Whether Assessee-Company qualified for deduction u/s 80 IA of IT Act, 1961 in case of Firm was converted into private limited company

COMMISSIONER OF INCOME TAX, UDAIPUR (APPELLANT) VS. CHETAK ENTERPRISES PVT. LTD. (RESPONDENTS)
SUPREME COURT OF INDIA

QUESTION- Whether Assessee-Company qualified for deduction under Section 80-IA of Income Tax Act, 1961 in case of Firm was converted into private limited company.

BRIEF FACTS

1. The erstwhile partnership firm entered into an agreement with the Government of Rajasthan for construction of road and collection of road/toll tax.

2. The construction of road was completed by the said firm and the same was inaugurated.

3. The firm was converted into a private limited company.

4. On conversion of the firm into company, an intimation was given to the Chief Engineer (Roads).

5. The said authority noted the change and cancelled the registration of the firm and granted a fresh registration code to the Assessee-Company.

6. The road was inaugurated, and the Assessee-Company started collecting toll tax.
7. For the relevant assessment year, the Assessee-Company claimed deduction under Section 80-IA of the Income Tax Act, 1961.

8. The assessing officer declined that claim of the Assessee-Company, which decision was reversed by the Commissioner.

9. The Income Tax Appellate Tribunal confirmed the decision of the first appellate authority.

10. As a result, the Department preferred an appeal before the High Court.

11. The High Court held that Respondent/Assessee-Company qualified for the deduction under Section 80-IA of Act.

JUDGEMENT OF APEX COURT

12. For the purpose of considering compliance of Clause (a) of Section 80-IA(4)(i), the Assessee must be an enterprise carrying on business of developing, maintaining and operating or developing, maintaining and operating any infrastructure facility, which enterprise was owned by a company registered in India. That stipulation was fulfilled in the present case, as the registered firm was converted into a company under Part IX of the Companies Act, which was before the commencement of Assessment Year.

13. For the assessment year under consideration, the activity undertaken by the Assessee was only maintaining and operating or developing, maintaining and operating the infrastructure facility, in as much as, the construction of the road was completed and the same was inaugurated, whereafter toll tax was being collected by the Assessee-Company.

14. As regards Clause (b) of Section 80-IA(4)(i), the requirement predicated is that the Assessee must have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating or developing, maintaining and operating a new infrastructure facility.

15. In the present case, the agreement was initially executed between the erstwhile partnership firm and the State Government, but with clear understanding that as and when the partnership firm was converted into a company, the name of the company in the agreement so executed be recorded recognising the change. Notably, the agreement itself mentions that the erstwhile partnership firm as party to the agreement was meant to include its successors and assignee.

16. Further, the State Government had granted sanction to the company and the original agreement entered into with the firm automatically stood converted in favour of the Assessee-Company, which came into existence being the successor of the erstwhile partnership firm.

17. Thus understood, even the stipulation in Clause (b) of Section 80-IA(4)(i) was fulfilled by the Assessee-Company.

18. Since these were the only two issues which weighed with the assessing officer to deny deduction to the Assessee-Company as claimed under Section 80-IA of the Income Tax Act 1961, the first appellate authority was justified in reversing the view taken by the assessingofficer.

19. For the same reason, the Tribunal, as well as, the High Court had justly affirmed the view taken by the first appellate authority, holding that the Respondent/Assessee-Company qualified for the deduction under Section 80-IA being an enterprise carrying on the stated business pertaining to infrastructure facility and owned by a Company registered in India on the basis of the agreement executed with the State Government to which the Respondent/Assessee-Company had succeeded in law after conversion of the partnership firm into a company.

FOOTNOTE

SECTION 80-IA(4) This section applies to

(i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :—

(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act.

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April 1995:

Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

Explanation.—For the purposes of this clause, "infrastructure facility" means—

(a) a road including toll road, a bridge or a rail system.

(b) a highway project including housing or other activities being an integral part of the highway project.

(c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system.

(d) a port, airport, inland waterway, inland port or navigational channel in the sea.

(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April 1995, but on or before the 31st day of March 2005.

Explanation.—For the purposes of this clause, "domestic satellite" means a satellite owned and operated by an Indian company for providing telecommunication service.

(iii) any undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified79 by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2006 :

Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking :

Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, 2011" had been substituted.

(iv) an undertaking which,—

(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 80[2017];

(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 80[2017]:

Provided that the deduction under this section to an undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution.

(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 80[2017].

Explanation.—For the purposes of this sub-clause, "substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April2004.

(v) an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant, if—

(a) such Indian company is formed before the 30th day of November 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified before the 31st day of December 2005 by the Central Government for the purposes of this clause.

(b) such undertaking begins to generate or transmit or distribute power before the 31st day of March 2011.

(vi) [***]