2007 (4) TMI 136 - HC - Income Tax

Deduction - Question arises whether assessee is entitle for special deduction u/s 80J Held yes on the ground that there is mere change of the constitution of the firm

Summary

Issues:
1. Interpretation of provisions of section 80J(1) and 80J(3) with respect to deficiency of earlier years.
2. Availability of benefits of section 80J to the assessee after a change in the constitution of the firm.

Analysis:
Issue 1: The High Court considered the interpretation of section 80J in relation to deficiency of earlier years. The Court referred to the circular letter of the Central Board of Direct Taxes clarifying that the benefit of section 80J attaches to the undertaking and not the owner. It was highlighted that the successor would be entitled to the benefit for the unexpired period of five years if the undertaking is taken over as a running concern. In the case at hand, where there was a change in the constitution of the firm but no transfer of ownership of the undertaking, the Court agreed with the Appellate Tribunal that the provisions of section 80J(1) and 80J(3) would apply to address the deficiency of earlier years. The Court upheld the Tribunal's decision in this regard.

Issue 2: The second issue revolved around the availability of benefits under section 80J to the assessee following the change in the firm's constitution. The Department argued that the newly constituted firm should be treated as a different assessee, thereby questioning the applicability of section 80J benefits. However, the Court disagreed with this view, emphasizing that the change in the firm's constitution does not alter the entitlement of the assessee to the benefits under section 80J. The Court supported the Appellate Tribunal's decision that the benefits of section 80J were indeed available to the assessee or the reconstituted firm. Consequently, the Court ruled in favor of the assessee on this issue as well.

In conclusion, the High Court disposed of the reference after addressing both issues and affirming the decisions of the Appellate Tribunal in favor of the assessee.