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TMI Blog2012 (10) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and in which event it runs contrary to the provisions of section 10A(1). Thus no part of the income of the STPI undertaking for the Assessment Year 2005-06 is to be treated as income of the assessee. AO is directed to delete the income pertaining to the demerged STPI undertaking from the taxable income of the assessee and pass necessary orders to give effect to the same so that the said income is treated as income of the resulting company - in favour of assessee. - ITA No. 1370/Bang/2011 - - - Dated:- 28-9-2012 - N . V . Vasudevan and Jason P . Boaz, JJ. Appellant Rep by: Shri V. Chandrashekar Respondent Rep by: Shri Farhat Hussain Qureshi ORDER Per: Jason P Boaz: This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals)-V, Bangalore dt.21.10.2011 for Assessment Year 2005-06. 2. The facts of the case, in brief, are as under : 2.1 The assessee company, set up an approved STPI in the period relevant to Assessment Year 2002-03. In the course of the period relevant to the impugned Assessment Year 2005-06, the STPI undertaking was demerged and transferred to M/s. L T Valdel Engineerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) dt.21.10.2011. The grounds of appeal raised by revenue are as under : 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. 2. The learned CIT (Appeals) erred in allowing the relief without appreciating that no new unit was set up by the assessee company and the undertaking was formed only by splitting the existing business and therefore, the assessee is not eligible to claim deduction under section 10A of the IT Act, 1961. 3. The learned CIT (Appeals) erred in allowing the relief, relying on the decision of the Tribunal in the assessee s own case for earlier years, which has not been accepted by the department and appeals have been filed before the High Court under section 260A of the IT Act, 1961 against the decision of the ITAT. 4. The learned CIT (Appeals) erred in allowing the relief, relying on the order of CIT (Appeals) in the case of L Tribunal Valdel Engineering Pvt. Ltd which has not been accepted by the department and an appeal has been filed before Tribunal against the CIT (Appeals) s order. 5. The learned CIT (Appeals) erred in allowing the relief to the assessee without considering the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed under section 10A of the Act to the assessee in whose income, the income of the undertaking which is entitled to deduction under section 10A, is included and no part of such income shall be taxed for a period of ten years. In the instant case, it is the assessee who has shown the income of the undertaking for the period 1.4.2004 to 30.9.2004 as its income and has claimed the deduction under section 10A of the Act on such income which was correctly allowed by the learned CIT(Appeals), in as much as the same was not claimed or allowed as a deduction in the hands of the resulting company viz. M/s. L T Valdel Engineering (P) Ltd. 5.3.2 The learned counsel for the assessee further stated that the provisions of section 10A(7A) are not in conformity with those of section 10A(1) of the Act. Whereas, section 10A(1) states that the deduction is to be allowed to the assessee who has included the income of the undertaking in its return of income vis- -vis section 10A(7A) which states that it is the resulting company which is eligible for deduction under section 10A and not the demerged company. In the present case, it is the assessee, the demerged company, which has included the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e i.e. the resulting company. The fact that in terms of the demerger the STPI unit was transferred to the resulting company as a going concern with all its assets and liabilities as on the date of transfer and without consideration only demonstrates that the resulting company is entitled to enjoy all the assets on the date of transfer and also be responsible for all the liabilities as on the said date irrespective of the fact whether the asset was acquired or the liability was contracted by the demerged company. The learned counsel for the assessee drew our attention to the petition filed before the Hon'ble High Court seeking permission for demerger and stated that the schedule contains assets and liabilities as on 30.9.2004 which stand transferred to the resulting company which includes the income of the STPI undertaking for this period amounting to ₹ 1,16,68,627. The learned counsel for the assessee submitted that this transfer of income to the resulting company demonstrates that this income should therefore not be treated as income of the assessee. 5.3.5 The learned counsel for the assessee also argued that a harmonious reading of section 2(19AA) (which defines de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee s own case for earlier years and have held in favour of the assessee. We, therefore confirm the learned CIT(Appeals) s order on this point as covered and consequently dismiss these two grounds raised by Revneue. 