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: 1 : IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 10TH DAY OF OCTOBER, 2018 PRESENT THE HON’BLE MR. JUSTICE B.VEERAPPA AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A.No.100029/2014 BETWEEN:
THE COMMISSIONER OF INCOME TAX, SEDAM ROAD, GULBARGA.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, BELLARY.
...APPELLANTS
(BY SRI Y.V.RAVIRAJ, ADVOCATE)
AND:
M/S. TRIDENT MINERALS (100% EOU) NO. 811/2, NH-63, HOSPET ROAD, BELLARY.
...RESPONDENT
(BY SRI M.V.SESHACHALA, SR. COUNSEL FOR SRI H.R.KAMBIYAVAR, ADVOCATE)
THIS APPEAL IS FILED U/SEC.260A OF THE INCOME-TAX ACT, 1961 AGAINST ORDER PASSED IN ITA.NO.1050/BANG/2012, ON THE FILE OF THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH "A", THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10.
THIS APPEAL COMING ON FOR FINAL HEARING THIS DAY, B.VEERAPPA J., DELIVERED THE FOLLOWING:
: 2 : JUDGMENT
This appeal is filed by the Revenue against the order dated 07.02.2014 made in ITA No.1050/Bang/2012, for the assessment year 2009-2010 on the file of the Income Tax Appellate Tribunal, Bengaluru Bench “A”, allowing the appeal in part by upholding the provisions of Section 10B of the Income Tax Act, 1961 (for short ‘the Act’) and remanding the matter in respect of disallowance of excess profits amounting to Rs.4,76,52,385/- due to transactions with sister concerns from computation of the eligible deduction under Section 10B of the Act, was withdrawn by the assessee, when actually it was not so.
It is the case of the assessee that they carry business of production, manufacture and export of iron ore. On 05.10.2007, the assessee M/s.Trident Minerals 100% EOU formed a partnership firm and on 15.11.2007, approval was granted by SEZ as 100% Export Oriented Unit.
In the assessment year 2008-2009, they
: 3 : commenced production and manufacture. In the assessment year, 2009-2010, export takes place for the first time after merger. On 01.09.2006, M/s.KMNI Exports 100% EOU carrying on same business of manufacture, production and export of iron ore formed under a partnership firm. On 03.11.2006, 100% EOU approval was granted by SEZ. In the assessment year 2007-2008, it commenced production, manufacture and export of iron ore and in the assessment year 2008-2009, export of iron ore and claim of deduction under Section 10B of the Income Tax Act was allowed for the first year. On 02.05.2008, M/s.KMMI Exports merged with M/s.Trident Minerals 100% EOU. On 22.09.2009, return of income was filed under Section 139 (1) of the Act and deduction under Section 10B of the Act was claimed in respect of export income. The Assessing Officer after considering the entire material on record, by an order dated 26.12.2011 held that deduction under Section 10B of the Act was not allowable on the ground that two
: 4 : partnership firms had been merged and that assets of M/s.KMMI Exports had been taken over by M/s.Trident Minerals. In the appeal filed by the assessee, the Commissioner of Income Tax (Appeals), by an order dated 30.05.2012 allowed the appeal and also allowed the claim of the assessee under Section 10B of the Act.
On the appeal filed by the Deputy Commissioner of Income Tax, Ballari, the Tribunal by the impugned order dated 07.02.2014 dismissed the appeal filed by the Revenue and held that the assessee is entitled to claim benefit under the provisions of Section 10B of the Act. Aggrieved by the said order, the present appeal is filed.
We have heard learned counsel appearing for the parties to the lis.
Sri Raviraj, learned counsel appearing for the Revenue vehemently contended that the impugned order passed by the Tribunal allowing the claim of the assessee
: 5 : under Section 10B of the Act is without appreciating the fact that the assessee had not fulfilled the conditions as specified in Section 10-B (2) (iii) of the Act. He would further contend that the Tribunal ought to have appreciated that the provisions of Section 10B(2)(iii) of the Act, provided that the undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, Explanation 2 to Section 80I (2) of the Act, allows such transfer, where the total value of the machinery or plant or part so transferred does not exceed 20% of the total value of the machinery or plant used in the business. He would further contend that the Tribunal ought to have noticed the fact that as on the date of transfer of plant and machinery held by the assessee’s unit amounted to Rs.85,60,706/- whereas the total plant and machinery transferred by KMMI Exports amounted to Rs.1,57,75,341/- and as such, the plant and machinery used by KMMI Exports constitute 184% of the plant and
: 6 : machinery held by the assessee unit on the date of transfer. The Tribunal also has erred in not giving a clear finding with regard to the non-applicability of the provisions of Section 10B(2)(iii) of the Act to the case of the assessee while allowing its claim. Therefore, he sought to allow the appeal filed by the Revenue.
