Ita/14/2021 Of Principal Commissioner Of Income Tax v. Altruist Technologies Pvt Ltd

IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA ON THE 15[th] DAY OF SEPTEMBER, 2022. BEFORE HON’BLE MR. JUSTICE TARLOK SINGH CHAUHAN&HON’BLE MR. JUSTICE VIRENDER SINGH INCOME TAX APPEAL NO.14 OF 2021. PR. COMMISSIONER OF INCOME TAX, SHIMLA. …..APPELLANT. (BY SH. VINAY KUTHIALA, SENIORADVOCATE WITH MS. VANDANA KUTHIALAAND SH. DIWAN SINGH NEGI, ADVOCATES) AND M/S ALTRUIST TECHNOLOGIES PVT. LTD.4 FLOOR, BEHIND HOTEL FIRHILL, NEARTUNNEL 103, SHIMLA, THROUGH ITSMANAGING DIRECTOR. …...RESPONDENT. (BY SH. VISHAL MOHAN, ADVOCATE) This appeal coming on for hearing this day, Hon’ble Mr.Justice Tarlok Singh Chauhan, delivered the following:J U D G M E N T The facts giving rise to the instant appeal are that theassessee-company is engaged in the business of Informationand Communication Technology, functioning from two units i.e. Unit-II and Unit-III and filed its return of income on 28.09.2012declaring an income of Rs.13,23,02,140/- after claimingdeduction under Chapter VIA of the income Tax Act, 1961 (forshort “Act”) at Rs.25,30,08,905/-. Deduction under section 80ICof Rs.25,29,54,074/- was claimed for both the units (comprisingRs.4,31,35,176/- @ 30% for Unit-II and Rs. 20,98,18,898/- @ 100% for Unit-III. 2.The assessee-company started its operations fromUnit-I at Jharmajri, Baddi, in the year 2005. In July, 2006, theCompany moved its operations from Baddi to Shimla and startedits operations at Unit-II at STPI Building, Block No. 24, SDAComplex, Kasumpti, Shimla. In the Financial Year 2009-10, theassessee-company extended its business operations and usedthe space available at its registered office at Altruist Mount,Behind Hotel Firhill, near Tunnel 103, Shimla. This has beenclaimed by the assessee as Unit-III in its submissions filed duringthe course of assessment proceedings as per information inForm No.10CCB, first Assessment Year for the Unit-II for claim ofdeduction u/s 80IC was Assessment Year 2006-07 and firstAssessment Year for Unit-III for claim of deduction u/s 80IC wasAssessment Year 2010-11. The assessee-company started its operations from 3.The Assessing Officer, vide its order (Annexure P-1),came to the conclusion that the assessee was not entitled toclaim any benefit under Section 80-IC of the Act as Unit-III wasnot a new Unit and it was reconstruction of an existing Unit-II. 4.Aggrieved against the orders passed by the Assessing Officer, assessee filed appeal before theCommissioner of Income-tax (Appeals), Shimla. 5. The Appellate Authority also came to the conclusion that the assessee was not entitled to claim deduction underSection 80-IC of the Act, as the Unit-III did not have anindependent existence. The Appellate Authority held that theAssessing Officer had rightly held that the operation of Unit-III wasnothing but an extension of operation of Unit-II. 6.Thereafter, assessee preferred appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the“Tribunal” in short) and the Tribunal vide its impugned order dated02.11.2018 allowed the appeal. Hence, the present appeal by theappellant-Department. 7.At the time of admission of the appeal, followingsubstantial question of law were framed:- “(i)Whether on the facts and in the circumstances ofthe case, the finding of the Hon’ble ITAT is perverse andcontrary to the material on record? (ii)Whether on the facts and in the circumstances ofthe case, the Hon’ble ITAT is right in holding that theassessee has right to get deduction u/s 80IC(4)(i) inrespect of the new unit though the same was in factreconstruction/splitting of old unit?” 8. Mr. Vinay Kuthiala, learned Senior Counsel assisted Income Tax Appellate Tribunal (hereinafter referred to as the“Tribunal” in short) and the Tribunal vide its impugned order dated02.11.2018 allowed the appeal. Hence, the present appeal by theappellant-Department. 