2019 (3) TMI 1547 - HC - Income Tax

Appellant's Lease of Assets Not a Transfer Under Section 10B(1)

M/s. STABILIX SOLUTIONS (P) LTD. Versus THE INCOME TAX OFFICER, WARD-1 (1), TRIVANDRUM

The High Court held that the appellant's lease of premises, computers, and machinery from its sister concern constituted a transfer, thus disallowing the ... Benefit of exemption u/s 10B - undertaking a new one and not formed merely by transfer of plant and machinery from the lessor company? - whether lease could also be considered as a 'transfer' u/s 10B - HELD THAT:- The assessee-company was formed using 66.66% of the site, apart from the computers, work stations and machinery, used by STPL, for the very same purpose. The only difference is that it is leased out, instead of an outright transfer. In our view, lease could also be considered as a 'transfer' for the purpose of Section 10B(2). The argument of the assessee that the activity carried on by the company was manufacture of computer software, which requires input of intellectual, rather than tangible resources, is also not acceptable to us to find a dominant aspect not being involved in the transfer by lease of the premises, computers and peripherals. In the light of the above discussion, we are of the view that the Tribunal was justified in holding that the assessee is not entitled to the benefit under Section 10B(2) of the Act. - Decided against assessee. Issues:1. Disallowance of deduction under Section 10B(1)2. Eligibility for exemption under Section 10B of the Income Tax ActAnalysis:1. The appellant-assessee, a 100% Export Oriented Unit (EOU), sublet a premise from its sister concern, which was also a 100% EOU. The Assessing Officer (A.O.) disallowed the deduction under Section 10B(1) due to incongruence in the ratio of plant and machinery leased by the sister concern. The A.O. considered the lease as a transfer within the meaning of Section 10B(2)(iii) of the Act, preventing the appellant from claiming the deduction.2. The C.I.T. (Appeals) allowed the appellant's claim for exemption under Section 10B(1). However, the Income Tax Appellate Tribunal held that the appellant did not satisfy the conditions of Section 10B(2)(iii) and partially allowed the appeal. The Tribunal's decision was based on the substantial use of plant and machinery by the appellant, which was originally used by the sister concern.3. The High Court considered whether the appellant's undertaking was genuinely new or formed by the transfer of plant and machinery from the sister concern. Citing the decision in Bajaj Tempo Ltd. v. CIT, the Court emphasized that the formation of a new entity should not be solely based on the transfer of assets from an existing company. The Court held that the lease of premises, computers, and machinery could be considered a transfer for the purpose of Section 10B(2).4. The Court rejected the appellant's argument that the activity involved intellectual resources, stating that the lease still constituted a transfer. Relying on the Bajaj Tempo Ltd. case, the Court concluded that the appellant was not entitled to the benefit under Section 10B(2) of the Act. Consequently, the appeal was dismissed, and the questions of law were answered against the appellant in favor of the revenue.