2008 (3) TMI 432 - HC - Income Tax

Industrial undertaking- Special Deduction- The assessee claimed deduction under section 80-IA(4)(i) of the Act in respect of profits. The Assessing Officer disallowed the claim for deduction on the ground that there was no agreement by the assessee with the Government of Rajasthan in supersession of the original agreement between the government of Rajasthan and the firm. The Commissioner (Appeals) confirm the action of the Assessing Officer. The Tribunal held that the assessee was entitled to deduction as there was statutory vesting of liabilities and assets of the firm in the company and the agreement mentioned firm to mean and include successors and assigns. Held that- there was statutory transformation of the firm into the company which came into effect since March 28, 2000 by operation of law. The assessee fulfilled all the requirements of section 80-IA(4)(i). Even from the agreement entered into by the firm with the Government of Rajasthan the company as successor of the firm was entitled to the benefit of deduction. The assessee was entitled to deduction in terms of the proviso to section 80-IA(4)(i) of the Act.

Summary

Issues:
Interpretation of section 80-IA(4)(i)(a) and (b) for claiming deduction.

Analysis:
The judgment involves an appeal by the Revenue against the Tribunal's decision partly allowing the assessee's appeal. The substantial question of law framed was whether the assessee fulfilled the conditions of sub-section (4)(i)(b) of section 80-IA. The case pertains to the assessment year 2001-02, where the assessee, a private limited company, claimed a 100% deduction under section 80-IA(4) of the Act. The Assessing Officer contended that the firm, which was converted into a company, did not fulfill the requirements of section 80-IA(4)(i)(a) and (b) as no agreement was made with the Government for the infrastructure facility. The Commissioner of Income-tax upheld this decision, but the Tribunal ruled in favor of the assessee, granting the deduction.

Upon analyzing the provisions of section 80-IA(4)(i)(a) and (b), the Court found that the company, post-conversion from a partnership firm, fulfilled the conditions for claiming the deduction. The Tribunal noted that the memorandum of association of the company explicitly mentioned the continuation of the partnership business under the new company. Additionally, the Chief Engineer accepted the conversion of the firm into a company, and this acceptance was part of the agreement with the Government. The Court emphasized that the statutory transformation of the firm into a company transferred all rights and liabilities to the company, making it eligible for the deduction.

Furthermore, the Court considered the proviso in section 80-IA(4), which allowed the deduction to the transferee enterprise from the date of transfer. Since the transfer from the firm to the company was effective before the relevant financial year, the Court concluded that the assessee was entitled to the deduction. The Court dismissed the Revenue's appeal, ruling in favor of the assessee and upholding their right to claim the deduction under section 80-IA(4).