2020 (3) TMI 360 - SC - Income Tax

Supreme Court confirms company's eligibility for tax deduction under Section 80IA

Commissioner of Income Tax, Udaipur Versus M/s. Chetak Enterprises Pvt. Ltd.

Commissioner of Income Tax, Udaipur Versus M/s. Chetak Enterprises Pvt. Ltd. - [2020] 423 ITR 267 (SC), AIR 2020 SC 4305 Issues Involved:1. Eligibility for deduction under Section 80IA of the Income Tax Act.2. Effect of conversion of a partnership firm into a company under Part IX of the Companies Act.3. Compliance with clauses (a) and (b) of Section 80IA(4)(i) of the Income Tax Act.Detailed Analysis:1. Eligibility for Deduction under Section 80IA of the Income Tax Act:The core issue was whether the assessee-Company was entitled to the deduction under Section 80IA of the Income Tax Act for the Assessment Year 2002-2003. The assessing officer initially denied this deduction, but the decision was reversed by the Commissioner of Income Tax (Appeals) and subsequently confirmed by the Income Tax Appellate Tribunal (ITAT). The High Court upheld the ITAT's decision, affirming that the assessee-Company met the conditions stipulated under Section 80IA. The Supreme Court also upheld this view, confirming that the assessee-Company was eligible for the deduction as it fulfilled the necessary conditions of carrying on the business of developing, maintaining, and operating an infrastructure facility.2. Effect of Conversion of a Partnership Firm into a Company under Part IX of the Companies Act:The conversion of the erstwhile partnership firm into a private limited company was a significant factor in this case. The firm, M/s. Chetak Enterprises, was converted into M/s. Chetak Enterprises (P) Ltd. on 28.3.2000 under Part IX of the Companies Act. This conversion was communicated to the Chief Engineer (Roads), P.W.D., Rajasthan, Jaipur, who acknowledged the change and provided a fresh registration code to the assessee-Company. The Supreme Court noted that under Section 575 of the Companies Act, all properties, movable and immovable, vested in the firm, automatically vested in the company upon its registration. This statutory vesting meant the company succeeded the firm, inheriting its rights and liabilities. Thus, the business carried on by the firm was considered to be carried on by the company post-conversion.3. Compliance with Clauses (a) and (b) of Section 80IA(4)(i) of the Income Tax Act:- Clause (a): The assessee must be an enterprise carrying on the business of developing, maintaining, and operating any infrastructure facility, owned by a company registered in India. The Supreme Court confirmed that this condition was met as the firm was converted into a company before the relevant assessment year, and the company continued the business of maintaining and operating the infrastructure facility.- Clause (b): The assessee must have entered into an agreement with the government for developing, maintaining, and operating an infrastructure facility. The agreement initially executed with the partnership firm was understood to be transferred to the company upon its conversion. The agreement explicitly included the firm’s successors and assigns, and the State Government recognized the company as the successor to the firm. Thus, the Supreme Court concluded that the assessee-Company fulfilled this requirement as well.Conclusion:The Supreme Court dismissed the appeal filed by the Department, affirming that the assessee-Company was entitled to the deduction under Section 80IA of the Income Tax Act. The Court held that the conversion of the partnership firm into a company did not affect the eligibility for the deduction, as the company succeeded the firm in law, inheriting its rights and liabilities. The decision of the High Court, ITAT, and the first appellate authority were upheld, confirming that the assessee-Company met all the necessary conditions for the deduction under Section 80IA.