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TMI Blog2007 (1) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... stands of the two parties. The assessee is a private limited company, limited by shares, incorporated under Part-IX of the Companies Act, 1956, on January 7, 1998, through the conversion of a partnership firm M/s. Amin Machinery Instrument. The assessee-company claims the following deductions in the computation of its taxable income : (a) Rs. 78,300 towards payment of sales commission ; (b) Rs. 1,00,000 by way of set off of unabsorbed business loss of the erstwhile partnership firm, aforesaid (which stands succeeded to by this assessee-company) ; (c) Rs. 6,16,055 by way of carry forward and set off of unabsorbed depreciation of the said partnership firm. The assessee-company claimed the following on the basis that upon registration of an eligible company (partnership firm, in the present case) under Part IX of the Companies Act, 1956, the same stands converted into a company within the meaning of section 2(10) read with section 3 of the said Act, with the statutory vesting of all the assets and liabilities of the former in the new company, requiring no separate conveyance, so that there are two entities involved, but only one. In other words, it is only a case of change o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assesseecompany as being only a modified version of the erstwhile firm, which only stands now registered under the Companies Act, 1956, is unacceptable. A partnership firm and a company are distinct and separate legal entities, and recognized as separate persons under the Act. A partnership has no identity of its own, i.e., apart and distinct from the several persons constituting it for the time being, only signifying the contractual relationship between them, and the firm name is only a compendious name given to all of them together. A company, as defined under section 2(10) read with section 3 of the Companies Act, 1956, on the other hand, is a separate legal entity, a creature of the statute, separate and distinct from the several persons, natural or purely legal, who may be its members for the time being. As such, the assessee-company stands formed and registered in terms of Part IX of the Companies Act, 1956, would, therefore, by itself, be of no moment. It may well have been a company formed and registered under the said Act by the partners of the erstwhile firm and taking over the running business of the said firm. In other words, no special significance, to our mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available information, the difference in the amount of the liability, on its actual determination, could be said to have crystallized later. We, therefore, decline to interfere with the order of the learned Commissioner of Incometax (Appeals) on the first ground for appeal, disposing the same. The assessee s second claim is for carry forward and consequent set off of unabsorbed business loss of Rs. 1,00,000, which the Revenue has disallowed on the basis of the express provision of section 78(2) which reads as : 78.(1). . . . (2) Where any person carrying on any business or profession has been succeeded in such capacity by another person otherwise than by inheritance, nothing in this chapter shall entitle any person other than the person incurring the loss to have it carried forward and set off against his income. The law, thus, envisages succession of business, but precludes the carry forward of unabsorbed business loss, except where the same is by way of inheritance. The only question, therefore, before us would be whether the word inheritance could cover within its ambit the conversion of a partnership firm into a company as defined under the Companies Act, 1956, unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode of acquisition, so that there is no scope for considering the two as one by carving out a separate case for a Part IX company, in contradistinction to other modes of succession, the law on which is clear, on the ground of a statutory devolution (as sought to be pleaded), and which does not bear the essential attributes of inheritance (which stands specified, i.e., where so deemed fit by the Legislature). The golden rule of interpretation is that of literal interpretation ; there being no consideration of equity in the interpretation of the taxing statute, where the language is clear and unambiguous, even as explained by the apex court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 in the following words (page 356) : The language of sections 2(6A)(e) and 12(1B) is clear and unambiguous. There is no scope for importing into the statute words which are not there. Such importation would be not to construe, but to amend the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation. To us, there appears no justification to depart from the normal rule of construction according to which the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of amalgamations, the business reorganizations as being not tax neutral. In view of the foregoing, the issue under reference being the subjectmatter of a specific provision of the Act, and a substantive one at that, which stands clearly worded, there is no scope for allowance of the assessee's claim, i.e., in respect of carry forward of unabsorbed business loss of the predecessor partnership firm, a distinct and separate person under the Act. We decide accordingly. The assessee s third claim, covered by the second ground of appeal, is for grant of carry forward of unabsorbed depreciation as determined in the case of the erstwhile firm. Proviso 4 to section 32(2) clarifies that in case of succession to business the aggregate of depreciation allowance in the hands of both the predecessor and successor would not exceed the amount of depreciation allowable if the succession had not taken place, and further, would stand allocated amongst the two in the ratio of the number of days the relevant assets stand used by them during the relevant year. Section 32(2), which governs the case of unabsorbed depreciation, as it stood at the relevant time, with its relevant part reading as : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed per the return of income as filed by it, denying any depreciation in the assessee's hand, arguing that the depreciation for the said period could be claimed in the hands of only one person. The assessment, both for the preceding and succeeding period during the relevant previous year ; the predecessor having lost its identity, can only be in the hands of the successor company (though in a different capacity) ; the partnership firm dissolving with effect from the date of conversion, so that it does not survive the succession. As such, we would consider depreciation as allowable in terms of relevant provisions of the Act, reference to which has not been made by the Assessing Officer, be allowed in the hands of both the predecessor firm and the successor assessee-company ; the purpose of assessment being the determination of the correct liability under the Act and of fair assessment in terms of the extant law, and which would, therefore, require allowance of depreciation at the correct amount(s) in the hands of both, including adjudication on the correct amount of WDV in the assessee s hands, even as we are in agreement with the Assessing Officer that the carry forward of deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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