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- Interpretation of whether a reconstituted firm is entitled to benefits under section 80HHC of the Income-tax Act, 1961. Analysis: The High Court of MADRAS deliberated on the issue of whether a reconstituted firm, engaged in the export of hides and skins, was entitled to benefits under section 80HHC of the Income-tax Act, 1961. The case involved a firm that had initially been constituted in 1972, with six partners, for the business of hides and skins. Following the death of one partner in 1981, the surviving partners entered into an agreement of dissolution and subsequently formed a new firm under a deed dated December 11, 1981. The question at hand was whether the new firm was eligible for the benefits under section 80HHC, despite the dissolution and reconstitution. The court examined the provisions of section 80HHC, which allow for deductions in export turnover to encourage exports. It was noted that the intent of the section is to reward the continuity and growth of export business. The court emphasized that the substance of the matter lies in the continuity of the export business and the increase in export of qualifying goods. The counsel for the assessee argued that despite the reconstitution of the firm, the business activities remained consistent, and the partners had the exclusive right to continue the export business, thus fulfilling the requirements of section 80HHC. In support of their argument, the counsel cited various decisions from different High Courts, highlighting cases where successor businesses were entitled to benefits under similar provisions of the Income-tax Act. The court also considered a decision of the apex court emphasizing the importance of adhering to the language of the enactment while interpreting beneficent provisions. Ultimately, the court concluded that the reconstituted firm, comprising the same partners except for the deceased partner, should be entitled to the benefits under section 80HHC, as the business continuity was maintained despite the dissolution and reconstitution. Therefore, the High Court held that the Tribunal erred in denying the benefits claimed by the assessee under section 80HHC. The court ruled in favor of the assessee and against the Revenue, emphasizing the importance of recognizing the substance of business continuity over the mere formalities of legal documents.
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