TaxTMI 
TaxTMI 
2006 (2) TMI 646
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....hereas Shri R.L. Meena, Sr. DR, represented the Revenue. ITA No. 282/Delhi/04 (Assessment year 2000-01): 3. In this appeal the assessee has taken various grounds to challenge the findings of learned CIT(A) to the effect that the assessee is not entitled for exemption under section 10B of the Income-tax Act in respect of profits derived from 100 per cent Export Oriented Undertaking ("EOU" in short). Since the grounds are merely argumentative, we do not consider it proper to reproduce the same here. 4.The facts concerning this matter, as they borne out from the orders of authorities below, are as under: 4.1 There was a company by the name of M/s. Tech Enterprises Inc., USA. This company was incorporated in USA and was engaged in the activity of software development and processing of data etc. This USA company was a family concern and had the following persons as owners : (i) Sh. Subodh C. Gupta (ii) Smt. Promilla Gupta W/o Subodh C. Gupta (iii) Sh. Rakesh Gupta S/o Shri Subodh C. Gupta (iv) Miss Anita Gupta D/o Shri Subodh Gupta (v) Sh. Jay Neil Gupta S/o Sh. Subodh C. Gupta. 4.2 Out of the above family members, ....
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....equity shares in the assessee-company transferred their holding in favour of Shri Jay Neil Gupta. Subsequently, in 1999 all the shares of Jay Neil Gupta were also transferred to Tech Enterprises Inc., USA and thus after 1999, the USA company became 100 per cent beneficial owner of the assessee-company. 4.7 The firm during its operation from financial year 1993-94 up to financial year 1997-98, did not claim exemption under section 10B instead of deduction under section 80HHE was claimed. However, the firm filed option under section 10B(7) while filing its return for assessment year 1994-95. 4.8 After its incorporation the company also did not claim exemption in financial years 1988-89 and 1999-2000. 4.9 In assessment year 2000-01 the assessee claimed deduction under section 10B of the Act. This claim was examined by the Assessing Officer who was of the opinion that the assessee-company was not qualified to claim the exemption because it was formed by the reconstruction of a business already in existence. The Assessing Officer, therefore, required the assessee to explain as to why benefit under section 10B should not be disallowed it. In reply, it was submi....
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.... stock and barrel by the appellant-company. Since business is being carried on by the same set of persons, New blood has been infused in the management. Therefore the case is covered by the decision of Hon'ble Bombay High Court in the case of CIT v. Gaekwar Foam and Rubber Co. Ltd. 35 ITR 662 . It is held that it is a case of reconstruction of business and therefore, the appellant will not be entitled to exemption under section 10B of the Act." 4.12 In support of the above finding the learned CIT(A) also assigned following reasons : (a) the firm prior to the incorporation of the company did not claim exemption under section 10B and exercised option under section 10B(7) to claim the benefit in subsequent years. This option was filed in the form of declaration which was filed along with the return of income whereas the option should have been exercised before the date of filing of return under section 139 of the Act. (b) The firm started business activities in assessment year 1994-95. It did not exercise option in assessment years 1995-96 and 1996-97. The option should have been exercised by filing declaration before the due date for each assessment year. A....
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....cloak and the same firm is now treated as a company after its incorporation. 7.2 It cannot be said that EOU owned by the assessee-company is formed as a result of reconstruction of EOU owned by the firm. When a company is incorporated under Part IX, there is no real transfer but only vesting under the statute. In support of this argument, the learned counsel placed reliance on the ratio of decision of Hon'ble Delhi High Court in the case of CIT v. Ganga Sugar Corpn. Ltd. [1973] 92 ITR 173. He also placed reliance on other authorities including the following : Mahindra Sintered Products Ltd. v. CIT [1989] 177 ITR 1111 (Bom.); CIT v. Simmonds Marshall Ltd. [1986] 161 ITR 817 (Bom.); CIT v. Hindustan General Industries Ltd. [1982] 137 ITR 851 2 [Delhi] CIT v. Gedore Tools India (P.) Ltd. [1980] 126 ITR 673 (Delhi); Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC); approving the aforesaid judgment of Delhi High Court in the case of CIT v. Ganga Sugar Corpn. [1973] 92 ITR 173; Hindustan Malleables & Forgings Ltd. v.ITO [1978] 112 ITR 389 (Pat.); CIT v. Indian Aluminium Co. Ltd. [1973] 88 ITR 257 (Cal.); ....
