TaxTMI 
TaxTMI 
2026 (4) TMI 1461
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....9;s Circular No. 3 of 2008 dated 12/03/2008 (explanatory notes to the provisions of the Finance Act 2007) where it has been explicitly mentioned that tax benefit u/s 80IA is not available to undertaking/enterprise of Indian companies undergoing amalgamation or demerger after 31/03/2007. 2. In addition to the ground no.1 above, on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the deduction of Rs. 96,32,553/- u/s 80IA of the Act disallowed by the AO even though the companies under consideration have undergone amalgamation after 31/03/2007 and the Assessee Company has not undertaken initial investment and the entrepreneur risk as described in CBDT's Circular No. 3 of 2008 dated 12/03/2008. 3. In addition to the ground no.1 & 2 above, on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the deduction of Rs. 96,32,553/- u/s 80IA of the Act disallowed by the AO relying upon the decisions of Hon'ble Delhi High Court in the case of CIT Vs Tata Communication Internet service Ltd. Despite the fact that in that case the issue of provisions of section 80IA(12A) was not involv....
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.... section 80JJAA(2) were attracted. 4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A), who, after considering the detailed submissions made by the assessee and judicial precedents, allowed both deductions. 5. Aggrieved by the order of the Ld. CIT(A) allowing the deductions, the Revenue is now in appeal before the Tribunal. 6. We have heard the rival contentions and perused the material available on record. The ground-wise adjudication is as under:- Ground No. 1 to 4 - Disallowance of deduction u/s 80IA of the Act. 7. The Assessing Officer disallowed the deduction u/s 80IA on the ground that the assessee had undergone amalgamation in FY 2011-12 and, in view of section 80IA(12A), the benefit was not available if an undertaking is transferred in a scheme of amalgamation on or after 01.04.2007. The amalgamation in this case occurred in 2012 hence, the Assessing Officer made the disallowance. 7.1 Aggrieved by the order of the Assessing Officer, the Assessee filed appeal before the Ld. CIT(A) who reversed the order of the Assessing Officer. 7.2 The Ld. CIT(A) observed that the amalgamation had taken place in FY 2011....
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..../s. 80IA is disallowed it will defeat the original purpose of the Act ie., encouraging infrastructure projects. 3.2.9 Further, as far as intent of incentivizing those who have taken entrepreneur risk is concerned, it is to be noted that, although the investment in windmill power plant was made by Amalgamating Company (transferor), the risk concerned with the plant still remains with the same entrepreneurs making the investment originally, as the shareholders who were beneficial owners in the Amalgamating Company (transferor) continues to be the beneficial shareholders in the appellant company even after amalgamation. By piercing the corporate veil, it is clear that the Ultimate Beneficial Owners are as per old company. 3.2.10 Without prejudice to the above, It is also worth mentioning that Amalgamating Company (transferor) was a profitable unit and self-sufficient to claim 80IA deduction even if amalgamation had not taken place. Even as separate entities, the amalgamating company had enough profits in the year under scrutiny to claim the deduction u/s. 80IA and hence, amalgamation has not resulted in any undue benefit in form of excess claim or lower taxes for the....
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....re intent. 7.4 From the above, it is clear that investment in windmill was made by amalgamating company (transferor) and profit too is earned by it and therefore, assessee has not entered into amalgamation solely for purpose of taking undue advantage of section 80IA of the Act. Further, appellant has relied on Hon'ble Delhi High Court order in CIT vs. Tata Communication Internet Services Ltd (204 taxman 606) where it was held that eligibility of deduction u/s. 80IA can be examined only in 1st year, and in subsequent years, it cannot be disturbed unless there is change in facts of the case. This is directly applicable to assessee company and 80IA having been given for 5 years cannot suddenly be denied. 7.5 Finally, I come to the Hon'ble High Court of Gujarat order dated 23.03.2012 in the case of assessee regarding its scheme of amalgamation. Para 9 of the order is quoted below: "9. with effect from the Appointed Date, all the Statutory benefits inclusive of Stamp Duty paid, Modvat Benefits, Service Tax, Income Tax payments with Brough Forward Tax Benefits and Credits for Taxes paid and all other benefits availed and available under the Income Tax A....
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....its dissolution without winding up. The resultant company (often called the amalgamated/transferee company) is the existing or new entity that absorbs the amalgamating company's undertaking and issues shares to its shareholders. Key aspects of these entities include: * Amalgamating Company (Transferor): Ceases to exist after the merger. Its business, assets, and liabilities become part of the amalgamated company. * Resultant/Amalgamated Company (Transferee): Takes over all assets and liabilities of the amalgamating company. Shareholders holding at least 75% in value of shares in the amalgamating company become shareholders of the amalgamated company. 7.6 We have gone through the Finance Bill, 2007 and the relevant provisions of the same are as under:- FINANCE BILL, 2007 PROVISIONS RELATING TO DIRECT TAXES Tax benefit under section 80IA not available to undertakings/enterprises of Indian companies undergoing amalgamation or demerger after 31.3.2007 The existing provisions of section 80IA provide for 100% deduction for ten years in respect of profits and gains of certain undertakings or enterprises engaged in the business of development, operat....
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....or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines : Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub- section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted. (2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent of such profits and gains for further five assessment years. (....
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.... (4) This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i)developing or (ii)operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the t....
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....ch industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub- section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking : Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, 2011" had been substituted; (iv) an undertaking which,- (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of ....
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....le to tax where the profit has been transferred to a special reserve account and the same is actually utilised for the highway project excluding housing and other activities before the expiry of three years following the year in which such amount was transferred to the reserve account; and the amount remaining unutilised shall be chargeable to tax as income of the year in which such transfer to reserve account took place. (7) The deduction under sub-section (1) from profits and gains derived from an undertaking shall not be admissible unless the accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are tran....
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....resaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in clause (ii) of section 92F. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger- (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalga....
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....erning this specific issue, we hold that the amalgamated company is not eligible for deduction u/s. 80IA of the Act. Appeal of the Revenue on this ground is allowed. Ground No. 5 - Disallowance of deduction u/s 80JJAA of the Act. 8. The Assessing Officer disallowed Rs. 87,05,437/- u/s 80JJAA of the Act on the ground that the business was formed by reconstruction pursuant to amalgamation. The Ld. CIT(A) examined submissions and documents submitted by the assessee and noted that the amalgamation occurred in 2012. Ld. CIT(A) held that the deduction was claimed for additional employees employed in the relevant previous year. Ld. CIT(A) held that there was no evidence that employees were merely transferred from the amalgamated entity. The Ld. CIT(A) recorded the findings that all conditions were satisfied. The relevant observations of the Ld. CIT(A) in this regard is reproduced hereunder:- "8. Ground No. 3 is related to deduction of Rs. 87,05,437/- u/s. 80JJAA of the Act being disallowed. I have while deciding deduction u/s. 80IA in favour of the appellant referred to Hon'ble High Court of Gujarat Scheme of Amalgamation order para 9 where it has been laid down that....
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....rial available on record. The provisions of Section 80JJAA of the Act read as under:- "Deduction in respect of employment of new employees. 80JJAA. (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. (2) No deduction under sub-section (1) shall be allowed,- (a) if the business is formed by splitting up, or the reconstruction, of an existing business: Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B; (b) if the business is acquired by the assessee by way of transfer from any other person or as a result o....
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....ployee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly; (iii) "emoluments" means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include- (a) any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and (b) any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like. (3) The provisions of this section, as they stood immediately prior to their amendment by the Finance Act, 2016, shall apply to an assessee eligible to claim a....