Income Tax Appeal v. M/S Chetak Enterprises Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR------------------------------------------------------ INCOME TAX APPEAL No.118 of 2005 V/S M/s Chetak Enterprises Pvt. Ltd. Mr. K.K. BISSA, for the appellant / petitioner. Mr. ANJAY KOTHARI, for the respondent. Date of Order : 17.3.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI DEO NARAYAN THANVI,J. ORDER ----- REPORTABLE This is an appeal by the Revenue, against thejudgment of the learned Tribunal, dated 31.1.2005,partly allowing the appeal of the assessee. The appeal was admitted on 13.12.2005, by framingthe following substantial question of law: “Whether in the facts & circumstances of thecase, the assessee company was right in findingthat the assessee fulfilled the condition of sub-section (4) (i) (b) of Section 80-IA?” We have heard learned counsel for either sides,and have gone through the orders of the authoritiesbelow. Before proceeding further, we may gainfullyquote the relevant provisions of Section 80-IA(4)(i) (a), (b), (c) and proviso, which reads as under: “(4) This section applies to - (i) any enterprise carrying on the business of(i) developing or (ii) operating and maintainingor (iii) developing, operating and maintainingany infrastructure facility which fulfils all thefollowing conditions, namely: (a) it is owned by a company registered in Indiaor by a consortium of such companies; (b) it has entered into an agreement with theCentral Government or a State Government or alocal authority or any other statutory body for(i) developing or (ii) operating and maintainingor (iii) developing, operating and maintaining anew infrastructure facility; (c) it has started or starts operating andmaintaining the infrastructure facility on orafter the 1[st] day of April, 1995: Provided that where an infrastructure facility istransferred on or after the 1[st] day of April, 1999by an enterprise which developed suchinfrastructure facility (hereinafter referred toin this section as the transferor enterprise) toanother enterprise (hereafter in this sectionreferred to as the transferee enterprise) for thepurpose of operating and maintaining theinfrastructure facility on its behalf inaccordance with the agreement with the CentralGovernment, State Government, local authority orstatutory body, the provisions of this sectionshall apply to the transferee enterprise as if itwere the enterprise to which this clause appliesand the deduction from profits and gains would beavailable to such transferee enterprise for theunexpired period during which the transferorenterprise would have been entitled to thededuction, if the transfer had not taken place.” The matter relates to Assessment Year 2001-02, therelevant previous year for which, being Financial Year2000-01 i.e. 1.4.2000 to 31.3.2001. The assessee is aprivate limited Company, and claims 100% deduction asprovided under Section 80IA(4) of the Act. The learnedAssessing Officer found, that the work was granted topartnership firm M/s Chetak Enterprises, and the merefact, that the Firm got itself registered as Company,it cannot be said, that it fulfills the requirementsof Section 80IA(4)(i)(a) and (b), inasmuch as noagreement was made by the Company with the Governmentof Rajasthan for collection of toll tax with effectfrom 1.4.2000, in supersession of original agreementdated 1.12.1999, signed between the Government ofRajasthan and the Firm Chetak Enterprises. The Firmdoes not fulfill the requirements of Section 80IA(4)(i)(a) and (b), and is not entitled to claimdeduction. In appeal, the learned Commissionermaintained the order. However, in further appeal, thelearned Tribunal set aside the two orders, and foundthe assessee to be entitled to deduction. We have gone through the findings, and theprovisions, and have also heard learned counsel forthe parties. We have gone through the findings, and theprovisions, and have also heard learned counsel forthe parties. In our view, a look at the provisions of theSection, as quoted above, does show, that it appliesto every enterprise, carrying on any specifiedbusiness, obviously the things should be in thepresenti, i.e. for the relevant assessment year, andthe conditions are, that it is owned by a companyregistered in India, or by a consortium of suchcompanies, then it should have entered into anagreement with the Government, or a local authority,or any other statutory body, for any specified work,and should have started work after 1.4.1995. In thepresent case, so far as the facts are concerned, it isnot in dispute, that the work of construction of roadswas completed on 27.3.2000, and on and with effectfrom 28.3.2000, the partnership firm was convertedinto a Company, by being registered under Part IX ofthe Companies Act, and became a private LimitedCompany. As noticed above, the