Per contra, Sri Seshachala, learned Senior Counsel appearing for the respondent/assessee sought to justify the impugned order passed by the Income Tax Appellate Tribunal, allowing the deduction under Section 10B of the Act and remanding the matter for re-consideration and the assessee’s cross appeal was remanded which is not challenged here. Therefore, no substantial question of law arises for consideration in this case. Hence, he sought to dismiss the appeal.
In support of his contentions, learned Senior Counsel relied upon the following: i) CBDT Circular No.1/2013 dated 17.01.2013,
: 7 : ii) The dictum of the division bench of the Hon’ble Allahabad High Court in the case of MKU (Armours) Pvt. Ltd., Vs. Commissioner of Income Act reported in [(2015) 376 ITR 0504 (All) pertaining to the assessment years 2007- 2008, 2008-2009 and 2009-2010 under Section 10B of the Act, iii) In the case of Commissioner of Income Tax Vs. Renuga Textiles Mills Limited reported in [(2012) 254 CTR 0423] pertaining to the assessment year 1994-1995 with regard to exemption under Section 10B of the Act.
Having heard the learned counsel for the parties, it is not in dispute that the assessee firm was formed by a Partnership Deed dated 05.10.2007 to carry on the production and trading/export of iron ore. For the assessment year 2009-2010, the assessee e-filed its return of income on 22.09.2009 declaring income of
: 8 : Rs.1,31,23,150/-. The return of income was processed under Section 143(1) of the Act and the case was taken up for scrutiny. In the period/year under consideration, there was a merger of another partnership firm, namely M/s. KMMI Exports, a 100% EOU with the assessee firm, which was also a 100% EOU. The erstwhile firm M/s.KMMI Exports also had the same partners and was in the same line of business as the assessee firm. The case was selected for scrutiny and the assessment was completed by an order under Section 143 (3) of the Act wherein the Assessing Authority has not allowed the deduction under Section 10B of the Act. On the appeal filed by the assessee, the Commissioner of Income Tax allowed the appeal on 30.05.2012 and recorded a finding that the Circular of the Board issued under Section 84 was not withdrawn and was still in force. It is the Rule and also the practice of the Board to withdraw the Circular once it is not relevant. Therefore, the Circular No.15/5/63-IT(A1) dated 13.12.1963 is in force and
: 9 : relevant in the present context, when the clauses under Section 80J and 10B are similar, as already stated earlier citing the authority of Hon’ble Apex Court. It was also recorded by the appellate authority that the observation made by the Assessing Officer, as per Section 10B(7) only Indian Company is eligible for amalgamation is not appropriate. As mentioned by the assessee in the written submissions that “the sub sections (9) and (9A) which were omitted w.e.f. 01.04.2004 clearly suggests that the transfer by any means will not entitle the deduction under this Section only upto 31.03.2003. In other words, the transfer by any means is allowed w.e.f. 01.04.2004 by implication moreover the firms merged are family concerns with same partners, with the same sharing ratio and doing the same business and two firms are having 100% EOU recognized by the SEZ Authorities.
Hence, the Commissioner of Income Tax held that the claim of the assessee was justifiable and the same was allowed.
: 10 : 9. On appeal filed by the Revenue, the Income Tax Appellate Tribunal recorded a finding that the unit of the assessee firm is a 100% EOU unit entitled for deduction under Section 10B of the Act. It is also seen that the assessing officer has not disputed the EOU status of the unit of M/s. KMMI Exports also. The issue for consideration is after the merger of the firm M/s. KMMI Exports with the assessee firm, whether the assessee firm is entitled for deduction under Section 10B of the Act. Earlier, there was sub section 9 to Section 10B of the Act, which specifically provided that the deduction cannot be allowed, if there was a transfer of ownership or beneficial interest in the undertaking. The sub Section 9A of Section 10B of the Act was introduced can be allowed, if a firm is succeeded by a company. This sub Section was also omitted with effect from 01.04.2004. In this view of the matter, the inevitable and appropriate conclusion is that the limitations specified in sub-sections 9 and 9A of Section 10B of the Act do not exist from 1.4.2004 and
: 11 : therefore, the conclusion of the assessing officer that deduction under section 10B of the Act cannot be granted on the merger of firms is not correct.
