as and when the partnership firm is converted into a company, the name of the company in the agreement so executed be r .....

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..... or short, the Companies Act ). On conversion of the firm into company, an intimation was given to the Chief Engineer (Roads), P.W.D., Rajasthan, Jaipur. The said authority noted the change and cancelled the registration of the firm and granted a fresh registration code to the assessee-Company. As aforesaid, the road was inaugurated on 1.4.2000 and the assessee-Company started collecting toll tax. For the relevant assessment year, the assessee-Company claimed deduction under Section 80IA of the Income Tax Act, 1961 (for short, the Income Tax Act ). The assessing officer declined that claim of the assessee-Company, which decision was reversed by the Commissioner of Incom eTax (Appeals), Udaipur. The Income Tax Appellate Tribunal (for short, the ITAT ) confirmed the decision of the first appellate authority, following its decision Chetak Enterprises P. Ltd. vs. ACIT, (2005) 95 ITD 1 (Jodh.) in the case of the assessee-Company for the Assessment Year 20012002. As a result, the Department preferred an appeal before the High Court. The High Court formulated the following question of law: Whether in the facts and in the circumstances of the case, the assessee-Company was right in finding .....

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..... which fulfils all the following conditions, namely: (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation 1.For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely: (a) Such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provis .....

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..... ld have been entitled to the deduction, if the transfer had not taken place. Explanation. For the purposes of this clause, infrastructure facility means, (a) a road, bridge, airport, port, inland waterways and inland ports, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette; (b) a highway project including housing or other activities being an integral part of the highway project; and (c) a water supply project, water treatment system, irrigation project sanitation and sewerage system or solid waste management system; (ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network of turnking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2003; (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park notified by the Central Government in accordance with the scheme framed and notified by the Government for the period beginning on the 1st day of April, 1997 and ending on the 31s .....

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..... ount was transferred to the reserve account; and the amount remaining unutilised shall be chargeable to tax as income of the year in which such transfer to reserve account took place. (7) Where the assessee is a person other than a company or a cooperative society, the deduction under the subsection (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below subsection (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the mar .....

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..... o another Indian company in a scheme of amalgamation or demerger- (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. The High Court while upholding the view taken by the first appellate authority and the ITAT, dismissed the appeal and observed thus: ….. In the present case, so far as the facts are concerned, it is not in dispute, that the work of construction of roads was completed on 27.3.2000, and on and with effect from 28.3.2000, the partnership firm was converted into a Company, by being registered under Part IX of the Companies Act, and became a private Limited Company. As noticed above, the relevant previous year is 1.4.2000 to 31.3.2001. Thus, right from the commencement of the relevant financial year, it cannot be disputed, that it was a Company, and was undertaking the specified business. Then, so far as the .....

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..... the Firm will be converting into a limited Company under Part IX of the Companies Act, and the Chief Engineer was requested to allow the change in the Constitution, and accordingly change of name in the agreement, after converting the Firm into the Company, with the existing partners as its Directors, and this request was accepted, and that acceptance letter formed part of the agreement, in our view, the Firm stands in the shoes of promoter, and the Company takes over all assets and liabilities statutorily. In other words, by operation of law, there is statutory transformation of the Firm into the Company, obviously the rights and liabilities of the Company, and the assets, go to the Company. It is a different story that even from the agreement entered into by the promoter (predecessor in the interest of the Company), as successor of the Firm and the Company is deemed to be a party, and, therefore also, is very much entitled to the benefit of deduction on this ground. Over & above all this, the proviso is a complete answer to the contention of the Revenue, and in favour of the assessee, which rather clearly provides, that even in case of transfer, the transferee will become en .....

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..... g partners as its Directors. The Chief Engineer being the appropriate authority of the State, vide letter dated 27.8.1999, took note of the request made by the erstwhile partnership firm and informed the said firm that its offer was accepted subject to terms and conditions specified in that regard. It is only after this interaction, an agreement was entered into between the Government of Rajasthan and the erstwhile partnership firm, in which the communication sent by the Chief Engineer, dated 27.8.1999, was made part of the agreement. Notably, after the conversion of the partnership firm into a company under Part IX of the Companies Act, the State authorities noted the change and provided fresh registration code to the assessee-Company. 7. The question is: what is the effect of conversion of partnership firm into a company under Part IX of the Companies Act? That can be discerned from Section 575 of the Companies Act, which reads thus: 575. Vesting of property on registration.All property, 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 i .....

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..... nd operating a new infrastructure facility. As aforesaid, in the present case, the agreement was initially executed between the erstwhile partnership firm and the State Government, but with clear understanding that as and when the partnership firm is converted into a company, the name of the company in the agreement so executed be recorded recognising the change. Notably, the agreement itself mentions that M/s. Chetak Enterprises as party to the agreement was meant to include its successors and assignee. Further, the State Government had granted sanction to the company and the original agreement entered into with the firm automatically stood converted in favour of the assessee-Company, which came into existence on 28.3.2000 being the successor of the erstwhile partnership firm. Thus understood, even the stipulation in clause (b) of Section 80IA( 4)(i) is fulfilled by the assessee-Company. Since these are the only two issues which weighed with the assessing officer to deny deduction to the assessee-Company as claimed under Section 80IA of the Income Tax Act, the first appellate authority was justified in reversing the view taken by the assessing officer. For the same reason, the ITA .....

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