Loading judgment…
No AI summary yet for this case.
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF OCTOBER, 2015
PRESENT
THE HON'BLE MR. JUSTICE VINEET SARAN
AND
THE HON’BLE MRS. JUSTICE S.SUJATHA
ITA NO.773/2009
BETWEEN:
THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD, BANGALORE.
THE ASST. COMMISSIONER OF
INCOME-TAX,
CIRCLE-11(5), C.R.BUILDING,
QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI K.V.ARAVIND, ADV.,)
AND:
M/S. KBD SUGARS & DISTILLERIES LTD. (FORMERLY KARNATAKA BREWERIES & DISTILLERIES PVT. LTD.,) NO.17, SANKEY ROAD, BANGALORE-560 020. …RESPONDENT (BY SRI S.PARTHASARATHI, ADV.,)
THIS ITA IS FILED UNDER SECTION 260A OF I.T.ACT. 1961 ARISING OUT OF ORDER DATED 10.07.2009 PASSED IN ITA NO.1051/BNG/2008, FOR THE ASSESSMENT YEAR 2005- 2006, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW ; ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5), BANGALORE.
THIS ITA COMING ON FOR HEARING THIS DAY, VINEET SARAN J., DELIVERED THE FOLLOWING:
JUDGMENT
This is the appeal filed by the Revenue challenging the order of the Tribunal dated 10.07.2009. The brief facts of this case are that the respondent-Company is engaged in the business of manufacture of beer, IML and speed zone. By an amalgamation Scheme, which was approved by the High Courts of Karnataka and Andhra Pradesh vide orders dated 08.03.2006 and 17.04.2006 respectively, M/s. Shree Vani Sugars and Industries Ltd., (hereinafter referred to as the ‘Amalgamating Company’) amalgamated with the respondent-assessee M/s.KBD Sugars and Distilleries Ltd., (hereinafter referred to as the ‘Amalgamated Company’) with effect from 01.03.2005. The amalgamating company was engaged in the business of manufacturing and trading of sugar and generation of power. It was in the business of manufacture of sugar since 1984 and had commenced the business of power generation with effect from 08.08.2003, which was by way of expansion of its business.
For the relevant year 2005-06, the assessee- amalgamated company had declared its business income of Rs.24,64,96,704/- and the brought forward losses of the amalgamating company, being Rs.21,33,48,234/-, were set
off against the above income. Out of the aforesaid business loss of amalgamating company, which was set off against the income of the respondent-amalgamated company for the relevant assessment year, the Assessing Officer disallowed the business loss and unabsorbed depreciation amounting to Rs.3,48,87,613/- as the same was the business loss from the business of power generation which was brought forward and claimed for set off. Challenging the order of the Assessing Officer, the assessee-amalgamated company filed an appeal, which was allowed by the Commissioner of Income Tax (Appeals). Aggrieved by the same, the appellant- Revenue filed an appeal before the Tribunal, which has been dismissed. Challenging the said order, the Revenue has filed this appeal.
We have heard Sri K.V.Aravind, learned counsel for the Revenue as well as Sri S.Parthasarathi, appearing along with Ms.Jenita Chatterji, learned counsel for the respondent and perused the record.
This appeal was Admitted on 02.06.2010 for considering the following questions of law:
“1. Whether the Appellate Authorities were correct in holding that the period of three years as prescribed u/s.72A(2)(a)(i) of the Act has to be computed including the period of setting up
of business and not from the date of commencement of actual production?
ii. Whether the Appellate authorities were correct in holding that the assessee is entitled to set off of unabsorbed business loss/unabsorbed depreciation pertaining to the power generation business of the amalgamating company, though the business of power generation was commenced by the amalgamating company from 08.08.2003 and consequently does not fulfil conditions prescribed u/s.72A(2)(a)(i) of the Act?”
The submission of Sri K.V.Aravind, learned counsel for the appellant-Revenue is that even though the amalgamating company had been carrying on the business of manufacturing of sugar for the past several years but it had commenced its business of power generation only on 08.08.2003, which was within three years of the amalgamation, and thus the benefit of carrying forward of such losses of the amalgamating company could not be granted in favour of the assessee-amalgamated company. It is contended that even though the activities for establishing the power generation unit may have commenced earlier, but the benefit of Section 72A of the Income Tax Act, 1961 (for short ‘the Act’) would be granted to the assessee- amalgamated company only after the amalgamating company had commenced business, which it did so on 08.08.2003, which was within the period of three years prior
to the date of amalgamation, which was 01.03.2005. It is, thus, contended that though the business loss of the sugar unit of the amalgamating company could be brought forward, but since the loss of Rs.3,48,87,613/- was the loss occurred from the power generation unit of the amalgamating company, the same could not be allowed. In support of his submission, learned counsel has submitted that Section 32 of the Act, which deals with depreciation where the tangible assets are “used” for purposes of business engaged in generation or generation and distribution of power, and as such the depreciation is to be granted only when the asset is actually used for such purpose.
