Upkar International Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2486/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6632 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 26-10-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 23-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: J S KOCHAR
• Section: 143(3); 80IB; 10B; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 2486/DEL/2012 AY: 20 03-04 UPKAR INTERNATIONAL PVT. LTD., VS INCOME T AX OFFICER, BUILDING NO. 10812, WARD 18(1). 17- PRATAP NAGAR, NEW DELHI. DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.S. KOCHAR, CA RESPONDENT BY : SHRI O.P.MEENA, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THE PRESENT APPEAL IS PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 14.2.2012 PASSED BY THE LD. CIT (A)-XXI , NEW DELHI. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER:- 1. THAT THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) IS BAD IN LAW AS HE HAS NOT APPLIED HIS M IND TO THE FINDINGS OF FACT OF THE ASSESSING OFFICER WHI CH HAVE BEEN ACCEPTED AS IF SUCH FINDINGS CAN NOT BE INTERF ERED IN APPEAL. 2. THAT THE LEARNED CIT (APPEALS) ERRED IN UPHOL DING THE FINDING OF THE ASSESSING OFFICER THAT THE ASSES SEE WAS NOT ENTITLED TO DEDUCTION (OF RS. 10,13,828) U/ S 80- IB OF THE I.T. ACT ON THE GROUND THAT THE NEWLY FOR MED COMPANY IS A RECONSTRUCTION OF OLD EXISTING BUSINES S AND WITH OLD MACHINERIES. I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 2 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 INTERNA TIONAL AND MIGLANI EXPORTS WERE OPERATING DIFFERENT INDUST RIAL UNDERTAKINGS, MANUFACTURING AND EXPORTING DIESEL EN GINES 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 SHA RES FOR THE AMOUNT EQUIVALENT TO THE CAPITAL OF THE PARTNER S IN THE FIRM WERE ALLOTTED TO THEM. ON SUCH CONVERSION, ALL THE ASSETS AND PROPERTIES OF THE FIRM AUTOMATICALLY VESTED IN THE COMPANY UNDER SECTION 575 OF THE COMPANIES ACT. 2.3 ON 13.08.2002 ITSELF, THE COMPANY TOOK OVER BUSINESS OF MIGLANI EXPORTS ON A GOING CONCERN BASIS. THUS, WIT H EFFECT FROM 13.08.2002, THE TWO UNDERTAKINGS WHICH WERE EL IGIBLE FOR I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 3 DEDUCTION U/S 80 IB OF THE ACT, CAME TO BE OWNED BY THE ASSESSEE COMPANY. 3. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR A.Y. 2003-04 WHICH CULMINATED IN AN ASSESSMENT UNDER SEC TION 143(3) VIDE ORDER DATED 07.03.2006. THE AO DISALLOW ED THE DEDUCTION U/S 80IB ON THE BASIS OF SOME INFORMATION RECEIVED FROM THE AO OF M/S UPKAR INTERNATIONAL (PARTNERSHIP FIRM) THAT IN THE ASSESSMENT FOR THE A.Y. 2001-02, HE HAD DISA LLOWED THE DEDUCTION, INTER ALIA FOR THE REASON THAT THE ASSES SEE DID NOT FULFIL THE ESSENTIAL CONDITIONS REQUIRED FOR CLAIMI NG DEDUCTION U/S 80 IB. 3.1 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE CIT (APPEALS) AND BY THE