7.At the time of admission of the appeal, followingsubstantial question of law were framed:- “(i)Whether on the facts and in the circumstances ofthe case, the finding of the Hon’ble ITAT is perverse andcontrary to the material on record? (ii)Whether on the facts and in the circumstances ofthe case, the Hon’ble ITAT is right in holding that theassessee has right to get deduction u/s 80IC(4)(i) inrespect of the new unit though the same was in factreconstruction/splitting of old unit?” 8. Mr. Vinay Kuthiala, learned Senior Counsel assisted by Ms. Vandana Kuthiala and Mr. Diwan Singh Negi, Advocates,for the appellant-Department, has submitted that the Tribunal haderred in reversing the findings arrived at by the Assessing Officeras well as the Appellate Authority with regard to the fact that theUnit-III, run by the assessee, was not an independent Unit. In fact,appellant was not entitled to claim benefit under Section 80-IC ofthe Act. Unit-III was being operated from the registered office ofthe assessee and no rent was being paid by the assessee. 9. Mr. Vishal Mohan, learned Counsel for the assessee, on the other hand, has opposed the appeal and has submittedthat it has been duly noticed by the Tribunal that Unit-II andUnit-III were run by the assessee-company from differentbuildings. Separate staff had been employed by the assessee forrunning both the Units. Investment qua both the units had been separately made by the assessee and separate Account Books(which were duly audited), were being maintained by theassessee. There was no inter-lapping between Unit-II and Unit-III.10.In support of his arguments, the learned counsel forthe assessee-company, has placed reliance on a decisionrendered by the Hon’ble Supreme Court in case titled “BajajTempo Ltd. versus Commissioner of Income Tax”, reported in (1992) 3 SCC 78, wherein, it was held as under:- “9.Initial exercise, therefore, should be to find out ifthe undertaking was new. Once this test is satisfiedthen clause (1) should be applied reasonably andliberally in keeping with spirit of Section 15-C (1) ofthe Act. While doing so various situations may arisefor instance the formation may be without anythingto do with any earlier business. That is theundertaking may be formed without splitting up orreconstructing any existing business or withouttransfer of any building material or plant of anyprevious business. Such an undertakingundoubtedly would be eligible to benefit without anydifficulty. On the other extreme may be anundertaking new in its form but not in substance. Itmay be new in name only. Such an undertakingwould obviously not be entitled to the benefit. Inbetween the two there may be various othersituations. The difficulty arises in such cases. Forinstance a new company may be formed, as was in this case a fact which could not be disputed, evenby the Income Tax Officer. But tools andimplements worth Rs.3,500 were transferred to it ofprevious firm. Technically speaking it was transferof material used in previous business. One couldsay as that vehemently urged by the learnedcounsel for the department that where the languageof statute was clear there was no scope forinterpretation. If the submission of the learnedcounsel is accepted then once it is found that thematerial used in the undertaking was of a previousbusiness there was an end of enquiry and theassessee was precluded from claiming any benefit.Words of a statute are undoubtedly the best guide.But if their meaning gets clouded then the courtsrequired to clear the haze. Sub-section (2)advances the objective of sub-section (1) byincluding in it every undertaking except if it iscovered by clause (i) for which it is necessary that itshould not be formed by transfer of building ormachinery. The restriction or denial of benefit arisesnot by transfer of building or material to the newcompany but that it should not be formed by suchtransfer. This is the key to the interpretation. Theformation should not be by such transfer. Theemphasis is on formation not on use. Therefore it isnot every transfer of building or material but the onewhich can be held to have resulted in formation ofthe undertaking. In Textile Machinery CorporationLtd. v. Commissioner of Income Tax, West Bengal, 107 [1977] 195 SC, this Court while interpretingSection 15-C observed (SCC p.375, para 18): "The true test, is not whether the newindustrial undertaking connotes expansionof the existing business of the assesseebut whether it is all the same a new andidentifiable undertaking separate anddistinct from the existing business. Noparticular decision in one case can laydown an inexorable test to determinewhether a given case comes under Section15-C or not. In order that the newundertaking can be said to be not formedout of the already existing business, theremust be a new emergence of a physicallyseparate industrial unit which may exist onits own as a viable unit. An undertaking isformed out of the existing business if thephysical identity with the old unit ispreserved." Even though this decision was concernedwith the clause dealing with reconstructionof existing business but the expression `notformed' was construed to mean that theundertaking should not be a continuation ofthe old but emergence of a new unit.Therefore even if the undertaking isestablished by transfer of building, plant ormachinery but it is not formed as a result of such transfer the assessee could not bedenied the benefit.” 