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2013 (7) TMI 515 - AT - Income TaxClaim of deduction u/s 10B disallowed - Held that - The undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character and form of the organization. Formerly, it was a part of MSSL and presently it is an independent assessee. However, with the above change in organizational status, the same unit continued to function. Non export of 100% of turnover - Held that - It is observed that clause (iv) of Explanation 2 to section 10B defines the expression 100% EOU so as to mean an undertaking which has been approved as 100% export oriented unit by the Board appointed in this behalf by the Central Govt. in exercise of the power conferred under section 14 of the Development Regulation Act, 1951 and rules made under that Act and in the present case the representation was made to the authorities and after verifying the documents and after being satisfied a certificate was granted of being 100% EOU to the undertaking under the name & style of M/s MSSL and subsequently when the unit was transferred to assessee the same was transferred in the name of the assessee. Therefore, the objection of the AO that some part of sale was affected in domestic area does not disentitle the assessee for claiming deduction u/s 10B unless the undertaking is deleted from the category of 100% EOU by the said Department. Transfer of assets which exceeded 20% of total value of plant & machinery - Held that - As submitted that part assets were not transferred but the whole undertaking was transferred and there is no question of comparison of assets transferred with the total transfer of the assessee as it is a case of transfer of whole undertaking. All the case laws relied by DR relate to transfer of assets to an assessee and these cases do not relate to transfer of an undertaking in full. Therefore, assessee was entitled to the benefit of section u/s 10B for the years under consideration provided these years fall within 10 years from the date of availment of first deduction u/s 10B - appeals of the assessee are allowed.
Issues Involved:
1. Whether the assessee company was formed by splitting up of an existing business in violation of Section 10B(2)(ii). 2. Whether the assessee company derived domestic turnover, violating Section 10B(1). 3. Whether the pre-used machinery received by the assessee exceeded the allowable limit under Section 10B(2)(iii). Issue-wise Detailed Analysis: 1. Formation by Splitting Up of an Existing Business: The primary contention was whether the assessee company was formed by splitting up an existing business, thereby violating Section 10B(2)(ii). The Assessing Officer (AO) argued that the business was set up by splitting the existing business of M/s Motherson Sumy Systems Ltd. (MSSL). However, the Tribunal found that the entire undertaking, including all assets and liabilities, was transferred to the assessee company as a going concern. This transfer did not constitute splitting or reconstruction of an existing business. The Tribunal referenced the case of ITO v. Heartland Delhi Transcription & Services Pvt. Ltd., where a similar situation was adjudicated, and it was held that the transfer of the entire undertaking did not violate the provisions of Section 10B. 2. Domestic Turnover and 100% EOU Status: The AO contended that the assessee derived domestic turnover from the undertaking, thus failing to qualify as a 100% Export Oriented Unit (EOU) under Section 10B(1). The Tribunal noted that the unit was approved as a 100% EOU by the relevant Board, and this status continued post-transfer to the assessee. The Tribunal emphasized that unless the undertaking was removed from the 100% EOU category by the said Department, the assessee was entitled to the benefits under Section 10B. The Tribunal dismissed the AO's objection regarding domestic sales affecting the 100% EOU status. 3. Pre-used Machinery Exceeding Allowable Limit: The AO argued that the pre-used machinery received from MSSL exceeded the allowable limit of 20% of the total value of the plant and machinery, in violation of Section 10B(2)(iii). The Tribunal clarified that it was not a case of partial asset transfer but a transfer of the entire undertaking. Therefore, the comparison of transferred assets with the total assets was irrelevant. The Tribunal concluded that the assessee did not violate the provisions of Section 10B(2)(iii). Additional Considerations and Case Laws: The Tribunal referenced several case laws, including the Samsung India Software Pvt. Ltd. v. ACIT and the CIT v. Hindustan General Industries Ltd., to support its findings. These cases established that the transfer of an entire undertaking, as opposed to individual assets, did not constitute splitting or reconstruction of a business. Conclusion: The Tribunal concluded that the assessee was entitled to the benefits of Section 10B for the years under consideration, provided these years fell within ten years from the date of the first deduction under Section 10B. The appeals of the assessee were allowed, and the stay application became infructuous. Order Pronouncement: The order was pronounced in the open court on the 17th day of May, 2013.
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