TaxTMI 
TaxTMI 
2014 (4) TMI 897
X X X X Extracts X X X X
X X X X Extracts X X X X
....e under Section 143(2) of the Income Tax Act was served on the assessee on 31.10.2002. A survey under Section 133 A of the Income Tax Act was conducted in the EOU unit, situated at Tirumudivakkam on 14.11.2003 to verify the claim of exemption under Section 10B of the Income Tax Act. During the course of survey, statement was recorded from the General Manager (Operations) and subsequently, the Managing Director of the company was enquired and his statement was also recorded. On an analysis of the facts the Assessing Officer held that the land at Thirumudivakkam was purchased in the year 1999 from SIDCO and the construction of the factory building therein was commenced during June, 1999 and completed during March, 2000. The unit was first registered as Domestic Tariff Area Unit (DTA) with the Central Excise Authorities on 03.11.1999. The activities like building construction, plant erection, machinery erection, commissioning and testing of machinery etc. were carried out in the DTA unit prior to its conversion into EOU in March, 2000. An application dated 11.3.2000 was submitted by the company before the Madras Export Processing Zone (MEPZ) to treat the DTA Unit as 100% EOU unit. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B, the assessee had classified the building as plant and machinery; thus, it was clearly an after thought. Considering the value of the machinery transferred, which was more than 20%, the claim of the assessee had to fail. 5. The Assessing Officer referred to the decision reported in 244 ITR 192 (CIT V. Anand Theatres) and held that the distinction between "plant and machinery" or "building" could not be lost sight of; consequently, the assessee's plea for treating the building as 'plant' was unsustainable in law. The Officer further pointed out that the assessee itself had valued the transferred machinery to a sum of Rs.2,26,99,000/-. Thus, read in the context of the statement recorded from the officials of the company and the value of the transferred assets, the assessee was not entitled to the relief under Section 10B of the Income Tax Act. The Officer pointed out that the even allowing for a margin of 10% difference in the valuation of the assets, the percentage of the old machinery would come to 38% of the total machinery and hence the assessee was ineligible to claim exemption under Section 10B of the Income Tax Act. Aggrieved by this, the assessee went on appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at the time of commencement of commercial production on 25.4.2000. The first batch of raw materials had arrived on 17.4.2000; thus, 2001-02 was the year of operation by the unit. The Tribunal further held that the assessee was recognised as EOU in April, 2000 when it commenced the production of article or thing. On the admitted fact that the assessee was using more than 20% of the plant and machinery, which were used earlier, on the total value of the machinery of the EOU unit, the assessee failed to comply with the plain condition mentioned under Section 10B; consequently, the assessee was not entitled to the relief. Thus the Tribunal upheld the contention of the Revenue that the assessee not being an eligible unit, the claim of Section 10B exemption was liable to be rejected. 8. As regards the assessee's contention that the Officer was not justified in not considering the factory building as part of plant and machinery, the Tribunal followed the decision reported in 244 ITR 192 (CIT V. Anand Theatres) and held that the factory building could not be treated as plant and machinery for the purpose of finding out the limitation of 20% value on the transferred machinery, vis-a-v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....originally approved as DTA unit and that the transfer had taken place even prior to the formation of EOU unit, the view of the Tribunal that the assessee had transferred the machinery of other units, thus exceeding the value of 20%, hence, ineligible to claim exemption, was totally contrary to the provisions of the Income Tax Act. 12. Learned Standing Counsel appearing for the Revenue supported the order of the Tribunal and submitted that when the admitted fact that the machinery transferred exceeded 20% of the total value of the machinery as on the date of formation of the EOU unit clearly shows the ineligibility as spelt out under Section 10B(2) of the Income Tax Act; hence, the case of the assessee has to be rejected. 13. Heard learned senior counsel appearing for the assessee and the learned standing counsel appearing for the Revenue and perused the materials placed before this Court. 14. We have gone through the order of the Tribunal as well as the order of the Authorities below. The admitted fact herein is that the assessee herein, originally treated as DTA unit, had made an application for conversion as EOU unit on 11.3.2000. Thus, on the date when the assessee was treate....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transfer of entire business. This Court pointed out that the transfer was not that of plant and machinery alone but of sale of whole business unit to the transferee company which was only of export of articles or things. In this regard, this Court referred to the decision reported in [2012] 343 ITR 397 (CIT v. SONATA SOFTWARE LIMITED), which in turn referred to the decision of the Supreme Court reported in [1997] 107 ITR 195 (TEXTILE MACHINERY CORPORATION LIMITED v. CIT, wherein, it was held that where a running business was transferred lock, stock and barrel by one assessee to another assessee, the principle of reconstruction, splitting up and transfer of plant and machinery could not be applied. This Court further pointed out that there could be no denial of exemption on the conversion of the proprietorship business into the partnership to result in the disentitlement of the benefit under Section 10A of the Income Tax Act. On a reading of Section 10A(2), particularly clause (iii), this Court held that an undertaking would be disentitled to claim exemption, if it is formed by splitting up or re-construction of business already in existence. 17. We find Section 10B(2) is no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd.) to Section 10B(2)(iii), we hold that to attract Section 10B favourably to an undertaking, such undertaking should not be formed by transfer to a new business any machinery or plant previously used for any purpose. Applying Explanation (2) to sub-section (2) of Section 80I of the Income Tax Act, we find that even if there be transfer of machinery previously used for any purpose is transferred, the total value of the machinery at plant so transferred should not exceed 20% of the total value of the machinery used in the business. 20. In the context of such restriction seen in the provision, the question that arises for consideration herein is as to whether the assessee, which was originally a DTA unit, later on converted as 100% EOU, would be hit by clause (iii) to sub-section (2) of Section 10 B of the Income Tax Act. 21. Going by the reasoning given under the decision reported in (2013) 359 ITR 1 (Commissioner of Income Tax V. Heartland KG Information Ltd.), we hold that when a DTA unit is converted into 100% EOU unit, there is neither a transfer nor a creation of a new business to attract Clause (iii) to sub-section (2) of Section 10B of the Income Tax Act. As pointed out b....