7. The grounds at S.No.4 : As regards the grounds of appeal raised by Revenue at S.No.4, we find that there is a factually incorrect statement in as much as it is claimed that the learned CIT(Appeals) has given relief to the assessee only based on the fact that the resulting company s appeal, as regards its eligibility to be entitled to deduction under section 10A of the Act, was allowed by the jurisdictional CIT(Appeals). We find from a perusal of the impugned order of the learned CIT(Appeals) that he clearly states in para 6 thereof that respectfully following the decision of the ITAT, he allows the assessee s deduction of ₹ 1,16,68,627 under section 10A of the Act. We, therefore, dismiss the ground No.4 as factually incorrect. 8. The ground No.5 : In this ground Revneue submits that the learned CIT(Appeals) erred in allowing relief to the assessee without considering the provisions of section 10A(7A) of the Act which mandates that where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing held as above regarding ground No.5, we examine the alternate contention of the assessee, that no part of the income of the STPI undertaking which got demerged from the assessee and came to be merged with the resulting company on and from 1.10.2004, be assessed in the hands of the assessee for Assessment Year 2005-06 as the same is to be assessed only in the hands of the resulting company i.e. M/s. L T Valdel Engineering (P) Ltd. In this regard, the provisions of section 2(19AA) which define demerger and deal with the consequences thereof are extracted here below : (19AA) demerger , in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956 (1 of 1956), by a demerged company of its one or more undertakings to any resulting company in such a manner that- (i) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets consequent to their revaluation shall be ignored. Explanation 4.-For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may be notified in the Official Gazette, by the Central Government. 9.2 It is clear from the above definition that an STPI unit is seen as a distinct and separate business entity by the Income Tax Act which mandates that separate set of books of accounts be maintained in respect of the STPI undertaking and the income of the STPI unit be determined from the books of accounts so maintained. The I.T. Act also does not regard the demerger as a sale. It is only because of this reason that the Act does not consider the transfer of an undertaking upon demerger as amounting to a sale or splitting up of an existing unit and allows the resulting company to continue to enjoy the benefits bestowed under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal and consideration of the provision of sections 2(19AA), 10A(1), 10A(7A) and 72A(4) of the Act, it is necessary to arrive at a harmonious construction to assume that the intention of legislature is not frustrated especially in view of the decision of the Hon'ble Apex Court in the case of K.P. Varghese Vs. ITO reported in 131 ITR 597 wherein the Hon'ble Apex Court has ruled that a literal construction of a statute that leads to an absurdity, or unjust result or mischief is to be avoided. 11.2 In the instant case as per the provision of section 10A(1) of the Act, the income of the STPI undertaking for the period relevant to Assessment Year 2005-06 is exempt from tax and in respect of which fact there is no dispute. The assessee (the demerged company) has shown the income of the STPI undertaking for the period 1.4.2004 to 30.9.2004 as its income and the resulting company has shown the income of the STPI undertaking for the period 1.10.2004 to 31.3.2005 as its income. In view of the provisions of section 10A(1) of the Act, the entire income of the STPI undertaking from 1.4.2004 to 31.3.2005 is exempt from tax. In accordance with the provisions of section 10A(7A) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies at best represent hypothetical income and did not represent the real income which had actually accrued to the assessee during the impugned assessment year 2005-06. This legal proposition also finds support in the decision of the Hon'ble Apex Court in the following cases : i) CIT Bombay City I. Vs Shoorji Vallebh Das (46 ITR 144) ii) Godhra Electricity Company Vs. CIT (225 ITR 746) 11.7 Further, the benefits of section 10A of the Act being a beneficial provision, has to be available completely and no portion of it is to be denied on the ground that the same has not been claimed by the right person. The decision of the Hon'ble Apex Court in the case of Bajaj Tempo Ltd. Vs. CIT reported in 196 ITR 188 highlights the importance of ensuring that the benefits conferred by a beneficial section reached the intended person. 11.8 In the light of the discussions above, with respect to the alternate contention of the assessee w.r.t. the ground raised at S.No.5, we hold that no part of the income of the STPI undertaking for the Assessment Year 2005-06 is to be treated as income of the assessee. The Assessing Officer is directed to delete the income of ₹ 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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