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TMI Blog2024 (12) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be confused with ownership of the business if the undertaking is formed by splitting up or by reconstruction in that case the undertaking will not be qualified for exemption. However, if the undertaking was already in existence and was not formed by splitting up or reconstruction of the business, then mere change of ownership on conversion of proprietorship into partnership firm would not amount to transfer of plant and machinery to a new firm. A similar view has been taken in the case of CIT vs. Tata Communication Network Services Ltd. [ 2011 (8) TMI 633 - DELHI HIGH COURT ] Mere change of ownership cannot be a ground to deny the benefit of section 80IA(4) so long as the undertaking under consideration remains intact and same without any change in the Plant Machinery or business already in existence. The conditions, as stipulated u/s 80 IA(3)(iii) of the Act contemplate a situation of forming an undertaking by splitting up or reconstruction of existing business as well as transfer of Plant Machinery already used to a new business but, none of those transaction/incidents are part of the acquisition of the business undertaking by the assessee under consideration. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee filed a revised return of income on 6/9/2018 declaring Nil income after claiming deduction u/s 80IA of the Act of Rs. 1,03,46,624/-. Thereafter, the assessee has filed another revised return of income wherein a suo motto disallowance of Rs. 6,82,089/- was made towards provision for gratuity and leave encashment and declared business income at Rs. 1,10,28,730/- which was claimed as eligible for deduction u/s 80IA of the Act hence, the assessee declared Nil taxable income. In the scrutiny assessment, the Assessing Officer denied the claim of deduction u/s 80IA on the ground that the assessee does not fulfil the conditions laid down in the provisions of section 80IA(3)(ii) r.w. Explanation 2 to section 80IA of the I.T. Act, 1961. 4. Being aggrieved, the assessee challenged the action of the Assessing Officer before the learned CIT (A), but could not succeed. 5. Before the Tribunal, the learned AR of the assessee submitted that the assessee has acquired the solar power division from its holding company, by way of slump sale as an ongoing concern basis. He has referred to the business transfer agreement dated 23/2/2017 and submitted that as per clause (2) and (2.1) of the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernet Services Ltd reported in 251 CTR 290 (Del.) and submitted that the Hon'ble Delhi High Court has considered an identical issue of 80IA and held that a mere change of ownership/ pattern of shareholding does not make any difference for the benefit u/s 80IA of the Act available to the undertaking because the undertaking continue to carry on business without any re-construction of business already in existence. The learned AR has then relied upon the decision of the Mumbai Bench of the Tribunal in the case of Dy. CIT vs. M/s. JSK Industries (P) Ltd in ITA No.2639/Mum/2014 dated 23/02/2018 and submitted that the issue of availability of benefit u/s 80IB of the Act on account slump sale has been considered and decide in favour of the assessee. Thus, the learned AR has submitted that the disallowance of claim of deduction u/s 80IA of the Act by the Assessing Officer and confirmation of the same by the learned CIT (A) is highly unjustified and contrary to the law. 6. The learned DR, on the other hand, has submitted that section 80IB(3) debars the undertaking to claim the benefit of section 80IA(4), if the undertaking is formed by re-construction or splitting up of business already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed/novated (as the case may be) in favour of or otherwise transferred to LSGPL; (f) LITL shall have transferred all the Business Data and Records (including customer and vendor records) in relation to the business to LSGPL; and (g) LITL shall have transferred all the business liabilities and business obligations to LSGPL . 8. Thus, the assessee has purchased the business undertaking as an ongoing concern basis by way of slump sale from its holding company. The Assessing Officer has denied the claim of deduction u/s 80IA(4)(iv) of the Act on the ground that the conditions specified in section 80IA(3) are not satisfied in case of the assessee. The concluding findings of the Assessing Officer in Para 5 to 7 are as under: 5. In its reply, the assessee has tried to establish that the transaction of acquiring assets from its group concern i.e. M/s. Lanco Infratech Limited cannot be treated as reconstruction . But, the same is not relevant to the present case. In the show cause notice of this office, reference is made to the Section 80-IA(3) as whole. However, in particular, it is to say that the assessee failed to fulfill the conditions laid down in the provisions of section 80-IA(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities of the business undertaking acquired by the assessee except the change of ownership that too under the slump sale. The Assessing Officer has misconceived the explanation 2 to section 80IA(3) by taking of outer limit of 20% of total value of machinery or plant in case of the assessee whereas the Explanation 2 is an exception to the conditions stipulated in section 80IA(3)(ii). Clause (ii) of subsection (3) of section 80IA stipulates that an undertaking is not formed by transfer to a new business of machinery or plant previously used for any purpose. In