Commissioner of Income Tax vs Chetak Enterprises (P) Ltd.

This is an appeal by the Revenue, against the judgment of the learned Tribunal, dt. 31st Jan., 2005 [reported as Chetak Enterprises (P) Ltd. v. Asstt CIT (2005) 92 TTJ 61 J-Ed.J, partly allowing the appeal of the assessee.

The appeal was admitted on 13th Dec, 2005, by framing the following substantial question of law :

Whether in the facts and circumstances of the case, the assessee company was right in finding that the assessee fulfilled the condition of Sub-section (4)(i)(b) of Section 80IA?

We have heard learned counsel for either sides, and have gone through the orders of the authorities below. Before proceeding further, we may gainfully quote the relevant provisions of Section 80IA(4)(i)(a), (b), (c) and proviso, which reads as under:

(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;

(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 April, 1995 :

Provided that where an infrastructure facility is transferred on or after the 1st April, 1999 by an enterprise which developed such infrastructure facility (hereinafter 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."

The matter relates to asst. yr. 2001-02, the relevant previous year for which, being financial year 2000-01 i.e. 1st April, 2000 to 31st March, 2001. The assessee is a private limited company, and claims 100 per cent deduction as provided u/s 80IA(4) of the Act. The learned AO found, that the work was granted to a partnership firm M/s Chetak Enterprises, and the mere fact, that the firm got itself registered as company, it cannot be said, that it fulfills the requirements of Section 80IA(4)(i)(a) and (b), inasmuch as no agreement was made by the company with the Government of Rajasthan for collection of toll tax w.e.f. 1st April, 2000, in supersession of original agreement dated 1st Dec, 1999, signed between the Government of Rajasthan and the firm Chetak Enterprises. The firm does not fulfill the requirements of Section 80IA(4)(i)(a) and (b), and is not entitled to claim deduction. In appeal, the learned CIT(A) maintained the order. However, in further appeal, the learned Tribunal set aside the two orders, and found the assessee to be entitled to deduction.

We have gone through the findings, and the provisions, and have also heard learned counsel for the parties.

In our view, a look at the provisions of the section, as quoted above, does show, that it applies to every enterprise, carrying on any specified business, obviously the things should be in the praesenti, i.e. for the relevant assessment year, and the conditions are, that it is owned by a company registered in India, or by a consortium of such companies, then it should have entered into an agreement with the Government, or a local authority, or any other statutory body, for any specified work, and should have started work after 1st April, 1995. In the present case, so far as the facts are concerned, it is not in dispute, that the work of construction of roads was completed on 27th March, 2000, and on and w.e.f. 28th March, 2000, the partnership firm was converted into a company, by being registered under Part IX of the Companies Act, and became a private limited company. As noticed above, the relevant previous year is 1st April, 2000 to 31st March, 2001. Thus, right from the commencement of the relevant financial year, it cannot be disputed, that it was a company, and was undertaking the specified business. Then, so far as the question, as has been gone into by the AO, and the Excise Commr. that the assessee company has not entered into any agreement with the Government, is concerned, in that regard, the learned Tribunal has found, that the main objects of the memorandum of association of the assessee company indicates, that it was mentioned as under :

On conversion of the partnership firm into a company limited by shares under these presents to acquire by operation of law under Part IX of the Companies Act, 1956 as going concern and continue the partnership business now being carried on under the name and style of M/s Chetak Enterprises including all its assets, movables and immovables, rights, debts and liabilities in connection therewith.

Then, it has also been found by the learned Tribunal, at p. 13 of the judgment, that the erstwhile partnership firm, in its first communication to the Chief Engineer on 23rd Oct., 1998, while replying to the notice inviting bids, made it categorically clear, that "the firm will be converted into a limited company under Chapter IX of the Companies Act. As such, you are requested to allow us change in constitution and accordingly change of name in agreement, after converting firm into company with the existing partners as its directors", and the Chief Engineer vide letter dt. 27th Aug., 1999, took note of this letter, and informed, that their offer was accepted, subject to terms and conditions, specified therein. It is thereafter, that agreement was entered into between the Government and the firm, wherein the said letter of the Chief Engineer dt. 27th Aug., 1999, was considered as part of the agreement. With this, the agreement also mentions the firm, "to mean and include its successors and assigns". Thus it has been found, that since incorporation of the firm into a company, has the effect of statutorily vesting of liabilities and assets in the firm, and the agreement comprehends successors and assigns, it is clear, that the assessee fulfills all the conditions. Then the proviso, appended in this subsection, has also been considered, which clearly provides for entitlement of the deduction to the transferee, with effect from the date of transfer, therefore also, it was found that the deduction is available.

In our view, when right from the day one, i.e. while replying to the notice inviting tenders itself, it was made clear by the firm, that the firm will be converted into a limited company under Part IX of the Companies Act, and the Chief Engineer was requested to allow the change in the constitution, and accordingly change of name in the agreement, after converting the firm into the company, with the existing partners as its directors, and this request was accepted, and that acceptance letter formed part of the agreement, in our view, the firm stands in the shoes of promoter, and the company takes over all assets and liabilities statutorily. In other words, by operation of law, there is statutory transformation of the firm into the company, obviously the rights and liabilities of the company, and the assets, go to the company. It is a different story that even from the agreement entered into by the promoter (predecessor in the interest of the company), as successor of the firm the company is deemed to be a party, and, therefore also, is very much entitled to the benefit of deduction on this ground. Over and above all this, the proviso is a complete answer to the contention of the Revenue, and in favour of the assessee, which rather clearly provides, that even in case of transfer, the transferee will become entitled to deduction of course with effect from the date of transfer.

In the present case, the transfer was statutory, and did come into effect since 28th March, 2000, i.e. much before the commencement of the relevant financial year, and as such, considering from any standpoint, the assessee could not be denied benefit of deduction available to it.

As a result of the aforesaid discussion, the question, as framed, is answered in favour of the assessee, and against the Revenue. The appeal thus has no force, and is dismissed.