2021 (8) TMI 1050 - HC - Income Tax

Deduction u/s 80-IA - claim denied as assessee does not fulfil the conditions stipulated in sub-section (3) of Section 80-IA - HELD THAT - Undertaking should not be formed by splitting up or the reconstruction of a business already in existence. There is no such allegation against the assessee. Thus, the assessee has fulfilled Condition No.1 as mentioned above. Whether entering into a lease transaction would amount to transfer? - The second condition is that the undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. It is not in dispute that the windmills have been leased out by the assessee-company. As decided in BAJAJ TEMPO LIMITED 1992 (4) TMI 4 - SUPREME COURT lease cannot tantamount to transfer. One more condition, which is required to be fulfilled by the assessee, is that the undertaking is not a new business with plant or machinery previously used for any purpose. The question is as to how the words previously used have to be interpreted in the case on hand - the correct way to interpret the words previously used would mean actual physical use of the asset. There was nothing brought on record by the Assessing Officer that the asset was put to actual physical use for any purpose before the lease transaction and the inference drawn by the Assessing Officer is solely based upon the claim for depreciation made by the lessor. This, in our considered view, cannot be the correct way of interpretation of a beneficial provision, which provides for deduction in certain cases, where conditions are fulfilled and the object of granting such deduction was to promote industrial growth. Therefore, the CIT(A) is right in its observation that a lease transaction would not amount to a transfer and merely because the lessor had claimed 100% depreciation on the said asset cannot make the asset as 'previously used' to disqualify the asset from claiming deduction - we find that the Tribunal committed an error in reversing the order passed by the CIT(A). - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80-IA of the Income Tax Act, 1961.
2. Determining whether a lease transaction amounts to transfer for the purpose of claiming deduction.
3. Analysis of the legal position regarding the term "previously used" in the context of Section 80-IA.
4. Reviewing the Tribunal's decision in light of relevant legal precedents.

Issue 1: Interpretation of Section 80-IA of the Income Tax Act, 1961:
The case involved appeals filed by the assessee challenging the correctness of orders passed by the Income Tax Appellate Tribunal regarding the denial of relief under Section 80-IA of the Act. The primary question was whether the Tribunal was justified in denying relief when the appellant had satisfied all the conditions mentioned in the Act.

Issue 2: Determining whether a lease transaction amounts to transfer for the purpose of claiming deduction:
The Tribunal had rejected the assessee's claim under Section 80-IA on the grounds that the windmills leased out by the company were previously used by the lessor, thus not fulfilling the conditions stipulated in the Act. The key argument centered around whether entering into a lease transaction constituted a transfer for the purpose of claiming the deduction.

Issue 3: Analysis of the legal position regarding the term "previously used" in the context of Section 80-IA:
The interpretation of the term "previously used" was crucial in determining the eligibility of the assessee for claiming the deduction. The court examined legal precedents, including a Supreme Court decision, to establish that the term "previously used" referred to actual physical use of the asset and not deemed usage. The court emphasized that the provision aimed to promote industrial growth and should be interpreted accordingly.

Issue 4: Reviewing the Tribunal's decision in light of relevant legal precedents:
The court reviewed the Tribunal's decision in light of legal precedents, including the Supreme Court ruling in Bajaj Tempo Ltd., to conclude that the Tribunal erred in reversing the order passed by the Commissioner of Income Tax (Appeals). The court held that the lease transaction did not amount to a transfer as per the provisions of Section 80-IA, and therefore, the assessee was entitled to the deduction.

In conclusion, the High Court allowed the tax case appeals, setting aside the Tribunal's orders and restoring the orders passed by the Commissioner of Income Tax (Appeals). The court answered the substantial questions of law in favor of the assessee, emphasizing the correct interpretation of the provisions of Section 80-IA and the legal position regarding lease transactions and the term "previously used."