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TMI Blog2016 (2) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... h findings cannot be interfered in appeal. 2. That the learned CIT (Appeals) erred in upholding the finding of the Assessing Officer that the assessee was not entitled to deduction (of ₹ 10,13,828) u/s 80- IB of the I.T. Act on the ground that the newly formed company is a reconstruction of old existing business and with old machineries. 2. The brief facts of the case as submitted by the Ld. AR and as gathered from the record are as under:- 2.1 Originally two partnership firms viz. Upkar International and Miglani Exports were operating different industrial undertakings, manufacturing and exporting diesel engines and their parts. Both the firms had the same 8 partners and both the undertakings were eligible for deduction u/s 80 IB of the Income Tax Act, 1961 (hereinafter called the Act ) since 1995-96. 2.2 Subsequently on 13.08.2002, the firm Upkar International was converted into a Limited Company under Part IX (section 574) of the Companies Act, 1956 and renamed as Upkar International (P) Ltd. All the partners of the erstwhile firm became the shareholders of the company and shares for the amount equivalent to the capital of the partners in the firm were al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r objection was raised by the Department regarding the assessee not fulfilling any other eligibility criteria for the purpose of deduction u/s 80IB of the Act. The reasons given by the AO were as follows: In this case, the erstwhile partners had equal ratio in the profit and loss, but when turned into Directors acquired different shareholding pattern. In view of this fact of the case, it can be said that the newly formed company is a reconstruction of old existing business and with old machineries. The condition laid down by the provision of subsection 2 of section 80IB strictly states the business should not be formed by transfer of machinery or plant previously used for any purpose. 4.2 The Ld. CIT (Appeals) in his order has rejected the arguments of the assessee. Being aggrieved by the order of CIT (Appeals), the assessee has preferred the present appeal. 5. Before us, the Ld. AR while supporting his grounds of appeal submitted that the assessee company took over the entire business with all assets and liabilities of the two firms M/s. Upkar International of M/s. Miglani Exports on 13.8.2002, both the firms were entitled for deduction u/s. 80IB for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction is that there be a continuation of the activities and business of the same undertaking. The original business or undertaking continues without its identity being lost. 6. Learned Departmental Representative submitted that the AO in the body of assessment order has discussed the conditions laid down by this provision, as per which the assessee is entitled for benefit of section 80IB if it is not formed by the transfer to new business of machinery or plant used for any purpose. The AO in the body of assessment order has discussed this aspect and he has observed that newly formed company is a reconstruction of old existing business and with old machinery. While arriving at the conclusion he has discussed the mode by which company came in to existence by observing that assessee company was formed after reconstruction of two earlier existing business firms, namely; Miglani Exports and Upkar International. Therefore, after discussing the provision in detail, the AO has observed that condition laid down by Section 80IB (2)(ii) has not been fulfilled. In the grounds of appeal it has been contended that assessee company took over the entire business with all assets and liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the Directors have acquired a different shareholding pattern. Thus, in such a situation, as per the Department, the newly formed company was a reconstruction of existing business with old existing machineries and since sub-section (2) of section 80IB of the Income Tax Act, 1961 states that the business should not be formed by transfer of machinery or plant previously used for any purpose, the assessee company was not entitled to claim deduction u/s 80IB of the Act. 8. On facts, it is undisputed that the erstwhile partnership firm M/s Upkar International, having 8 partners was converted into a limited company under Part IX of the Companies Act, 1956 and was renamed as Upkar International (P) Ltd. and all the partners of the erstwhile firm became the shareholders of the company and the shares for the amounts equivalent to the capital of the partners in the firm were allotted to them. It is also undisputed that on such conversion, all the assets and properties of the firm vested in the company under section 575 of the Companies Act, 1956. In view of the undisputed facts, it is clear that on conversion from firm to company, there was merely a change in the ownership of the under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in words and phrases. Associated words take their meaning from one another under the doctrine of noscitur a sociis, the philosophy of which is that the meaning of the doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim ejusdem generis. In fact the latter maxim is only an illustration or specific application of the broader maxim noscitur a sociis. 10.3-3 In view of the above maxim of Rule of interpretation, the term 'reconstruction, is to be seen and considered in the light of splitting up Otherwise also, as per the dictionary meaning of 'reconstruction', as given in Judicial Dictionary by K.J. Iyer, Eighth Edition 1980, the word 'reconstruction' is expressed by synonymous 'rebuild'. Thus, if there is change of ownership from one person to another but the business continued to be the same, it cannot be said that the undertaking is formed as a result of reconstruction. 10.3-4 The meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 95 ITD 1, the Jodhpur Bench of the ITAT has also taken a similar view. Thus, it cannot be said that EOU owned by the assessee-company is formed as a result of reconstruction of EOU owned by the firm. 9. Similarly, A Bench of Chennai ITAT has held in Kumaran Systems (P) Ltd. vs ACIT 14 SOT 1(Chennai) that where the assessee was converted from partnership firm to private limited company as per the provisions of section 575 of Companies Act, 1956, exemption u/s 10A of the Income Tax Act, 1961 could not be denied as there was a mere change of name and composition in the ownership of the undertaking and the business of the undertaking had not changed as the same partners had become directors of the company. The Bench held that in such a situation, the business of the assessee was not formed by splitting of the old business or reconstruction. 10. In CIT Vs. Gaekwar Foam and Rubber Company Ltd. (Supra) a Division Bench of this Court construed the provisions of Section 15C of the Income Tax Act, 1922, Section 15C(2)(i) contained a similar provision that the section would apply to an industrial undertaking which is not formed by the splitting up or the reconstruction of a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol of itxal-311-2004 the business which may even be by some changes in the constitution of persons interested in the undertaking would certainly be no more than reconstruction of the business if it is substantially the same business carried on by substantially the same persons. Reconstruction, the Division Bench held, means that substantially the same business is carried on and substantially the same persons carry it on. This judgment of the Division Bench of the Bombay High Court in Gaekwar Foam (1959) 35 ITR 662 (Bom) was approved by the Hon ble Supreme Court in a judgment in Textile Machinery Corporation Ltd. Vs. Commissioner of Income Tax (1977) 107 ITR 195 (S.C.). 11. Thus, in the light of the judicial pronouncements discussed hereinabove and on the facts of the present case, we have no hesitation in holding that this is not a case of reconstruction as alleged by the Department. We are unable to concur with the findings of the authorities below and while allowing the grounds of appeal, we direct that the assessee shall be entitled to claim deduction u/s 80IB of the Income Tax Act in the assessment year under consideration. 12. In the result, the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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