TIME THE APPEAL OF THE ASSESSE E WAS HEARD, THE FIRST APPELLATE AUTHORITY IN THE CASES O F THE TWO PARTNERSHIP FIRMS HELD THAT THE TWO FIRMS WERE ENTI TLED TO THE DEDUCTION. ACCORDINGLY, IN THE CASE OF THE ASSESSEE ALSO, THE CIT (APPEALS) HELD THAT IT WAS ENTITLED TO DEDUCTIO N UNDER SECTION 80 IB. I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 4 4. THE REVENUE CHALLENGED THE ORDER OF CIT (APPEALS ) BEFORE THE ITAT. THE APPEAL IN THE TRIBUNAL WAS HEARD EX P ARTE, QUA THE ASSESSEE. THE TRIBUNAL, VIDE ORDER DATED 23.10. 2009 REMITTED THE MATTER BACK TO THE A.O. WITH THE FOLLO WING DIRECTIONS: SECONDLY, THE ASSESSING OFFICER WHILE DISALLOWING T HE CLAIM OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSE E DID NOT FULFILL THE ESSENTIAL CONDITIONS REQUIRED U NDER THE ACT FOR CLAIMING DEDUCTION U/S 80IB. NO FINDING WHATSOEVER HAS BEEN GIVEN BY THE LD. C1T (A) THAT T HE ASSESSEE HAD FULFILLED THE CONDITIONS LAID DOWN IN SECTION 80IB FOR THE YEAR UNDER CONSIDERATION. THEREFORE, TO EXAMINE THAT WHETHER CONDITIONS FOR GRANT OF DEDUCTION U/S 80IB WERE FULFILLED OR NOT, THE MATTER IS REQUIRED TO BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER. 4.1 IN THE FRESH ASSESSMENT ORDER (WHICH IS THE SUB JECT MATTER OF THIS APPEAL), THE AO HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB AS THE UNDERTAKING OF THE ASSESS EE COMPANY WAS FORMED BY RECONSTRUCTION OF THE UNDERTAKINGS OF THE ERSTWHILE PARTNERSHIP FIRMS. APART FROM THIS, NO OT HER OBJECTION WAS RAISED BY THE DEPARTMENT REGARDING THE ASSESSEE NOT FULFILLING ANY OTHER ELIGIBILITY CRITERIA FOR THE P URPOSE OF DEDUCTION U/S 80IB OF THE ACT. THE REASONS GIVEN BY THE AO WE RE AS FOLLOWS: IN THIS CASE, THE ERSTWHILE PARTNERS HAD EQUAL RATI O IN THE PROFIT AND LOSS, BUT WHEN TURNED INTO DIRECTOR S ACQUIRED DIFFERENT SHAREHOLDING PATTERN. IN VIEW OF THIS FACT OF THE CASE, IT CAN BE SAID THAT THE NEWL Y FORMED COMPANY IS A RECONSTRUCTION OF OLD EXISTING I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 5 BUSINESS AND WITH OLD MACHINERIES. THE CONDITION LA ID DOWN BY THE PROVISION OF SUBSECTION 2 OF SECTION 80 IB STRICTLY STATES THE BUSINESS SHOULD NOT BE FORMED B Y 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 O RDER OF CIT (APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT A PPEAL. 5. BEFORE US, THE LD. AR WHILE SUPPORTING HIS GROUN DS OF APPEAL SUBMITTED THAT THE ASSESSEE COMPANY TOOK OVE R 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. 