2010 (4) TMI 827 - AT - Income Tax

Ownership change doesn't affect Section 80-IB deduction; Tribunal upholds CIT(A)'s decision.

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It was held that the deduction under Section 80-IB is specific to the ... Deduction under section 80-IB - transfer of undertaking - constitution of the assessee-firm change by admission of a partner - claim of deduction declined by the Assessing Officer on the plea that there was a transfer of plant and machinery already in use in the business of proprietorship firm - On the conversion of proprietorship firm into partnership firm - Held that:- there was no transfer of plant and machinery to the new firm but it was transfer of the industrial undertaking as a whole along with all the assets and liabilities. Neither there was any splitting up nor reconstruction of business already in existence, but it was a case of change in the constitution of the same industrial concern which continued to manufacture the same item even after admission of a partner. Thus, both conditions which disqualify the deduction are not present in the instant case. We, therefore, do not find any infirmity in the order of the Commissioner of Income-tax (Appeals) allowing claim for deduction under section 80-IB for the remaining period of its eligibility, appeal filed by the Revenue is dismissed. Issues Involved:1. Applicability of Section 80-IB(12) of the Income-tax Act on the transfer of an undertaking.2. Interpretation and application of Sections 10A(7A), 10A(9), 80-IB(2)(i), and 80-IB(2)(ii) of the Income-tax Act.3. The effect of the omission of Section 10A(9) from the statute.4. Eligibility for deduction under Section 80-IB in the context of a change of ownership.Issue-Wise Detailed Analysis:1. Applicability of Section 80-IB(12) on the Transfer of an Undertaking:The primary issue was whether the transfer of an undertaking by an individual is hit by the provisions of Section 80-IB(12) of the Income-tax Act, thereby disallowing the deduction under Section 80-IB. The learned Commissioner of Income-tax (Appeals) (CIT(A)) concluded that Section 80-IB(12) specifically applies to undertakings of an Indian company and does not extend to undertakings owned by individuals. The CIT(A) emphasized that the statutory provision must be interpreted based on the explicit language used, and there was no legislative intent to deny the benefit to non-corporate entities unless explicitly stated.2. Interpretation and Application of Sections 10A(7A), 10A(9), 80-IB(2)(i), and 80-IB(2)(ii):The CIT(A) addressed the Assessing Officer's (AO) inference that Section 10A(7A) and the erstwhile Section 10A(9) should guide the interpretation of Section 80-IB(12). The CIT(A) clarified that Section 10A(7A) pertains to the transfer of undertakings of Indian companies only, similar to Section 80-IB(12). The CIT(A) also noted that Section 10A(9), which prohibited the transfer of undertakings by any means, was omitted from the statute from April 1, 2004, indicating a shift in legislative intent.3. The Effect of the Omission of Section 10A(9):The CIT(A) highlighted that the omission of Section 10A(9) from the statute with effect from April 1, 2004, meant that the restrictive regime that previously covered all entities was no longer applicable. This omission indicated that the deduction under Section 80-IB should be allowed for the transfer of undertakings, provided the transfer occurred after the omission date.4. Eligibility for Deduction under Section 80-IB in the Context of a Change of Ownership:The CIT(A) examined whether the undertaking was formed by splitting up or reconstruction of a business already in existence or by the transfer of old machinery or plant. It was concluded that the undertaking was not formed by splitting up or reconstruction but was an existing entity changing hands as a going concern. The CIT(A) relied on judicial precedents, including the decision in Tech Books Electronics Services P. Ltd. v. Addl. CIT and the principle that benefits under Section 80-IB are undertaking-specific, not assessee-specific. The CIT(A) also referenced the CBDT's view that benefits under Section 84 (and similarly under Section 80J) attach to the undertaking and not the owner, supporting the continuation of benefits despite a change in ownership.Conclusion:The Tribunal upheld the CIT(A)'s detailed findings and dismissed the Revenue's appeal. It was concluded that the issues raised by the Revenue had already been adjudicated in favor of the assessee in previous cases, including the jurisdictional Income-tax Appellate Tribunal's decision in Prisma Electronics. The Tribunal agreed that the deduction under Section 80-IB is specific to the undertaking and not affected by the change in ownership, provided the statutory conditions are met. The appeal filed by the Revenue was dismissed, affirming the CIT(A)'s order allowing the deduction under Section 80-IB.