2011 (8) TMI 738 - HC - Income Tax

Deduction under 80-IC - Proprietorship Converted into Partnership Concern - Revenue contended deduction available only when an Indian Company is taken over by another Indian Company - Held That - Benefit of 80IC cannot be denied only on the ground that section 80-IA embraces only cases of amalgamation or demerger of Indian Company. - Further 80IC postulates that undertaking eligible for deduction under the section is not formed by splitting up or reconstruction of a business already in existence. Section 80IC deduction upon the undertaking and not the owner. When such conditions are fulfilled successor will get benefit for the unexpired period.

Summary

Issues:
1. Interpretation of Section 80-IC of the Income Tax Act, 1961 regarding deduction claims.
2. Application of Section 80-IA(12) in cases of change from proprietorship to partnership firm.

Analysis:
1. The case involved a dispute over the deduction claimed under Section 80-IC of the Income Tax Act, 1961 by a partnership firm that had converted from a proprietorship concern. The Assessing Officer disallowed the deduction, citing Sections 80-IC(7) and 80-IA(12) of the Act. The Tribunal, however, upheld the claim, stating that the successor partnership firm was entitled to the deduction for the unexpired period, as the change from proprietorship to partnership did not disentitle the firm from claiming the benefit under Section 80-IC. The Tribunal emphasized that the provisions of Section 80-IA(12) did not specifically address the transfer from a sole proprietorship to a partnership firm, and therefore, the benefit should be allowed to the successor partnership firm.

2. The Assessing Officer also relied on Section 80-IC(4)(i) of the Act to disallow the deduction, arguing that the conversion from a proprietorship to a partnership did not meet the conditions for claiming the benefit under this section. However, the Tribunal rejected this argument, stating that the intention of Section 80-IC was to provide the deduction to the undertaking itself, not the owner, and a change in ownership did not disentitle the successor from claiming the deduction for the unexpired period. The Tribunal referred to a circular issued in 1963, which emphasized that the benefit of the Act attaches to the undertaking and not the owner, supporting the view that the successor partnership firm was entitled to the deduction under Section 80-IC.

3. The Tribunal's interpretation of the provisions of Section 80-IC(4)(i) was found to be in line with the law, and no substantial question of law was identified to interfere with the Tribunal's decision. The appeal by the revenue was dismissed, affirming the Tribunal's order upholding the claim of the partnership firm for the deduction under Section 80-IC of the Income Tax Act, 1961. The judgment highlighted the distinction between the entity claiming the deduction and the change in ownership, emphasizing that the benefit of the deduction was intended for the undertaking itself, irrespective of changes in ownership structure.