11.Learned counsel for the assessee-company, hasfurther placed reliance on a decision rendered by the Hon’bleSupreme Court in case titled “Textile Machinery CorporationLtd., versus Commissioner of Income Tax”, reported in IncomeTax Reports Vol.107 (1977) at page No.195, wherein, it was heldas under:- “Page 206. …Reconstruction of business involvesthe idea of substantially the same persons carryingon substantially the same business. It is stated onbehalf of the Revenue that the same company in theinstant case continues to do the same business ofheavy engineering---no matter certain spare partsnecessary as components to completion of the end-product are now manufactured in the business itself.The fact that the assessee is carrying on the generalbusiness of heavy engineering will not prevent himfrom setting up new industrial undertakings and fromclaiming benefit under section 15C if that section isotherwise applicable. However, in order to beentitled to the benefit under section 15C, thefollowing facts have to be established by theassessee, subject always to time-schedule in thesection :-- (1) investment of substantial fresh capital inthe industrial undertaking set up, (2) employment of requisite labour therein, (1) investment of substantial fresh capital inthe industrial undertaking set up, (2) employment of requisite labour therein, (3) manufacture or production of articles in thesaid undertaking,said undertaking, (4) earning of profits clearly attributable to thesaid new undertaking, and said new undertaking, and (5) above all, a separate and distinct identity ofthe industrial unit set up. the industrial unit set up. We may add that there is no bar to anassessee carrying on a particular business toset up a new industrial undertaking onaccount of which exemption of tax undersection 15C may be claimed. The legislature has advisedly refrained frominserting a definition of the word'reconstruction' in the Act. Indeed, in theinfinite variety of instances of restructuring ofindustry in the course of strides in technologyand of other developments, the question hasto be left for decision on the peculiar facts ofeach case. If any undertaking is not formed byreconstruction of the old business thatundertaking will not be denied the benefit ofsection 15C simply because it goes toexpand the general business of theassessee on some directions. As in theinstant case, once the new industrialundertakings are separate and independentproduction units in the sense that thecommodities produced or the results achieved are commercially tangible productsand the undertakings can be carried onseparately without complete absorption andlosing their identity in the old business, theyare not to be treated as being formed byreconstruction of the old business.” 12.Before the Tribunal, it had been demonstrated by theassessee that Unit-II & Unit-III were being operated from separatebuildings with separate employees, separate clientage, separatesale-tax registration numbers and separate registration withDistrict Industries Center. The said Chart, as reproduced in theorder passed by the Tribunal, is as under:- “….. ParticularsUnit-IIUnit-IIIName and Altruist Technologies Altruist address of the Pvt. Ltd., Unit-II, BlockTechnologies Pvt. Unit24, SDA Commercial Ltd. Unit-III, 4[th]Complex, STPI Floor, Altruist Mount,Building Kasumpti, Behind Firhill, Shimla. Shimla. Distance 7 Kms. between the two unitsService Tax AAFCA3725NST001Registration No.Sales Tax 965814158Registration No.Registration with No.02/011/21/00038, No.02/11/21/00256 District Industriesdated 30.3.2007effective from Centre, Shimla31.12.2009Date of 21.09.200531.12.2009Commencement of Production Initial A.Y. u/s A.Y. 2006-07A.Y.2010-11 80-ICAccounts Books Separately