Ita/922/2006 Of Commissioner Of Income Tax v. M/S.bhuwalka Steel Industries Ltd

IN THE HIGH COURT OF KARNATAKAAT BANGALORE Dated this the 3[ra]day of December, 2012 PRESENT THE HON’BLE MR JUSTICE D V SHYLENDRA KUMAR AND THE HON’BLE MR JUSTICE B MANOHAR Income Tax Appeal No. 922 of 2006 BETWEEN: 1.THR COMMISSIONER OF INCOME-TAXCENTRAL CIRCLE, C R BUILDINGCENTRAL CIRCLE, C R BUILDING QUEENS ROAD BANGALORE. 2.THE JOINT COMMISSIONER OF INCOME-TAX|SPECIAL RANGE - 4SPECIAL RANGE - 4 C R BUILDING, QUEENS ROAD BANGALORE.APPBRLLANT |By Sri G Kamaladhar, Adv.| AND: M/S BHUWALKA STEEL INDUSTRIES LTD.,NO 71, RESIDENCY ROAD|3 CROS»s, BANGALORE. | RESPONDENT iBy Sri M V Javali, Adv.| THIS APPEAL IS HKILED UNDER SECIION 2J6O0A OF TINCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED.16.12.2005 PASSED IN ITA NO. 122/BAN/2003, FOR THEASSESSMENT YEAR 1995-96, PRAYING TO SET ASIDE THE SAID.ORDER OF THE TRIBUNAL AND ETC., THIS APPEAL COMING ON FOR HEARING, THIS DAY,|SHYLENDRA KUMAR J.,DELIVERED THE FOLLOWING: | JU DBiGMENT Appeal by the revenue under Section 260A of theIncome Tax Act, 1961 {for short, the Act], raising the following substantial question of law: Whether the Appellate Authorities were correctin holding that the assessee would be entitledtoclaimdeductionOVECTthe|industrialundertaking taken over from M/s. A.A. AlloysLtd., despite the prohibition contained in sub-section 2 of Section 8O1l which would amountto reconstruction of already existing business)or plant previously used for any purpose. as question arising from the order dated 16-12-2005.passed by the income tax appellate tribunal, BangaloreBench, Bangalore in ITA No 122/Bang/2003 relating toassessment year 1995-96 of the respondent-assesseeCOMmpan»y 2.Appeal has been admitted for examination. 3.Brief facts leading to the above appeal are that: Theassessee is a limited company and for the assessment year in question viz., 1995-96 1.e. accounting period trom 1-4-1994 to 31-3-1995, to be precise, on 1-4-1994, anindustrial undertaking which was being run in the nameand style of M/s AA Alloys Ltd., a limited company, gotamalgamated with the assessee company in terms of aschemeot|amalgamationpropoundedbetween theassessee company and the other company before thiscourt and which was approved by this court as per orderdated 8-8-1995. There is no dispute about this factum. |In its return for the accounting period relating toassessment year 1995-96, the assessee company claimedthe benefit of the provisions of Section 80-I of the Act inrespect of a sum of Rs 21,90,823/- on the premise thatthis was the profit earned by the industrial undertakingwhich was hitherto being run by the amalgamatingcompany namely M/s AA Alloys Ltd., which activity has.been carried on by the assessee company on and aiter 1-4-]9904 etc. ,*The assessing officer was of the opinion that theclaim of the assessee company as had been admittedearlier was not correct and therefore reopened theassessment for the year concerned by issue of noticeunder Section 148 of the Act. The assessing officer was ofthe view that the assessee company was not eligible forthe deduction under Section 8O-I in view of the restrictionimposed under clause-(i1) of sub-section (2) of Section 80-Iof the Act. Sub-section (2) of Section 80-I of the Actreads as under: 8S8O0-eduction in respect of profits andgains from industrial undertakings after acertain date, etc.- (1) |XXX (2) This section applies to any industrialundertaking which fulfils all the following|conditions, namely :—| (t)it is not formed by the splitting up, or thereconstruction, of a business already inexistence;reconstruction, of a business already inexistence; (it)it is not formed by the transfer to a newbusiness of machinery or plant previouslyused for any purpose;|business of machinery or plant previouslyused for any purpose;| 8S8O0-eduction in respect of profits andgains from industrial undertakings after acertain date, etc.