The Tribunal after recording a finding that in view of the CBDT Circular No. 1 of 2013, dated 17.01.2013, it is clear that deduction is granted to the undertaking. Therefore, it follows as long as the undertakings remain eligible for deduction under Section 10B of the Act, the deduction cannot be denied merely on the ground that there has been a merger of the firms which own the undertakings. The assessing officer has not rendered any finding that either on the units, belonging to the assessee and the other belonging to the firm that got merged i.e. KMMI Exports, is not eligible for deduction under Section 10B of the Act. The only reason adduced is that due to the merger of the two units, the assessee is deploying assets already put to use by the merged firm and hence the assessee cannot claim deduction under Section 10B of
: 12 : the Act. The tribunal further recorded a finding that both the units/undertakings of the assessee firm and M/s. KMMI Exports are otherwise eligible for deduction under Section 10B of the Act and the deduction is towards undertaking as long as undertakings are agreeable that Section 10B of the Act which is not been disputed by the assessing officer meager of the firm and M/s. KMMI Exports which is not undertaking in view of the above, the Tribunal upholding the order passed by the Appellate Court allowing the assessment deduction under Section 10B of the Act. Accordingly, grounds urged by the revenue in respect of point Nos. 2 and 3 are dismissed.
Insofar as the assesse’s cross objection Sl.Nos. I to IV of the order of the Income Tax Appellate Tribunal states the disallowance made by the Assessing Officer and which are issues on the cross objection of the assessee and admittedly order passed by the Income Tax
: 13 : Appellate Tribunal in respect of cross objection has not been challenged in the present appeal.
It is also not in dispute that in view of the CBDT Circular dated 17.01.2013, wherein it clearly held that the vital factor in determining the issue would be facts such as how a slump sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking an the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfillment of prescribed conditions. In the present case, the ownership of the firm is 100% EOU Unit is not disputed.
: 14 : 13. The Division Bench of Allahabad High Court in the case of MKU (Armours) Pvt. Ltd V/s. Commissioner of Income Tax, reported in [(2015) 376 ITR 0504 (All) at para 21 held as under: “Suffice it to say that the view of the Tribunal is wholly misconceived. It may be mentioned that in terms of the agreement dated 19.03.2007, effective from 1.4.2007, the entire industrial undertaking, lock stock and barrel had been taken over by MKU Private Ltd. with due approval of the competent authority as designated under Industries (Development) Regulation Act 1953 and Excise Authorities. The premises of MKU (Private) Ltd., the successor had duly been approved, licenses were surrendered by the formed in favour of the later. The name of implementing agency i.e. MKU Private Ltd. was substituted in place of MKU (Armours) Private Ltd., by the authorities. Therefore, it was not a case where part of the machines had been transferred from MKU (Armours) Private Ltd. to MKU Private Ltd. The provisions contained in sub-section(7A) as have been inserted w.e.f. 1.4.2004, with simultaneous abolition of sub-section (9) and (9A) of section 10B, provides for continuance of benefit in favour of the successor unit, for the unexpired period.”
The similar question was also arise before the Division Bench of Madras High Court in the case of Commissioner of Income Tax Vs. Renuga Textiles Mills Ltd, reported in [(2012) 254 CTR 0423 at para 12 held as under:
: 15 : “Extending the said decision to sub clause (iii) of Section 10B(2) of the Act, it is clear that as a result of the merger of the subsidiary company with the holding company, there is no new business formed by transfer of machinery or plant previously used for any business, as pointed out by the Apex Court that “strictly amalgamation does not cover the mere acquisition by a company of the share capital of the other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition”, it is no doubt true as per the law laid down by the Apex Court that on merger, the amalgamating company looses its entity. But, then by such merger there is no formation of new business to disqualify the claim of the assessee for deduction under Section 10B of the Act. As already pointed out and rightly relied on by the assessee, the CBDT circular dated 13.12.1963, referred the benefit of Section 84 as available to successor for remaining years. In the said circular, the Board pointed out that the benefit under Section 84 is attached to the undertaking and not to the owner and the successor would be entitle to the benefit for the unexpired period of five years provided the undertaking is taken over as a running concern and continues its business as an EOU.”
It is undisputed fact that the claim made by the assessee for deduction under Section 10B of the Act for the assessment year 2009-2010 after the merger of two firms with effect from 26.12.2011. It is also undisputed that in view of the deletion of the provision of sub-section 9 of Section 10B was omitted from the statute with effect from 01.04.2004 and in view of the dictums of the Division Bench of the Allahabad High Court and the Madras High
: 16 : Court (supra), the appellant has not made out any substantial questions of law as raised at para 5 of the appeal memorandum.
In view of the above, the appeal upholding the deduction under Section 10B of the Act by the Income Tax Appellate Tribunal is just and proper. The revenue has not made out any ground to interfere with the impugned order passed by the Income Tax Appellate Tribunal exercising powers under Section 260A of the Income Tax Act, 1961. Accordingly, the appeal is dismissed.
Sd/- JUDGE
Sd/- JUDGE
Jm-paragraphs 1 to 8, Vb-from paragraph 8 till end