Per contra, Sri Parthasarathy, learned counsel for the respondent-amalgamated company has submitted that Sub-section (2) of Section 72A of the Act speaks of the accumulated loss of the amalgamating company and not an individual unit of the company, as the amalgamating company has to be seen as a whole and not bifurcated into different business units. In the alternative, it is submitted that even if the business loss of power generation unit of the amalgamating company is treated separately, then too, the benefit of Section 72A of the Act has rightly been given, as even though the commercial production or generation of
power may have commenced from 08.08.2003, but it was engaged in the business of power generation from the year 2000, for which evidence had been duly adduced before the authorities below.
For proper perusal of this case, the relevant Sub-sections (1) and (2) of Section 72A of the Act are reproduced below: Sec.72A: Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc. 72A. (1) Where there has been an amalgamation of—
(a) a company owning an industrial undertaking or a ship or a hotel with another company; or
(b) a banking company referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a specified bank; or
(c) one or more public sector company or companies engaged in the business of operation of aircraft with one or more public sector company or companies engaged in similar business, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly.
(2) Notwithstanding anything contained in sub- section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless— (a) the amalgamating company— (i) has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) has held continuously as on the date of the amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date of amalgamation; (b) the amalgamated company— (i) holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose.]
xxxx
xxxx
xxxx
xxxx
Provided …………..
6(A) xxxx
Provided ………….
xxxx………………..”
It is not in dispute that the amalgamating company-Shree Vani Sugars and Industries Ltd., was amalgamated with the respondent-assessee company with effect from 01.03.2005, which falls in the assessment year 2005-06. It is also not in dispute that the amalgamating company was in business since 1984. It is admitted that in the year 2000, the amalgamating company had started work for establishment of power generation business and after establishing the unit, the power generation or such business had commenced from 08.08.2003.
In our view, ‘commencement of business’ would be different from ‘engaged in business’. It is the latter phrase which has been used in Section 72A(2)(a). ‘Commencement of business’ may be from the date when production may start but to say that a party would be ‘engaged in business’ only from the date it commences production, would not be correct. A party engages itself in a particular business from the day when it gets involved in setting up of the business.
Section 32 of the Act, deals with depreciation. There it is provided that the tangible asset should be ‘used’ by the undertaking engaged in generation of power. For
claiming depreciation under that Section, the asset should be ‘used’ for business, meaning thereby, after business commences, which is different from engagement in business. This, to our understanding, only clarifies that the phrases ‘commencement of business’ and ‘engaged in business’ are different. Former may apply for Section 32 but the latter would apply in the case of Section 72A of the Act.
In the present case, the licence for setting up business of power generation, loans for the same, construction of the building and purchase of machinery etc., had started from the year 2000 itself, which was duly reflected in the books of account of the amalgamating company. As such, the view taken by the Appellate Authority [CIT (Appeals)] as well as the Tribunal, in this regard that the amalgamating company was engaged in the business of generation of power much prior to three years from the date of amalgamation of the Company, cannot be faulted. In the facts of this case, it cannot be disputed that the engagement of the amalgamating company in the business of power generation had begun from the year 2000, even though the production or generation of power, i.e., the commencement of business may have been with effect from 08.08.2003.
Even otherwise, a perusal of Sub-section (2) of Section 72A of the Act would go to show that it is the loss of the amalgamating company as a whole, which is set off or carried forward, and not of a particular unit or division of that amalgamating Company. It is the amalgamating company, which should be in business for three years or more, prior to the date of amalgamation, and not a particular unit or division of that amalgamating company. Admittedly, the amalgamating company has been in the business since the year 1984. As such also, in our view, since the amalgamating company was in business for more than three years prior to the date of amalgamation, the benefit of Section 72A of the Act ought to have been, and has rightly been, granted to the assessee.
We may also mention that Section 72A of the Act provides for set off of accumulated loss and unabsorbed depreciation, which is for the benefit of the assessee- amalgamated company. Thus, in our view, when a provision is for the benefit of an assessee, it should be liberally interpreted in favour of the assessee which has to be given the benefit of such provision. It is well settled law that if two views are possible, then the one in favour of the assessee (amalgamated company in this case) should be adopted. We
are thus of the opinion that the assessee-amalgamated company would be entitled to the benefit of Section 72A of the Act.
In view of the aforesaid, the two questions of law raised in this appeal are answered in favour of the assessee- amalgamated company and against the revenue. The appeal is accordingly dismissed. No order as to costs.
Sd/-
JUDGE
Sd/-
JUDGE