- (1) |XXX (2) This section applies to any industrialundertaking which fulfils all the following|conditions, namely :—| (t)it is not formed by the splitting up, or thereconstruction, of a business already inexistence;reconstruction, of a business already inexistence; (it)it is not formed by the transfer to a newbusiness of machinery or plant previouslyused for any purpose;|business of machinery or plant previouslyused for any purpose;| (111)it manufactures or produces any article orthing, not being any article or thingspecified in the list in the EleventhSchedule, or operates one or more coldstorage plant or plants, in any part ofIndia, and begins to manufacture orproduce articles or things or to operatesuch plant or plants, at any time withinthe period of ten years next following the1*[St]~day of March, 1981, or such further|period as the Central Government may, bynotification in the Official Gazette, specifywith reference to any particular industrialundertaking; (wv) inacase where the industrial undertaking|manufactures or produces articles orthings, the undertaking employs ten ormore workers in a manufacturing processcarried on with the ald of power, oremploys twenty or more workers in amanufacturing process carried on withoutthe aid ofpower : | Provided_ that the condition in clause (t)Shall not apply in respect of any industrialundertaking which is formed as a result ofthe re-establishment, reconstruction orrevival by the assessee of the business ofany such industrial undertaking as isreferred to in Section 33-B, in thecircumstances and within the periodSpecified in that section: Provided further» that the condition inclause (ii) shall, in relation to a small- scale industrial undertaking, apply as tfthe words "not being any article or thingspecified in the list in the EleventhSchedule” had been omitted. Explanation*— For the purposes of clause (it)of this sub-section, any machinery or plant|which was used outside India by any personother than the assessee shall not be regarded|as machinery or plant previously used for any|purpose, if the following conditions are fulfilled, namely :— (a) such machinery or plant was not, at any|time previous to the date of the installationby the assessee, used in India;time previous to the date of the installationby the assessee, used in India; (b)such machinery or plant is imported intoIndia from any country outside India; andIndia from any country outside India; and (c)no deduction on account of depreciation in:respect of such machinery or plant hasbeen allowed or is qllowahble under theprovisions of this Act in computing thetotal income of any person for any periodprior to the date of the installation of themachinery or plant by the assessee.respect of such machinery or plant hasbeen allowed or is qllowahble under theprovisions of this Act in computing thetotal income of any person for any periodprior to the date of the installation of themachinery or plant by the assessee. Explanation 2--— Where in the case of anindustrial undertaking, any machinery or plant|or any part thereof previously used for any|purpose is transferred to a new business and)the total value of the machinery or plant or partso transferred does not exceed twenty per cent|of the total value of the machinery or plant used|in the business, then, for the purposes of clause|(i) of this sub-section, the condition specified therein shall be deemed to have been compliedwith. Explanation 3'— For the purposes of this sub-section, "small-scale industrial undertaking"|Shall have the same meaning as in clause (b) ofthe Explanation below sub-section (8) of Section|SOHHA. While the assessing officer was of the view that it is a caseof transfer of machinery to a new business, it was claim ofthe assessee that it was not a transfer but it was a case of|amalgamation of earlier company with the assesseecompany and therefore not hit by the provisions of sub-section (2) of Section 8O-I of the Act. therein shall be deemed to have been compliedwith. Explanation 3'— For the purposes of this sub-section, "small-scale industrial undertaking"|Shall have the same meaning as in clause (b) ofthe Explanation below sub-section (8) of Section|SOHHA. While the assessing officer was of the view that it is a caseof transfer of machinery to a new business, it was claim ofthe assessee that it was not a transfer but it was a case of|amalgamation of earlier company with the assesseecompany and therefore not hit by the provisions of sub-section (2) of Section 8O-I of the Act. :*The assessment was finalized on such premise.The assessee company appealed on this aspect to thecommissioner of income tax (appeals) and met withsuccess, as the appellate commissioner was of the viewthat amalgamation of a company does not come within thescope of sub-section 47 of Section 2, in the definitionsection of the Act, defining ‘transfer’ and therefore allowed the appeal on this aspect of the matter and held that theview taken by the assessing officer was not correct. 