80I B FOR THE PERIOD OF TEN YEARS STARTING FROM F.Y. 1995- 96. BO TH THESE PARTNERSHIP FIRMS HAD THE SAME EIGHT PARTNERS AND T HEY FORMED A COMPANY M/S. UPKAR INTERNATIONAL PVT. LTD., TO TAKE OVER THE ENTIRE BUSINESS OF THESE TWO PARTNERSHIP FIRMS WITH ALL ASSETS AND LIABILITIES. ALL THE PARTNERS BECAME DIRECTORS IN THIS ASSESSEE COMPANY AND THE ASSESSEE COMPANY TOOK OVER THE RUNN ING BUSINESS WITH ALL ASSETS AND LIABILITIES OF THESE P ARTNERSHIP FIRMS AND ALLOTTED THE SHARES TO THE PARTNERS FOR THEIR P ARTNER'S CAPITAL STOOD IN THE BOOKS OF FIRMS ON THE DATE OF TAKE OVE R. IT WAS SUBMITTED THAT THE BUSINESS OF THE FIRMS WERE TAKEN OVER AS A I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 6 GOING CONCERN BASIS WITH ALL ASSETS AND LIABILITIES WHILE KEEPING THE SAID BUSINESS INTACT. THE SHARES TO THE PARTNER S WERE GIVEN FOR THE AMOUNT STANDING IN CREDIT IN THEIR CAPITAL ACCOUNT IN THE RESPECTIVE PARTNERSHIP FIRM, AT THE TIME OF SUCCESS ION. THERE WAS NO CHANGE IN SHAREHOLDING/ OWNERSHIP RIGHTS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE DEDUCTION BY SAYING THAT THE TRANSFER OF BUSINESS BY THE FIRMS TO THE A SSESSEE COMPANY IS A RECONSTRUCTION OF THE OLD BUSINESS. TH E STAND OF THE ASSESSING OFFICER IS NOT JUSTIFIABLE & LEGAL A S THERE IS NO RECONSTRUCTION OF BUSINESS OF THE UNDERTAKINGS, IT IS A CASE OF TAKEOVER/ SUCCESSION BECAUSE M/S. UPKAR INTERNATION AL PVT. LTD. TOOK OVER THE ENTIRE BUSINESS WITH ALL ASSETS AND L IABILITIES OF THE PREDECESSOR PARTNERSHIP FIRMS (I) M/S. UPKAR INTERN ATIONAL & (2) MIGLANI EXPORTS AND THE PARTNERS GOT THE SHARES IN THE ASSESSEE COMPANY FOR THE AMOUNT STANDING IN THEIR CAPITAL AC COUNT ON THE DATE OF SUCCESSION BY THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT RECONSTRUCTION MEANS EXPANSION OF EX ISTING INDUSTRIAL UNIT BY INCREASING CAPACITY OF PRODUCTIO N TO LARGE EXTENT OR BY SETTING UP ANOTHER INDUSTRIAL UNIT OR IT IS THE REJUVENATION OR REHABILITATION OF AN EXISTING UNDER TAKING. IT WAS FURTHER SUBMITTED THAT IN THE CASE OF ASHOK LEYLAND LTD VS. CIT I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 7 (1995) 83 TAXMAN 482 (AP), IT WAS HELD THAT EXPANSI ON OF EXISTING INDUSTRIAL UNIT BY INCREASING CAPACITY OF PRODUCTION TO LARGE EXTENT IS MERELY RECONSTRUCTION OF BUSINESS. SIMILARLY, IN THE CASE OF GANGA SUGAR CORP LTD (1973) 92 ITR 173 (DEL) IT WAS HELD THAT WHERE A COMPANY IS ALREADY RUNNING ONE IN DUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT THEN IT WILL A MOUNT TO RECONSTRUCTION OF BUSINESS. HE SUBMITTED THAT THE U NDERLYING IDEA OF A RECONSTRUCTION IS THAT THERE BE A CONTINU ATION OF THE ACTIVITIES AND BUSINESS OF THE SAME UNDERTAKING. TH E ORIGINAL BUSINESS OR UNDERTAKING CONTINUES WITHOUT ITS IDENT ITY BEING LOST. 6. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT THE AO IN THE BODY OF ASSESSMENT ORDER HAS DISCUSSED THE C ONDITIONS LAID DOWN BY THIS PROVISION, AS PER WHICH THE ASSESSEE I S 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 ASP ECT AND HE HAS OBSERVED THAT NEWLY FORMED COMPANY IS A RECONST RUCTION OF OLD EXISTING BUSINESS AND WITH OLD MACHINERY. WHIL E ARRIVING AT THE CONCLUSION HE HAS DISCUSSED THE MODE BY WHICH C OMPANY I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 8 CAME IN TO