TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 840
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.... the Ld. AR and as gathered from the record are as under:- 2.1 Originally two partnership firms viz. Upkar International and Miglani Exports were operating different industrial undertakings, manufacturing and exporting diesel engines and their parts. Both the firms had the same 8 partners and both the undertakings were eligible for deduction u/s 80 IB of the Income Tax Act, 1961 (hereinafter called 'the Act') since 1995-96. 2.2 Subsequently on 13.08.2002, the firm Upkar International was converted into a Limited Company under Part IX (section 574) of the Companies Act, 1956 and renamed as Upkar International (P) Ltd. All the partners of the erstwhile firm became the shareholders of the company and shares for the amount equivalent to the capital of the partners in the firm were allotted to them. On such conversion, all the assets and properties of the firm automatically vested in the company under section 575 of the Companies Act. 2.3 On 13.08.2002 itself, the company took over business of Miglani Exports on a going concern basis. Thus, with effect from 13.08.2002, the two undertakings which were eligible for deduction u/s 80 IB of the Act, came to be owned by the assessee compan....
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....y formed company is a reconstruction of old existing business and with old machineries. The condition laid down by the provision of subsection 2 of section 80IB strictly states the business should not be formed by transfer of machinery or plant previously used for any purpose. " 4.2 The Ld. CIT (Appeals) in his order has rejected the arguments of the assessee. Being aggrieved by the order of CIT (Appeals), the assessee has preferred the present appeal. 5. Before us, the Ld. AR while supporting his grounds of appeal submitted that the assessee company took over the entire business with all assets and liabilities of the two firms M/s. Upkar International & of M/s. Miglani Exports on 13.8.2002, both the firms were entitled for deduction u/s. 80IB for the period of ten years starting from F.Y. 1995- 96. Both these partnership firms had the same eight partners and they formed a company M/s. Upkar International Pvt. Ltd., to take over the entire business of these two partnership firms with all assets and liabilities. All the partners became directors in this assessee company and the assessee company took over the running business with all assets and liabilities of these partnership fi....
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....sfer to new business of machinery or plant used for any purpose. The AO in the body of assessment order has discussed this aspect and he has observed that newly formed company is a reconstruction of old existing business and with old machinery. While arriving at the conclusion he has discussed the mode by which company came in to existence by observing that assessee company was formed after reconstruction of two earlier existing business firms, namely; Miglani Exports and Upkar International. Therefore, after discussing the provision in detail, the AO has observed that condition laid down by Section 80IB (2)(ii) has not been fulfilled. In the grounds of appeal it has been contended that assessee company took over the entire business with all assets and liabilities of two firms, namely; Upkar International and Miglani Exports as on 13.8.2002 and they are entitled for claim u/s. 80IB for period of 10 (ten) years from assessment year 1995-96. This is finding of fact that this is a reconstruction of the old business. To avail the benefit of Section 80IB it has been laid by the statute that these facilities are not available to the industrial undertaking which is formed by transfer to a....
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....d to claim deduction u/s 80IB of the Act. 8. On facts, it is undisputed that the erstwhile partnership firm M/s Upkar International, having 8 partners was converted into a limited company under Part IX of the Companies Act, 1956 and was renamed as Upkar International (P) Ltd. and all the partners of the erstwhile firm became the shareholders of the company and the shares for the amounts equivalent to the capital of the partners in the firm were allotted to them. It is also undisputed that on such conversion, all the assets and properties of the firm vested in the company under section 575 of the Companies Act, 1956. In view of the undisputed facts, it is clear that on conversion from firm to company, there was merely a change in the ownership of the undertaking. There was no change in the business of the undertaking which was already in existence. The issue of reconstruction was discussed at length by the ITAT Delhi 'B' Bench in Tech Books Electronic Services (P) Ltd. vs ACIT, Range-16, 100 ITD 125 (Del) wherein the Bench, adjudicating on the issue of exemption u/s 10B of the Act, observed as under:- "However, we are not concerned with the change in the ownership. Rather we are ....
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....t; such doctrine is broader than the maxim ejusdem generis. In fact the latter maxim is only an illustration or specific application of the broader maxim noscitur a sociis. 10.3-3 In view of the above maxim of Rule of interpretation, the term 'reconstruction, is to be seen and considered in the light of splitting up Otherwise also, as per the dictionary meaning of 'reconstruction', as given in Judicial Dictionary by K.J. Iyer, Eighth Edition 1980, the word 'reconstruction' is expressed by synonymous 'rebuild'. Thus, if there is change of ownership from one person to another but the business continued to be the same, it cannot be said that the undertaking is formed as a result of reconstruction. 10.3-4 The meaning of the word 'reconstruction' can also be understood in the context in which this word appears. If we consider the scheme of the special provision and go through the provisions of Sections 32, 32A and 33B and examination of the Sub-clauses of Sub-section (2) together then it will be clear that the Legislature intended to disqualify those undertakings which are formed by rearranging the components or equipments of the earlier busines....
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....xemption u/s 10A of the Income Tax Act, 1961 could not be denied as there was a mere change of name and composition in the ownership of the undertaking and the business of the undertaking had not changed as the same partners had become directors of the company. The Bench held that in such a situation, the business of the assessee was not formed by splitting of the old business or reconstruction. 10. In CIT Vs. Gaekwar Foam and Rubber Company Ltd. (Supra) a Division Bench of this Court construed the provisions of Section 15C of the Income Tax Act, 1922, Section 15C(2)(i) contained a similar provision that the section would apply to an industrial undertaking which is not formed by the splitting up or the reconstruction of a business already in existence or by the transfer to a new business of building, machinery or plant used in a business which was being carried on before 1 April 1948. In that case, there was a partnership firm and its assets and goodwill were taken over by the assessee for a stated consideration and against the allotment of shares to the three partners in the assessee company. The Assessing Officer had rejected the claim of exemption under Section 15C on the groun....