2024 (9) TMI 653 - HC - Income Tax

Partnership to Private Limited Company conversion doesn't affect Section 80-I deduction benefits for unexpired period

The Punjab & Haryana HC held that an assessee is entitled to Section 80-I deduction benefits for the unexpired period when a partnership concern is ... Deduction u/s 80-I on converted partnership concern - claim denied for the unexpired period merely because the partnership concern carrying on the same activity was converted into a Private Limited Company, which too continued and carried on the same activity - HELD THAT:- Having noticed the conclusions arrived at by the Supreme Court in Chetak Enterprises [2020 (3) TMI 360 - SUPREME COURT] as well as by the Allahabad High Court in Prisma Electronics [2014 (8) TMI 209 - ALLAHABAD HIGH COURT] in regard to the scope of benefit of Section 80-I upon the conversion of a proprietorship concern or the partnership firm to a Private Limited Company, is answered in favour of the assessee. We allow these appeals and hold the appellant(s) to be entitled the benefit u/s 80-I and the consequent benefit of deduction for the unexpired period. Decided in favour of assessee. Issues:1. Interpretation of Section 80-I of the Income Tax Act for a converted partnership concern.2. Application of legal principles from previous judgments on the conversion of business entities.3. Entitlement to deduction under Section 80-I for a Private Limited Company formed from a partnership concern.Analysis:1. The High Court dealt with the interpretation of Section 80-I of the Income Tax Act concerning a converted partnership concern. The appellant, a Private Limited Company formed from a partnership, challenged the disallowance of deduction claimed under Section 80(I) by the revenue authorities. The issue revolved around the value of plant and machinery transferred during the conversion and its compliance with the provisions of Section 80(I)(2) of the Act.2. Referring to the judgment in Commissioner of Income Tax v. Chetak Enterprises Pvt. Ltd., the Court appreciated the revenue's stand on the issue. The appellant company's conversion from a partnership was a key factor in determining the eligibility for deduction under Section 80-I. The Court noted that the partnership concern was converted into a Private Limited Company with the intention of availing higher deductions on profits and gains, as allowed for companies under the Act.3. The Court examined the legal implications of converting a partnership concern into a company under the Companies Act, particularly focusing on the vesting of property and business continuity. Citing the Supreme Court's ruling in Chetak Enterprises case, the Court emphasized that upon registration as a company, all properties of the firm vest in the company, and the business is carried on by the company. The Court also referred to a Division Bench judgment of the Allahabad High Court, highlighting the continuity of benefits under Section 80-IB upon conversion of business entities.4. Ultimately, the Court held in favor of the appellant, ruling that the converted Private Limited Company was entitled to the benefit under Section 80-I and the consequent deduction for the unexpired period. The Court directed the Assessing Officer to pass appropriate orders in light of this decision, allowing all the appeals and disposing of any pending miscellaneous applications.