EXISTENCE BY OBSERVING THAT ASSESSEE COM PANY WAS FORMED AFTER RECONSTRUCTION OF TWO EARLIER EXISTING BUSINESS FIRMS, NAMELY; MIGLANI EXPORTS AND UPKAR INTERNATIONAL. TH EREFORE, AFTER DISCUSSING THE PROVISION IN DETAIL, THE AO HAS OBSE RVED 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 ASSE TS AND LIABILITIES OF TWO FIRMS, NAMELY; UPKAR INTERNATION AL AND MIGLANI EXPORTS AS ON 13.8.2002 AND THEY ARE ENTITLED FOR C LAIM U/S. 80IB FOR PERIOD OF 10 (TEN) YEARS FROM ASSESSMENT YEAR 1 995-96. THIS IS FINDING OF FACT THAT THIS IS A RECONSTRUCTION OF TH E OLD BUSINESS. TO AVAIL THE BENEFIT OF SECTION 80IB IT HAS BEEN LAID BY THE STATUTE THAT THESE FACILITIES ARE NOT AVAILABLE TO THE INDU STRIAL UNDERTAKING WHICH IS FORMED BY TRANSFER TO A NEW BUSINESS OF MA CHINERY OR PLANT SPECIALLY USED FOR ANY PURPOSE. IN THE INSTAN T CASE THIS IS A FINDING OF THE FACT THAT ASSESSEE COMPANY HAS BEEN FORMED BY TWO FIRMS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. IT IS THE CONTENTION OF THE ASSESSEE THAT IT IS A CASE OF CON VERSION OF PARTNERSHIP FIRM INTO A LIMITED COMPANY UNDER PART IX OF THE I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 9 COMPANIES ACT, 1956 WHEREAS THE DEPARTMENT CONTENDS THAT IT IS A CLEAR CASE OF RECONSTRUCTION. IT IS SEEN FROM THE RECORDS THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 13.8.2002 AND THE CERTIFICATE OF INCORPORATION ISSUED BY THE REGISTRA R OF COMPANIES, PUNJAB, H.P. AND CHANDIGARH (PLACED AT PAGE 17 OF T HE PAPER BOOK) ALSO MENTIONS THAT IT IS A COMPANY UNDER PART IX OF THE COMPANIES ACT, 1956. A PARTNERSHIP FIRM MAY BE CON VERTED INTO A COMPANY BY FOLLOWING THE PROVISIONS OF PART IX OF THE COMPANIES ACT, 1956. SECTIONS 565 TO 581 OF THE CO MPANIES ACT DEAL WITH THE CONVERSION OF FIRMS INTO A COMPANY UN DER THE COMPANIES ACT, 1956. FOR THE PURPOSE OF PART IX, S O FAR AS IT RELATES TO THE REGISTRATION OF A COMPANY LIMITED BY SHARES, A JOINT STOCK COMPANY MEANS A COMPANY HAVING A PERMANENT PA ID UP OR NOMINAL SHARE CAPITAL OF FIXED AMOUNT DIVIDED INTO SHARES, ALSO OF FIXED AMOUNT, OR HELD AND TRANSFERABLE AS STOCK, OR DIVIDED OR HELD PARTLY IN ONE WAY AND PARTLY IN THE OTHER, AND FORMED ON THE PRINCIPLE OF HAVING FOR ITS MEMBERS THE HOLDERS OF THOSE SHARES OR THAT STOCK, AND NO OTHER PERSONS. ONCE THE NEW COM PANY IS FORMED, THE ENTIRE BUSINESS OF THE FIRM ALONG WITH ALL ITS ASSETS AND LIABILITIES IS TRANSFERRED TO THE NEWLY FORMED COMPANY. IT IS THE REVENUES CONTENTION THAT FOR BECOMING ELIGIBLE FOR DEDUCTION I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 10 U/S 80IB OF THE INCOME TAX ACT, 1961, THE BUSINESS MUST NOT BE A RECONSTRUCTION OF EARLIER EXISTING BUSINESSES. THE DEPARTMENT HAS CONTENDED THAT IN THE PRESENT CASE, THE ERSTWHI LE EIGHT PARTNERS HAD EQUAL PROFIT/LOSS SHARING RATIOS WHERE AS THE DIRECTORS HAVE ACQUIRED A DIFFERENT SHAREHOLDING PA