2013 (6) TMI 766 - AT - Income Tax

Tribunal grants deduction under Income Tax Act, finding no violation in shareholding change.

The Tribunal allowed the assessee's appeal, directing the AO to grant the deduction under section 10B of the Income Tax Act. It was held that the ... Benefit of deduction u/s. 10B - Held that:- The share has been transferred before March 2003, interim dividend has been received by the transferee which has also been verified from the bank statements of Altana Pharma AG. As the Assessing Officer himself has verified such clinching evidences and has accepted them in order, therefore, in our considerate view we do not find any reason to hold that there was a change in ownership to the detriment of the assessee company visa- vis section 10B(9) of the Act. Considering all the facts relating to transfer and the remand report, we hold that the substantial share holding was always with the assessee at the end of the financial year entitling it for the claim of exemption u/s. 10B(9) of the Act - Decided in favour of assessee Issues Involved:1. Eligibility for deduction under section 10B of the Income Tax Act.2. Validity of share transfer and compliance with section 10B(9).Detailed Analysis:1. Eligibility for Deduction under Section 10B:The primary grievance of the assessee was that the revenue authorities erred in denying the benefit of deduction under section 10B of the Income Tax Act. The authorities argued that the assessee did not meet the basic conditions for this deduction due to a violation of section 10B(9). The assessee contended that clause 9 had been omitted by the Finance Act 2003, and thus, the conditions mentioned therein did not apply for the year under consideration.2. Validity of Share Transfer and Compliance with Section 10B(9):The facts of the case reveal that the assessee, engaged in manufacturing intermediates for the anti-ulcerant drug Pantoprazole, was a joint venture between Altana Pharma-AG, Germany, and Cadila Healthcare Ltd., Ahmedabad. The company claimed exemption under section 10B as a 100% Export Oriented Unit (EOU). The Assessing Officer (AO) scrutinized the shareholding pattern and noted a change in ownership due to a global merger between Byk Gulden GmbH and Altana Group. The AO believed that this transfer implied a violation of section 10B(9), which mandates that more than 51% of the stake should remain with the same person at the end of the financial year in which the transfer occurs. The AO concluded that the assessee was not entitled to the deduction for the assessment year under consideration due to this substantial interest transfer.The assessee argued before the CIT(A) that the case was covered by the decision of the Tribunal in WNS Global Services Pvt. Ltd. However, the CIT(A) rejected this argument, stating that the case dealt with section 10A and not section 10B. The CIT(A) upheld the AO's decision, noting procedural irregularities in the share transfer.Detailed Examination of Shareholding Pattern:The shareholding pattern from 31.03.2000 to 31.03.2003 showed that the non-resident shareholder was initially Byk Gulden Lomberg Chemische Fabric GmbH, which later changed its name to Altana Pharma AG. Altana Pharma AG transferred its shares to its 100% subsidiary Byk Vermogensverwaltung GmbH. To maintain the 51% shareholding pattern, a subsequent re-transfer of 3,00,000 shares was executed in February 2003.Remand Report Analysis:A remand report dated 29.06.2010 by the AO verified the compliance of the share transfer procedures. The report confirmed that the shares were transferred before March 2003, and the interim dividend was received by the transferee, as verified from the bank statements of Altana Pharma AG. This evidence established that there was no detrimental change in ownership concerning section 10B(9).Tribunal's Decision:The Tribunal found that the substantial shareholding remained with the assessee, entitling it to the deduction under section 10B. The Tribunal also referenced the decision in WNS Global Services Pvt. Ltd., which held that the omission of a statutory provision without a saving clause implies that the provision should be read as though it never existed. Thus, section 10B(9) should be considered obliterated from the statute book from the year it was omitted.Conclusion:The Tribunal directed the AO to allow the deduction under section 10B as claimed by the assessee. It also noted that the impugned change in shareholding occurred in A.Y. 2003-04, and any claim denial should have been addressed in the appropriate assessment year, not in the year under consideration (A.Y. 2006-07).Judgment:The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 26th June 2013.