2002 (2) TMI 905 - AT - Income Tax

Summary

Issues:
Rejection of claim under sections 80HH and 80-I of the Income-tax Act, 1961.

Analysis:
The appeal pertains to the rejection of the assessee's claim under sections 80HH and 80-I of the Income-tax Act, 1961. Both the Assessing Officer and the CIT(A) based their decision on the rejection of the claim for the assessment year 1989-90 on the grounds that the business of ship breaking does not constitute manufacturing or production of an article and that the business was considered a reconstruction due to a partner's retirement and the remaining partner taking over. The ITAT Bombay Bench previously upheld the rejection of the claim for the assessment year 1988-89. However, the assessee argued that the decision of the Hon'ble Bombay High Court in the case of Ship Scrap Traders clarified that ship breaking activities qualify as manufacturing, as the ship loses its identity and results in the production of metals used by other industries.

The assessee contended that the business transition was not a reconstruction but a succession, supported by the Deed of Dissolution dated December 1, 1986, where one partner retired, and the remaining partner became the sole proprietor. Citing Circular No. 15/5/63-IT(A-I) and legal precedents such as CIT v. Tyresoles Concessionaries Pvt. Ltd. and CIT v. Pigot Chapman & Co., the assessee argued that the successor is entitled to benefits if the undertaking is taken over as a running concern. The Departmental Representative acknowledged the manufacturing aspect but argued against the successor partner claiming the predecessor firm's benefits.

Upon review, the Tribunal considered the Ship Scrap Traders case and concluded that ship breaking qualifies as manufacturing, entitling the assessee to deductions under sections 80HH and 80-I. Regarding the business transition, the Tribunal agreed with the assessee that it was a case of succession, not reconstruction, as supported by legal precedents. Consequently, the Tribunal allowed the appeal, directing the deductions under sections 80HH and 80-I to be granted, subject to fulfilling other conditions. The appeal did not address deduction under section 32AB, and as it was not raised before lower authorities, no directions were provided on this matter. For statistical purposes, the appeal was treated as allowed.

This detailed analysis highlights the key arguments, legal precedents, and the Tribunal's decision regarding the rejection of the claim under sections 80HH and 80-I of the Income-tax Act, 1961, emphasizing the manufacturing aspect of ship breaking and the distinction between reconstruction and succession in business transitions.