the case in hand, it is not a transfer of a plant or machinery to new business, but it is a transfer of an existing ongoing business undertaking under slump sale and therefore, the undertaking remains intact and only the ownership got changed. Therefore, there is no transfer of any plant or machinery already used for any purpose to a new business, rather the undertaking is not a new business in the hands of the assessee because it is already existed business undertaking acquired by the assessee because it is way of slump sale as an ongoing concern basis. Thus, if the undertaking is otherwise eligible for deduction u/s 80IA(4)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the sole ground of change of ownership of an undertaking. Though the tax holiday can be available by the undertaking for the unexpired period, at a rate as applicable for the remaining years, subject to fulfilment of the prescribed conditions. The Hon'ble Allahabad High Court in the case of CIT vs. Prisma Electronics (Supra) has also considered an identical issue in respect of section 80IB(2) in para 10 to 14 as under: 10. Our view is fortified by another similar provision. which were earlier existing under Section Sot the Act. which was subsequently. omitted. For facility, Section 84 of the Act as it existed at the relevant moment of time is extracted hereunder: Income of newly established industrial undertaking of hotels:- (1)Save as otherwise hereinafter provided, income tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking or business of a hotel from any ship, to which this section applies, as does not exceed six per cent per annum on the capital employed in such undertaking or business or ship. computed in the prescribed manner. (2) This section applies to any industrial undertaking which fulfills all the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and liabilities. 11. It has been observed that the formation of an undertaking should not be confused with ownership of the business if the undertaking is formed by splitting up or by reconstruction in that case the undertaking will not be qualified for exemption. However, if the undertaking was already in existence and was not formed by splitting up or reconstruction of the business, then mere change of ownership on conversion of proprietorship into partnership firm would not amount to transfer of plant and machinery to a new firm. A similar view has been taken by the Hon'ble Delhi High Court in the case of CIT vs. Tata Communication Network Services Ltd (Supra) and in para 11 to 14, held as under: 11. Be that as it may, Clause (ii) of Section 4 of Section 80IA was inserted in sub clause 3 of Section 80IA with effect from 1.4.2005 and the business of the assessee had been formed and started much prior to that. The restriction placed by Section 80IA(3) to the provisions of 80IA(4) (ii) would not bar the assessee for continuing its claim of deduction under Section 80IA. Since the provisions of 80IA(3) are not applicable to the present assessee, it having commenced its busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready available to an undertaking, since it will continue to carry on its business without any reconstruction of the business already in existence. Following the judgement of the Hon'ble Delhi High Court as well as other judicial precedents, the Mumbai Bench of the Tribunal in the case of Dy. CIT vs. M/s. JSK Industries Pvt Ltd (Supra) has considered this issue in para 8 to 14 as under: 8. For second/other objection regarding non-applicability of the benefit of deduction on account of slump sale, we find that the assessee has acquired the entire undertaking of M/s Hiren Aluminum Ltd. which was declared eligible for deduction under section 80IB. In our view, when the entire undertaking is transferred, merely because the ownership of undertaking changes the hand, the deduction under section 80IB is connected with the undertaking and is still available to the assessee. The ld. AR of the assessee during his course of submission relied upon the Circular No. 1/2013 issued by CBDT on 17.01.2013. The perusal of Clause-(iv) of paragraph 2 of said Circular provides that the benefit under section 10A/10AA and 10B would continue to remain available in case of slump sale of undertaking. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Delhi High Court in ACIT vs. IIS Infotech Ltd. [82 TTJ 174] while discussing the scope of exemption under section 10B held that benefit under section 10 is always attached to the industrial undertaking irrespective of the fact who owns it 100% export oriented unit and enjoying tax exemption under section 10B merged with assessee, would be entitled to same benefit with respect to said unit even after merger of unit being of an independent unit. 13. The careful reading of sub-section (2) of section 80IB make it clear that there are two conditions are provided in negative term i.e. (i) Industrial undertaking is not formed by splitting up reconstruction of business already in existence, (ii) is not formed by transfer of new business of machinery or plant previously used for any purpose. The Assessing Officer has not disputed about the manufacturing or produce product of any article or things not being any article or things specified in XI Schedule or operate one or more Cold-Storage or plant in any part of India. Further, there is no dispute that industrial undertaking manufactures or produce articles or things undertaking employed 10 or more workers in a manufacturing process ..... X X X X Extracts X X X X X X X X Extracts X X X X
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