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....ereby the life of the statutory provision which has been amended will get extended. In fact, the Central Board of Direct Taxes, issued a circular No. 1/2005 cited herein-supra." 7.5 The learned counsel further submitted that the CIT(A) was not justified in holding that the conduct of the firm as well as that of the assessee proved that it never had any intention to claim exemption under section 10B. According to him, since the firm was entitled for exemption, the company who succeeded it, is also entitled for the same exemption. The benefit to claim exemption is not a heritable right. The argument that the assessee is not entitled to claim exemption because it did not exercise the option before the due date for filing of the return is misconceived. That merely because the assessee had claimed exemption under section 80HHE or merely because the claim under section 10B was not made in earlier years, the claim cannot be denied to the assessee. According to him, the assessee is entitled to claim benefit of exemption up to assessment year 2003-04 as per the amended provisions of the Act with effect from 1-4-1999. 8. The learned DR, on the other hand, supported the orders of ....
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....s a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B in the circumstances and within the period specified in that section; (iv) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose." 10.2 The objection of the Department is that the assessee-company is formed by the reconstruction of the business already in existence. Therefore, we are mainly concerned with this condition and qualification in the case of the present assessee. 10.3 The following facts are not disputed : 10.3-1 Formerly, M/s. Pinnacle Exports started functioning in financial year 1993-94. It was hundred per cent export-oriented unit. The firm was carrying on the business of development and export of software and data processing. Permission for setting up hundred per cent EOU was granted to the firm by STPI on 14-12-1992. The firm was also granted approval to claim exemption under sections 10A and 10B. The EOU was making exports to the American company, namely, M/s. Tech Enterprises. It was working under the control of USA co....
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....g the words is clear and has been expressed in unequivocal terms and nothing can be subtracted or added to the terms or words used in a statutory provision. 10.3-2 As per the doctrine of Noscitur A Sociis, the rule of construction is that the words appearing in a statutory provision in close association, take colour from each other. The rule of construction noscitur a sociis, as explained by Lord MacMillan means, "The meaning of a word is to be judged by the company it keeps". As stated by the Privy Council, "it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them". This rule, according to Maxwell, means that when two or more words which are susceptible of analogous meaning are coupled together, they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in words and phrases. Associated words take their meaning from one another under the doctrine of noscitur a sociis, the philosophy of which is that the meaning of the doubtful ....
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....e same and the observation of the Assessing Officer that undertaking acquired by the company is nothing but reconstruction of business already in existence cannot be accepted. 10.4 So far as the conversion of firm into company is concerned, again it cannot be said that there was any transfer. On incorporation of company, consequences as per the provisions of Companies Act and other statutory provisions follow ensue. Thus, there is merely statutory vesting. 10.5 In the case of CIT v. Texspin Engg. & Mfg. Works [2003] 263 ITR 3451, it was held by the Hon'ble Bombay High Court that when a firm is treated as a company, all the properties of the firm vest in the limited company but that vesting is not consequent or incidental to a transfer. 10.6 In the case of Chetak Enterprises (P.) Ltd. v. Asstt. CIT [2005] 95 ITD 1, the Jodhpur Bench of the ITAT has also taken a similar view. Thus, it cannot be said that EOU owned by the assessee-company is formed as a result of reconstruction of EOU owned by the firm. 10.7 The learned counsel for the assessee has successfully assailed the findings of learned CIT(A) and submitted that decision of Hon'ble Bombay Hig....
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.... the objections of the learned CIT(A) regarding conduct of the assessee-firm in not claiming the exemption in earlier year is concerned, the approach of the learned CIT(A) raising this objection, cannot be legally justified because if the assessee is entitled to any benefit under any statutory provision then the past conduct cannot be relevant particularly when reference to such conduct is not made in the Act. The eligibility of the assessee has to be seen in the year in which the claim is preferred and if in earlier years the assessee waived his right then he cannot be stopped in claiming the benefit in the subsequent years. 10.10 The learned CIT(A) has also observed that the assessee did not file declaration exercising option prior to the due date for filing of return but filed it along with the return and, therefore, the assessee is disqualified from claiming exemption on this ground also. We do not find any force in such objection because this objection is merely of super-technical nature. In view of the above, we are unable to concur with the finding of learned CIT(A) and set aside the same. Consequently, we allow the ground of appeal taken by the assessee and direct ....