2022 (9) TMI 931 - HC - Income Tax

Benefit u/s 80-IC - manadation of having separate and distinct Unit - Denial of deduction as Unit-III was not a new Unit and it was reconstruction of an existing Unit-II - whether ITAT is right in holding that the assessee has right to get deduction u/s 80IC(4)(i) in respect of the new unit though the same was in fact reconstruction/splitting of old unit? - case of the assessee before the Tribunal that earlier the Company was giving services in relation of one product, i.e. voice chat to its clients, like Airtell, Reliance, Idea Tata - HELD THAT - Since the business of the company had grown, it found it necessary to start a new Unit with a view to expand its area of service and consequently, a separate Unit was started, giving services to other Non-Telco Companies/Clients in the field of Information, Technology and Software Services. The office building, where Unit-III had been started, was earlier registered office of the company, whereas, Unit-II was being run from another building which was situated at a distance of about 7 kilometers from the registered office. The building where Unit-III was being run had been purchased by the assessee-company on 21.01.2008, but the premises was let-out on rent to some other party. Thereafter, the premises was got vacated and the registered office of the company was shifted to the said premises in assessment year 2009-10. Thereafter, Unit-III was started in the premises after completing necessary formalities. The operation of Unit-III, commenced in the assessment year 2010-11. AO was influenced by the fact that since Unit-III was being run by the assessee in its registered office, therefore, activities done in Unit-III were identical in nature to those done by Unit-II. AO had failed to appreciate that the building, where Unit-III had been started, had in fact been given on rent, whereas, Unit-II was being run in a separate building which was at a distance of about 7 kilometers. The building where the registered office was started in the assessment year 2009-10, was got vacated and thereafter Unit-III was started in the said premises in assessment year 2010-11. It was not a case where plant and machinery of Unit-II had been used for Unit-III. The business of the company had grown and with a view to expand its business, the company started a new Unit by making investment as shown in the Chart reproduced above. New employees were recruited by the assessee for Unit- III. Separate account books were maintained by assessee qua Unit-II Unit-III. Tribunal rightly came to the conclusion that the assessee was entitled to claim benefit under Section 80-IC of the Act by treating Unit-III of the assessee-company as a separate and distinct Unit. - Decided against revenue.

Summary

Issues Involved:
1. Whether the findings of the ITAT are perverse and contrary to the material on record.
2. Whether the ITAT is right in holding that the assessee has the right to get deduction under Section 80IC(4)(i) for Unit-III, considering it was not a reconstruction/splitting of an old unit.

Issue-wise Detailed Analysis:

1. Perverse Findings of ITAT:
The appellant-Department contended that the ITAT erred in reversing the findings of the Assessing Officer and the Appellate Authority, which held that Unit-III was not an independent unit but an extension of Unit-II. The Tribunal's decision was challenged on the grounds that Unit-III operated from the registered office without paying rent, implying it was not a separate entity.

2. Right to Deduction under Section 80IC(4)(i):
The Tribunal's decision was supported by the assessee's argument that Unit-II and Unit-III were operated from different buildings, employed separate staff, and maintained separate account books. The Tribunal noted that there was no inter-lapping between the units, and each had separate investments and client bases. The assessee relied on Supreme Court judgments, including "Bajaj Tempo Ltd. vs. Commissioner of Income Tax" and "Textile Machinery Corporation Ltd. vs. Commissioner of Income Tax," which emphasized that new undertakings should be identifiable, separate, and distinct from existing businesses.

Analysis of Tribunal's Findings:
The Tribunal found that Unit-II and Unit-III were operated from separate locations, had different employees, and maintained distinct accounts. The Tribunal's decision was based on the facts that Unit-III was started to expand the company's services to non-telecom clients and was located 7 kilometers away from Unit-II. The Tribunal concluded that the assessee had made substantial investments in Unit-III, employed new staff, and maintained separate accounts, qualifying it as a new and independent unit eligible for deduction under Section 80IC.

Conclusion:
The High Court upheld the Tribunal's findings, stating that they were not perverse or a result of misreading the evidence. The substantial questions of law were answered in favor of the assessee, affirming the Tribunal's decision that Unit-III was a separate and distinct unit entitled to the benefits under Section 80IC of the Income Tax Act. Consequently, the appeal was dismissed, and any pending miscellaneous applications were also disposed of.