relevant previous yearis 1.4.2000 to 31.3.2001. Thus, right from thecommencement of the relevant financial year, it cannotbe disputed, that it was a Company, and wasundertaking the specified business. Then, so far asthe question, as has been gone into by the AssessingOfficer, and the Excise Commissioner that the assesseeCompany has not entered into any agreement with theGovernment, is concerned, in that regard, the learnedTribunal has found, that the main objects of the Memorandum of Association of the assessee Companyindicates, that it was mentioned as under: “On conversion of the partnership firm into acompany limited by shares under these presents toacquire by operation of Law under Part IX of theCompanies Act, 1956 as going concern and continuethe partnership business now being carried onunder the name & style of M/s Chetak Enterprisesincluding all its assets, movables andimmovables, rights, debts and liabilities inconnection therewith.” Then, it has also been found by the learnedTribunal, at page 13 of the judgment, that theerstwhile partnership firm, in its first communicationto the Chief Engineer on 23.10.1998, while replying tothe notice inviting bids, made it categorically clear,that “the firm will be converted into a limitedcompany under Chapter IX of the Companies Act. Assuch, you are requested to allow us change inconstitution and accordingly change of name inagreement, after converting firm into company with theexisting partners as its Directors”, and the ChiefEngineer vide letter dt.27.8.1999, took note of thisletter, and informed, that their offer was accepted,subject to terms and conditions, specified therein. Itis thereafter, that agreement was entered into betweenthe Government and the Firm, wherein the said letterof the Chief Engineer dt.27.8.1999, was considered aspart of the agreement. With this, the agreement also mentions the firm, “to mean and include its successorsand assigns”. Thus it has been found, that sinceincorporation of the Firm into a Company, has theeffect of statutorily vesting of liabilities andassets in the Firm, and the agreement comprehendssuccessors and assigns, it is clear, that the assesseefulfills all the conditions. Then the proviso,appended in this sub-section, has also beenconsidered, which clearly provides for entitlement ofthe deduction to the transferee, with effect from thedate of transfer, therefore also, it was found thatthe deduction is available. mentions the firm, “to mean and include its successorsand assigns”. Thus it has been found, that sinceincorporation of the Firm into a Company, has theeffect of statutorily vesting of liabilities andassets in the Firm, and the agreement comprehendssuccessors and assigns, it is clear, that the assesseefulfills all the conditions. Then the proviso,appended in this sub-section, has also beenconsidered, which clearly provides for entitlement ofthe deduction to the transferee, with effect from thedate of transfer, therefore also, it was found thatthe deduction is available. In our view, when right from the day one, i.e.while replying to the notice inviting tenders itself,it was made clear by the Firm, that the Firm will beconverting into a limited Company under Part IX of theCompanies Act, and the Chief Engineer was requested toallow the change in the Constitution, and accordinglychange of name in the agreement, after converting theFirm into the Company, with the existing partners asits Directors, and this request was accepted, and thatacceptance letter formed part of the agreement, in ourview, the Firm stands in the shoes of promoter, andthe Company takes over all assets and liabilitiesstatutorily. In other words, by operation of law,there is statutory transformation of the Firm into the Company, obviously the rights and liabilities of theCompany, and the assets, go to the Company. It is adifferent story that even from the agreement enteredinto by the promoter (predecessor in the interest ofthe Company), as successor of the Firm the Company isdeemed to be a party, and, therefore also, is verymuch entitled to the benefit of deduction on thisground. Over & above all this, the proviso is acomplete answer to the contention of the Revenue, andin favour of the assessee, which rather clearlyprovides, that even in case of transfer, thetransferee will become entitled to deduction of coursewith effect from the date of transfer. In the present case, the transfer wasstatutory, and did come into effect since 28.3.2000,i.e. much before the commencement of the relevantfinancial year, and as such, considering from anystandpoint, the assessee could not be denied benefitof deduction available to it. As a result of the aforesaid discussion, thequestion, as framed, is answered in favour of theassessee, and against the Revenue. The appeal thus hasno force, and is dismissed. Rankawat JK,PS