8*Agegrievedby thisorderoT|theappellatecommissioner, the revenue took up the matter further byway of appeal to the income tax appellate tribunal by filingITA No 122(Bang)/2003, amongst other aspects. The|tribunal, purporting to follow the judgment of this court inthe case ofCOMMISSIONER OF INCOME TAX £VS-MASTER RAGHUVEER TRUST /[(1985S) 151 ITR 36>.took the view that amalgamation does not amount totransier within the meaning of Section 2(47) of the Act.The tribunal further observed that the revenue’s challengeto this order by way of a special leave petition to theSupreme Court being not successful, affirmed the viewtaken by the appellate commissioner and dismissed theappeal of the revenue. 5*It is aggrieved by this order, the present appeal onthe substantial question of law as already quoted above. E*We have heard Sri G Kamaladhar, learned standingcounsel for the revenue and Sri M V Javali, learned|counsel for respondent-assessee. | 9*Submission of Sri G Kamaladhar is that there wastransfer of the assets of the erstwhile company to theassessee-company and therefore it is hit by the provisionsof clause-(1i) of sub-section (2) of Section 8QO-I of the Act.Alternative submission is that the assessee companycannot claim a deduction under Section S8O-I of the Act inrespect of the income of the erstwhile company namelyM/s AA Alloys Ltd. In support of such submissions, SriKamaladhar has placed reliance on the decision of theSupreme Court in the case ofSARASWATI INDUSTRIALSYNDICATE LTD vs COMMISSIONER OF INCOME TAX(1990) 186 ITR 278] 10,However, learned standing counsel also brought to|our notice and fairly submits that the Madras High Court 10 in the case of.COMMISSIONER OF INCOME TAX vsSILICAL METALLURGIC LTD [(2010) 324 ITR 29]has|taken a view that amalgamation is not transfer within themeaning of Section 2(47) of the Act while it was examiningthe claim of an assessee relating to the benefits underSections SOHH and S8O-I of the Act. 11.On the other hand, learned counsel for respondent-assessee has submitted that amalgamation does notamount to transter and such is the consistent view taken|by all courts including Supreme Court and for suchsubmission has placed reliance on the decision of thiscourt in the case ofMASTER RAGHUVEER TRUSTjsupra|. He has also placed reliance on the very decision|of the Supreme Court in the case ofSARASWATIINDUSTRIAL SYNDICATE LTDjsupra|. 12,A perusal of the judgment of this courtMASTERRAGHUVEER TRUSTjsupra| does indicate that theallotmentoT|shares|withoutconsiderationOT] amalgamation of a company in which the assessee has.shareholding does not amount to transfer within themeaning of Section 2(47) of the Act for the purpose oflevying capital gains tax. 13,Both learned counsel for the revenue and theassessee have placed reliance on the decision of theSupreme Court in the case ofSARASWATI INDUSTRIAL 12,A perusal of the judgment of this courtMASTERRAGHUVEER TRUSTjsupra| does indicate that theallotmentoT|shares|withoutconsiderationOT] amalgamation of a company in which the assessee has.shareholding does not amount to transfer within themeaning of Section 2(47) of the Act for the purpose oflevying capital gains tax. 13,Both learned counsel for the revenue and theassessee have placed reliance on the decision of theSupreme Court in the case ofSARASWATI INDUSTRIAL SYNDICATEjsupra|. We find on a perusal of thisjudgment that the ratio of this case only supports the viewcanvassed by the assessee and not as canvassed by therevenue. Moreover, in the present case, the income isonly of the very assessee and not of the other companynamely M/s AA Alloys Ltd., as the said company ceased tobe in existence as on 1-4-1994 and there is no income§attributable to this company alter this date, but industrialdealing part of the assessee company and its profits andgains are to be examined and brought to tax only in thehands of the respondent-assessee company and therefore the assessee while can claim benefit of Section S8O-I of theAct, if otherwise eligible, unless it is hit by non-fulfilmentof any of the requirement in terms of sub-section (2) ofSection 80-I of the Act. 14,On this aspect, as we have found that theamalgamation does not come within the scope of ‘transfer’as defined in Section 2(47) of the Act and such being theview taken not only by this court, but Madras High Courtand also the Supreme Court, there is no question ofholding that the assessee disentitles the benefit of Section8O-I of the Act. The question framed is accordinglyanswered in the affirmative and therefore the appeal of therevenue is dismissed. K<JD Sd/-.JUDGE| Sd/-.JUDGE|