TTERN. THUS, IN SUCH A SITUATION, AS PER THE DEPARTMENT, THE NEW LY FORMED COMPANY WAS A RECONSTRUCTION OF EXISTING BUSINESS W ITH OLD EXISTING MACHINERIES AND SINCE SUB-SECTION (2) OF S ECTION 80IB OF THE INCOME TAX ACT, 1961 STATES THAT THE BUSINESS S HOULD NOT BE FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, THE ASSESSEE COMPANY WAS NOT ENTITLED TO C LAIM DEDUCTION U/S 80IB OF THE ACT. 8. ON FACTS, IT IS UNDISPUTED THAT THE ERSTWHILE PA RTNERSHIP FIRM M/S UPKAR INTERNATIONAL, HAVING 8 PARTNERS WAS CONVERTED INTO A LIMITED COMPANY UNDER PART IX OF THE COMPANI ES ACT, 1956 AND WAS RENAMED AS UPKAR INTERNATIONAL (P) LTD. AND ALL THE PARTNERS OF THE ERSTWHILE FIRM BECAME THE SHAREHOLD ERS OF THE COMPANY AND THE SHARES FOR THE AMOUNTS EQUIVALENT T O THE CAPITAL OF THE PARTNERS IN THE FIRM WERE ALLOTTED T O 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 I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 11 THE COMPANIES ACT, 1956. IN VIEW OF THE UNDISPUTED FACTS, IT IS CLEAR THAT ON CONVERSION FROM FIRM TO COMPANY, THER E WAS MERELY A CHANGE IN THE OWNERSHIP OF THE UNDERTAKING. THER E WAS NO CHANGE IN THE BUSINESS OF THE UNDERTAKING WHICH WAS ALREADY IN EXISTENCE. THE ISSUE OF RECONSTRUCTION WAS DISCUSS ED AT LENGTH BY THE ITAT DELHI B BENCH IN TECH BOOKS ELECTRONI C SERVICES (P) LTD. VS ACIT, RANGE-16, 100 ITD 125 (DEL) WHEREIN T HE BENCH, ADJUDICATING ON THE ISSUE OF EXEMPTION U/S 10B OF T HE ACT, OBSERVED AS UNDER:- HOWEVER, WE ARE NOT CONCERNED WITH THE CHANGE IN T HE OWNERSHIP. RATHER WE ARE TO ENQUIRE AS TO WHETHER T HERE WAS ANY CHANGE OR RECONSTITUTION OF THE BUILDING OF THE UNDERTAKING. ON CLOSE SCRUTINY AND ANALYSIS OF THE TERMINOLOGY ADOPTED IN CLAUSE (II) OF SUBSECTION (2 ) OF SECTION 10B, IT BECOMES CLEAR THAT THE WORD SPLITTI NG UP AND THE WORD 'RECONSTRUCTION', ARE ATTACHED TO BUSI NESS 'ALREADY IN EXISTENCE'. HENCE, THESE WORDS QUALIFY BUSINESS AND NOT THE OWNERSHIP OF THE BUSINESS. HEN CE, IF THE BUSINESS OF THE UNDERTAKING IS FORMED BY SPLITT ING UP OR BY RECONSTRUCTION, THEN THE UNDERTAKING WILL NOT BE QUALIFIED FOR CLAIMING EXEMPTION. THE ASSESSING OFF ICER AS WELL AS THE LEARNED CIT (A) HAVE NOT POINTED OUT AS TO IN WHAT MANNER THERE WAS ANY CHANGE IN THE BUSINESS OF THE UNDERTAKING. THE BUSINESS OF THE UNDERTAKING WA S NOT FORMED BY SPLITTING UP OF THE OLD BUSINESS OR BY RECONSTRUCTION OF THE OLD BUSINESS I.E., BUSINESS A LREADY IN EXISTENCE. THE DEPARTMENTAL AUTHORITIES HAVE LAI D MUCH EMPHASIS ON THE CHANGE IN THE OWNERSHIP AND IT APPE ARS THAT THEY HAVE NOT PROPERLY APPRECIATED THE TERMINO LOGY USED IN THE PROVISION REFERRED TO ABOVE. THE INTENT ION OF THE LEGISLATURE IN USING THE WORDS IS CLEAR AND HAS BEEN EXPRESSED IN UNEQUIVOCAL TERMS AND NOTHING CAN BE I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 12 SUBTRACTED OR ADDED TO THE TERMS OR WORDS USED IN A STATUTORY PROVISION. 