2014 (1) TMI 657 - AT - Income Tax

Validity of order passed u/s 263 - Held that - Following M/s WNS Global Services Pvt. Ltd. 2012 (8) TMI 432 - ITAT MUMBAI - If a provision in a statute is unconditionally omitted without any saving clause in favour of the pending proceedings, all actions must stop where such an omission is found - Once the provisions of subsection 9 have been omitted, then it can be safely inferred that such an omission will be applicable wherever omitted section comes into play - Subsection 9 to section 10A, which has been omitted from the statute w.e.f. 1st April 2004, has to be read to be obliterated from the statute book or at least it will not have any effect from the year in which it was omitted - Even if there was any change in the ownership through acquisition of shares in earlier year 2003-04, exemption under section 10A, cannot be denied on this ground in the assessment year 2004-05. There was a transfer of 1.5% (3 lacs shares) of the assessee company in favour of Altana Pharma AG by wholly owned subsidiary - The original shareholders maintained 51% shareholding pattern as on 31.3.2003 - Decided in favour of assessee.

Summary

Issues:
1. Revision order under Section 263 for assessment year 2007-08 disallowing deduction u/s 10B.
2. Transfer of beneficial interest affecting shareholding pattern for deduction eligibility.
3. Dispute over the genuineness of the transfer of 1.5% shares from subsidiary to non-resident partner.
4. Interpretation of Section 10B(9) regarding ownership transfer and deduction eligibility.
5. Comparison with a previous Tribunal decision for assessment year 2006-07.

Issue 1: Revision order under Section 263 for assessment year 2007-08 disallowing deduction u/s 10B:
The appeal challenged the revision order by CIT under Section 263 for the assessment year 2007-08, which deemed the original assessment erroneous for allowing deduction u/s 10B without considering Section 10B(9). The Commissioner held the ownership transfer impacted deduction eligibility, directing disallowance.

Issue 2: Transfer of beneficial interest affecting shareholding pattern for deduction eligibility:
The controversy centered on the transfer of beneficial interest in the assessee company, impacting the shareholding pattern and eligibility for deduction u/s 10B. The Commissioner found the transfer reducing original promoters' voting power below 51%, thus disallowing the deduction.

Issue 3: Dispute over the genuineness of the transfer of 1.5% shares from subsidiary to non-resident partner:
The dispute arose regarding the authenticity of the transfer of 1.5% shares from the subsidiary to the non-resident partner. The Commissioner doubted the transaction, questioning the lack of concrete evidence to prove the transfer, leading to the disallowance of the deduction.

Issue 4: Interpretation of Section 10B(9) regarding ownership transfer and deduction eligibility:
The case involved the interpretation of Section 10B(9) concerning ownership transfer and its impact on deduction eligibility. The Tribunal analyzed the transfer of shares to maintain the 51% shareholding pattern, emphasizing compliance with the provisions for deduction entitlement.

Issue 5: Comparison with a previous Tribunal decision for assessment year 2006-07:
The Tribunal referred to a previous decision for the assessment year 2006-07, where a similar issue was decided in favor of the assessee. The Tribunal reversed the Commissioner's order, citing evidence of the genuine transfer of shares and maintaining the 51% shareholding, thus allowing the deduction u/s 10B.

This detailed analysis highlights the legal intricacies surrounding the ownership transfer, deduction eligibility, and the Tribunal's decision based on the evidence presented and compliance with statutory provisions.