2005 (1) TMI 338 - AT - Income Tax

Conversion of the firm into company - Denial of the benefit of deduction claimed by the assessee u/s 80-IA - net income shown by virtue of execution of work on Built-Operate-Transfer (BOT) basis - HELD THAT - The agreement for authorising collection of toll by concessionaire is placed on p. 19 of paper book in which again M/s. Chetak Enterprises has been adopted as party to the agreement to mean and include 'its successors and assigns'. On going through these documents, it becomes explicitly clear that M/s. Chetak Enterprises declared to the State Government, in the very beginning itself, that the firm will be converted into company under Part IX of the Companies Act and no objection was raised by the Government authorities and all the further agreements were entered into with M/s. Chetak Enterprises 'to mean and include its successors and assigns'. Eventually, the erstwhile firm was converted into a company under Part IX of the Companies Act and all the assets and liabilities of the firm including the capital investment in the road became the ownership of the company. Viewed from any angle, namely, the conversion of the firm into company under Part IX of the Companies Act or enterprise being owned by the company registered in India at the time of claiming deduction or factual position emerging from correspondence of M/s. Chetak Enterprises with the State Government indicating its intention of conversion of firm into company, ab initio, lead us to infallible conclusion that the assessee-company complied with sub-clause (a) of section 80-IA(4)(i). In our considered view, the learned CIT(A) was not justified in unnecessarily distinguishing the present case from that of the Ayush Ajay Construction Ltd. 2000 (7) TMI 225 - ITAT INDORE . In fact, it is the ratio decidendi of a decision which is required to be looked into and applied to similar situations when the question is the interpretation of a provision of a statute. No attempt should be made unnecessarily; to embark upon distinguishing a case. It is further noted from para 2, page 8, of the assessment order, that the Assessing Officer noted the aforesaid order of Ayush Ajay Construction Ltd's case and could not find any distinguishing feature but refused to follow the same because it was not known whether the Department had finally accepted the order or not. The course of action adopted by the Assessing Officer is beyond all the cannons of judicial discipline, which, in turn, requires that every junior authority is bound to follow the orders of his superior authorities. If the situation, as in the instant case is allowed to continue, it would lead to a state of utter chaos culminating into the travesty of justice. After having given our anxious consideration and thoughts to the factual backdrop emerging from the record of the present case, coupled with the relevant proposition of law and in particular, the material provisions of section 80-IA, we hold that the assessee is entitled to deduction under section 80-IA(4)(i) and the learned CIT(A) erred in not accepting the assessee's claim. This ground is, therefore, allowed.

Summary

Issues Involved:
1. Deduction u/s 80-IA(4)(i) of the Income-tax Act, 1961.
2. Charging of interest u/s 234B.

Summary:

1. Deduction u/s 80-IA(4)(i) of the Income-tax Act, 1961:

A. Factual Scenario:
The assessee claimed a deduction of Rs. 3,32,43,204 u/s 80-IA(4)(i) for income derived from a Built-Operate-Transfer (BOT) project. The firm, M/s. Chetak Enterprises, was converted into a company, M/s. Chetak Enterprises (P.) Ltd., on 28th March, 2000. The Assessing Officer (AO) denied the deduction on the grounds that the firm, not the company, executed the BOT project and no agreement was made by the company with the Government for toll collection.

B. Assessee's Viewpoint:
The assessee argued that the conversion under Part IX of the Companies Act, 1956, transferred all assets and liabilities to the company, making it eligible for the deduction. The assessee also highlighted that the authorities failed to consider the proviso to sub-clause (c) of section 80-IA(4)(i).

C. Departmental Stand:
The Department contended that the deduction was not available as the firm, not the company, entered into the agreement for the BOT project and collected toll tax.

D. Statutory Provision:
Section 80-IA(4)(i) applies to enterprises developing, operating, and maintaining infrastructure facilities, provided they are owned by a company registered in India and have an agreement with the Government.

E. Finding:

(i) Section 80-IA(4)(i), sub-clause (a):
The Tribunal held that upon conversion under Part IX of the Companies Act, all assets and liabilities of the firm vested in the company. The company, being the successor, met the requirement of owning the infrastructure facility. The Tribunal also noted that the firm informed the Government of its intention to convert into a company, which was accepted without objection.

(ii) Section 80-IA(4)(i), sub-clause (b):
The Tribunal found that the original agreement with the firm, which included successors and assigns, effectively covered the company post-conversion. The State Government's actions, including granting fresh registration to the company, confirmed compliance with this clause.

(iii) Proviso to section 80-IA(4)(i)(c):
The Tribunal stated that even if the enterprise was initially owned by the firm, the proviso allowed the deduction for the transferee enterprise (the company) post-transfer. However, the Tribunal concluded that the deduction was available without relying on the proviso.

(iv) Other Aspects:
The Tribunal criticized the AO for not following the precedent set by the Indore Bench in Ayush Ajay Construction Ltd., emphasizing judicial discipline. The Tribunal allowed the assessee's claim for deduction u/s 80-IA(4)(i).

2. Charging of Interest u/s 234B:
The AO charged interest u/s 234B for underpayment of advance tax. The Tribunal upheld the charging of interest, citing multiple High Court decisions supporting the levy of interest when income is computed under Chapter XII-B of the Act. However, the interest amount would reduce proportionately due to the allowed deduction u/s 80-IA.

Conclusion:
The Tribunal partly allowed the appeal, granting the deduction u/s 80-IA(4)(i) and upholding the charging of interest u/s 234B, with adjustments for the allowed deduction.