10.3-2 AS PER THE DOCTRINE OF NOSCITUR A SOCIIS, TH E RULE OF CONSTRUCTION IS THAT THE WORDS APPEARING IN A STATU TORY PROVISION IN CLOSE ASSOCIATION, TAKE COLOUR FROM EA CH OTHER. THE RULE OF CONSTRUCTION NOSCITUR A SOCIIS, AS EXPL AINED BY LORD MACMILLAN MEANS, 'THE MEANING OF A WORD IS TO BE JUDGED BY THE COMPANY IT KEEPS'. AS STATED BY THE P RIVY COUNCIL, 'IT IS A LEGITIMATE RULE OF CONSTRUCTION T O CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WOR DS FOUND IN IMMEDIATE CONNECTION WITH THEM'. THIS RULE , ACCORDING TO MAXWELL, MEANS THAT WHEN TWO OR MORE WORDS WHICH ARE SUSCEPTIBLE OF ANALOGOUS MEANING AR E COUPLED TOGETHER, THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE SENSE. THEY TAKE AS IT WERE THEIR COLOUR FR OM 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 O F 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 I T; SUCH DOCTRINE IS BROADER THAN THE MAXIM EJUSDEM GEN ERIS. 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 A LSO, AS PER THE DICTIONARY MEANING OF 'RECONSTRUCTION', AS GIVEN IN JUDICIAL DICTIONARY BY K.J. IYER, EIGHTH EDITION 19 80, THE WORD 'RECONSTRUCTION' IS EXPRESSED BY SYNONYMOUS 'REBUILD'. THUS, IF THERE IS CHANGE OF OWNERSHIP FR OM ONE PERSON TO ANOTHER BUT THE BUSINESS CONTINUED TO BE THE SAME, IT CANNOT BE SAID THAT THE UNDERTAKING IS FOR MED AS A RESULT OF RECONSTRUCTION. 10.3-4 THE MEANING OF THE WORD 'RECONSTRUCTION' CAN ALSO BE UNDERSTOOD IN THE CONTEXT IN WHICH THIS WORD APP EARS. IF WE CONSIDER THE SCHEME OF THE SPECIAL PROVISION AND GO THROUGH THE PROVISIONS OF SECTIONS 32, 32A AND 33B AND I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 13 EXAMINATION OF THE SUB-CLAUSES OF SUB-SECTION (2) T OGETHER THEN IT WILL BE CLEAR THAT THE LEGISLATURE INTENDED TO DISQUALIFY THOSE UNDERTAKINGS WHICH ARE FORMED BY REARRANGING THE COMPONENTS OR EQUIPMENTS OF THE EAR LIER BUSINESS AND THAT IS THE REASON THAT SUB-CLAUSE (II I) SAYS IN SPECIFIC TERMS THAT THE UNDERTAKING TO BE QUALIF IED FOR EXEMPTION UNDER SECTION 10B SHOULD NOT BE FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. THUS, THE EMPHASIS IS ON THE PREVIOUS BUSINESS, BUSINESS ALREADY IN EXIST ENCE OR OLD BUSINESS ESTABLISHMENT. HOWEVER, IF THE NEW UNDERTAKING HAS BEEN FORMED AND CONDITIONS LAID DOW N IN VARIOUS CLAUSES OF SUB-SECTION (2) ARE NOT APPLICAB LE, THEN THE EXEMPTION CANNOT BE DENIED TO THE UNDERTAKING MERELY BECAUSE AT SUBSEQUENT STAGE THERE IS CHANGE IN THE OWNERSHIP OF THE UNDERTAKING. THE BUSINESS STRU CTURE AND CONTINUITY OF THE BUSINESS ACTIVITY HAS TO BE S EEN AND NOT THE CONTINUITY OF THE SAME OWNERSHIP OF THE UNDERTAKING. THUS, THERE IS A DIFFERENCE BETWEEN TH E OWNERSHIP OF THE UNDERTAKING AND THE BUSINESS ACTIV ITY OF THE UNDERTAKING AND IF THE LATTER REMAINS UNAFFECTE D OR UNCHANGED BY SUBSEQUENT CHANGE IN THE OWNERSHIP THE N IT CANNOT BE SAID THAT THE BUSINESS OF THE UNDERTAK ING HAS BEEN RECONSTRUCTED. 