maintainedSeparately and duly audited maintained and dulyauditedInvestment in 45,16,158/-76,15,962/-Computers (100% new (being primary purchases with no plant & transfers form machinery) in Unit-II)A.Y. 2010-11Attributable 20,85,23,896/-1,06,90,722/-profits No. of employees175 employees27 employeesas of date of formation of Unit-3.UNIT-II Clients Unit II - invoiced amount (Rs.)Bharti Airtel 173825288Bharti Airtel - Shimla1108148Bharti Airtel - Mohali5820103Bharti Airtel - Kolkata125176Bharti Airtel - Delhi1428765Idea Cellular Ltd11223942MTNL-Delhi3865460RCIL-Mumbai121567046Tata Teleservices Ltd., 25859599MumbaiTotal34,38,23,527UNIT-III Clients Unit III - invoiced amount (Rs.)Aircel Lad1061050Hungama Debtor4002574MTNL-Mumbai258361Shotformats Digital Productions1469686Pvt. Ltd. AMA India Consultants Income610786Federation of All India 18000Aluminum Utensils ManufacThe Tribune Trust200000 Total 17,169,557.....” Clients Unit II - invoiced amount (Rs.)Bharti Airtel 173825288Bharti Airtel - Shimla1108148Bharti Airtel - Mohali5820103Bharti Airtel - Kolkata125176Bharti Airtel - Delhi1428765Idea Cellular Ltd11223942MTNL-Delhi3865460RCIL-Mumbai121567046Tata Teleservices Ltd., 25859599MumbaiTotal34,38,23,527UNIT-III Clients Unit III - invoiced amount (Rs.)Aircel Lad1061050Hungama Debtor4002574MTNL-Mumbai258361Shotformats Digital Productions1469686Pvt. Ltd. AMA India Consultants Income610786Federation of All India 18000Aluminum Utensils ManufacThe Tribune Trust200000 Total 17,169,557.....” 13.It was the case of the assessee before the Tribunalthat earlier the Company was giving services in relation of oneproduct, i.e. voice chat to its clients, like Airtell, Reliance, Idea &Tata. Since the business of the company had grown, it found itnecessary to start a new Unit with a view to expand its area ofservice and consequently, a separate Unit was started, givingservices to other Non-Telco Companies/Clients in the field ofInformation, Technology and Software Services. The officebuilding, where Unit-III had been started, was earlier registeredoffice of the company, whereas, Unit-II was being run fromanother building which was situated at a distance of about 7kilometers from the registered office. The building where Unit-IIIwas being run had been purchased by the assessee-company on21.01.2008, but the premises was let-out on rent to some otherparty. Thereafter, the premises was got vacated and theregistered office of the company was shifted to the said premisesin assessment year 2009-10. Thereafter, Unit-III was started in thepremises after completing necessary formalities. The operation ofUnit-III, commenced in the assessment year 2010-11. 14. The Assessing Officer was influenced by the fact thatsince Unit-III was being run by the assessee in its registeredoffice, therefore, activities done in Unit-III were identical in natureto those done by Unit-II. The Assessing Officer had failed toappreciate that the building, where Unit-III had been started, hadin fact been given on rent, whereas, Unit-II was being run in aseparate building which was at a distance of about 7 kilometers.The building where the registered office was started in theassessment year 2009-10, was got vacated and thereafter Unit-IIIwas started in the said premises in assessment year 2010-11. Itwas not a case where plant and machinery of Unit-II had beenused for Unit-III. The business of the company had grown andwith a view to expand its business, the company started a newUnit by making investment as shown in the Chart reproducedabove. New employees were recruited by the assessee for Unit-III. Separate account books were maintained by assessee quaUnit-II & Unit-III. 15.In view of the facts and circumstances of the case,the learned Tribunal rightly came to the conclusion that theassessee was entitled to claim benefit under Section 80-IC of the Act by treating Unit-III of the assessee-company as a separateand distinct Unit. 16.In the facts and circumstances of the case, the findings recorded by the Tribunal can neither be said to beperverse or result of misreading of evidence and material onrecord. The substantial questions of law stand answeredaccordingly. 17.Consequently, the appeal is dismissed. 18.Pending miscellaneous application(s), if any, shall also stand disposed of. (Tarlok Singh Chauhan) Judge (Virender Singh) Judge 15[th] September, 2022. (krt)