10.3-5 THUS, THE UNDERTAKING ACQUIRED BY THE ASSESS EE- COMPANY REMAINED THE SAME AND THE OBSERVATION OF TH E ASSESSING OFFICER THAT UNDERTAKING ACQUIRED BY THE COMPANY IS NOTHING BUT RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE CANNOT BE ACCEPTED. 10.4 SO FAR AS THE CONVERSION OF FIRM INTO COMPANY IS CONCERNED, AGAIN IT CANNOT BE SAID THAT THERE WAS A NY TRANSFER. ON INCORPORATION OF COMPANY, CONSEQUENCES AS PER THE PROVISIONS OF COMPANIES ACT AND OTHER STATU TORY PROVISIONS FOLLOW ENSUE. THUS, THERE IS MERELY STAT UTORY VESTING. 10.5 IN THE CASE OF CIT V. TEXSPIN ENGG. & MFG. WOR KS , IT WAS HELD BY THE HON'BLE BOMBAY HIGH COURT THAT WHEN A FIRM IS TREATED AS A COMPANY, ALL THE PROPERTIES OF THE FIRM I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 14 VEST IN THE LIMITED COMPANY BUT THAT VESTING IS NOT CONSEQUENT OR INCIDENTAL TO A TRANSFER. 10.6 IN THE CASE OF CHETAK ENTERPRISES (P.) LTD. V. ASSTT. CIT[2005] 95 ITD 1, THE JODHPUR BENCH OF THE ITAT H AS 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 WHE RE THE ASSESSEE WAS CONVERTED FROM PARTNERSHIP FIRM TO PRI VATE LIMITED COMPANY AS PER THE PROVISIONS OF SECTION 575 OF CO MPANIES 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 CO MPOSITION IN THE OWNERSHIP OF THE UNDERTAKING AND THE BUSINES S OF THE UNDERTAKING HAD NOT CHANGED AS THE SAME PARTNERS HA D BECOME DIRECTORS OF THE COMPANY. THE BENCH HELD THAT IN S UCH A SITUATION, THE BUSINESS OF THE ASSESSEE WAS NOT FOR MED 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 PROVIS IONS OF SECTION 15C OF THE INCOME TAX ACT, 1922, SECTION 15 C(2)(I) CONTAINED A SIMILAR PROVISION THAT THE SECTION WOUL D APPLY TO AN INDUSTRIAL UNDERTAKING WHICH IS NOT FORMED BY THE S PLITTING UP OR I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 15 THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTEN CE OR BY THE TRANSFER TO A NEW BUSINESS OF BUILDING, MACHINERY O R PLANT USED IN A BUSINESS WHICH WAS BEING CARRIED ON BEFORE 1 A PRIL 1948. IN THAT CASE, THERE WAS A PARTNERSHIP FIRM AND ITS ASS ETS AND GOODWILL WERE TAKEN OVER BY THE ASSESSEE FOR A STAT ED CONSIDERATION AND AGAINST THE ALLOTMENT OF SHARES T O THE THREE PARTNERS IN THE ASSESSEE COMPANY. THE ASSESSING OFF ICER HAD REJECTED THE CLAIM OF EXEMPTION UNDER SECTION 15C O N THE GROUND THAT THE ASSESSEE WAS FORMED BY THE RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. THE APPELLATE COMMIS SIONER TOOK A DIFFERENT VIEW WHICH WAS AFFIRMED BY THE TRIBUNAL . THE DIVISION BENCH OF HONBLE BOMBAY HIGH COURT HELD TH AT THE RECONSTRUCTION OF A BUSINESS CONNOTES THAT THE ORIG INAL BUSINESS IS NOT TO CEASE FUNCTIONING AND THE UNDERTAKING MUS T CONTINUE TO CARRY ON THE SAME BUSINESS IN AN ALTERED FORM. ON T HE OTHER HAND IF THE OWNERSHIP OF A BUSINESS OR AN UNDERTAKI NG IS TRANSFERRED THAT WOULD NOT CONSTITUTE A RECONSTRUCT ION. THE HONBLE DIVISION BENCH HELD AS FOLLOWS: '...THE RECONSTRUCTION OF A BUSINESS OR AN INDUSTRI AL UNDERTAKING MUST NECESSARILY INVOLVE THE CONCEPT TH AT THE ORIGINAL BUSINESS OR UNDERTAKING IS NOT TO CEAS E FUNCTIONING, AND ITS IDENTITY IS NOT TO BE LOST OR ABANDONED. THE CONCEPT ESSENTIALLY RESTS ON CHANGES I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 16 BUT THE CHANGES MUST BE CONSTRUCTIVE AND NOT DESTRUCTIVE. THERE MUST BE SOMETHING POSITIVE ABOUT THE WHOLE MATTER AS OPPOSED TO NEGATIVE. THE UNDERLYING IDEA OF A RECONSTRUCTION EVIDENTLY MUST BE - AND THIS IS BROUGHT OUT BY THE SECTION ITSELF - OF A 'BUSINESS ALREADY IN EXISTENCE'. THERE MUST BE A CONTINUATION OF THE ACTIVITIES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. THE UNDERTAKING MUST CONTIN UE TO CARRY ON THE SAME BUSINESS THOUGH IN SOME ALTERE D OR VARIED FORM. IF THE ALTERATIONS AND CHANGES ARE SUBSTANTIAL, THERE WOULD BE LITTLE SCOPE FOR DESCRI BING WHAT EMERGES AS A RECONSTRUCTION OF THE BUSINESS. THUS FOR INSTANCE IF THE OWNERSHIP OF A BUSINESS OR AN UNDERTAKING CHANGES HANDS NOT OSTENSIBLY BUT IN REALITY AND EFFECTIVELY, THAT WOULD NOT BE RECONSTRUCTION OR IF THE VERY NATURE OF THE BUSINES S IS CHANGED, THAT AGAIN WOULD NOT BE RECONSTRUCTION. ON THE OTHER HAND, REORGANIZATION OF THE BUSINESS ON SOUNDER LINES OR ALTERATIONS IN THE MODE OR METHOD OR SCOPE OF THE ACTIVITIES OF THE BUSINESS OR IN ITS PERSONNEL OR INFUSION OF NEW BLOOD IN THE MANAGEMEN T OR CONTROL OF ITXAL-311-2004 THE BUSINESS WHICH MAY EVEN BE BY SOME CHANGES IN THE CONSTITUTION OF PERSONS INTERESTED IN THE UNDERTAKING WOULD CERTAIN LY BE NO MORE THAN RECONSTRUCTION OF THE BUSINESS IF I T 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 JU DGMENT OF THE DIVISION BENCH OF THE BOMBAY HIGH COURT IN GAEKWAR FOAM (1959) 35 ITR 662 (BOM) WAS APPROVED B Y THE HONBLE SUPREME COURT IN A JUDGMENT IN TEXTILE I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 17 MACHINERY CORPORATION LTD. VS. COMMISSIONER OF INCO ME TAX (1977) 107 ITR 195 (S.C.). 11. THUS, IN THE LIGHT OF THE JUDICIAL PRONOUNCEMEN TS DISCUSSED HEREINABOVE AND ON THE FACTS OF THE PRESENT CASE, W E HAVE NO HESITATION IN HOLDING THAT THIS IS NOT A CASE OF RE CONSTRUCTION AS ALLEGED BY THE DEPARTMENT. WE ARE UNABLE TO CONCUR WITH THE FINDINGS OF THE AUTHORITIES BELOW AND WHILE ALLOWIN G THE GROUNDS OF APPEAL, WE DIRECT THAT THE ASSESSEE SHALL BE ENT ITLED TO CLAIM DEDUCTION U/S 80IB OF THE INCOME TAX ACT IN THE ASS ESSMENT YEAR UNDER CONSIDERATION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24/02/ 2016. SD/- SD/- (J. SUDHAKAR REDDY) (SUDHANSHU SRIVAS TAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 24TH OF FEBRUARY, 2016 GS I.T.A. 2486/DEL/2012 ASSESSMENT YEAR 2003-04 18 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER ASSTT. REGISTRAR