High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.10.2007CORAM:THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANTax Case (Appeal) No.340 of 2004Commissioner of Income-taxCoimbatore. Appellantv.M/s.Silical Metallurgic LimitedCoimbatore.Respondent Tax Case Appeal is filed under Section 260-A of the Income-tax Act,1961 against the order of the Income-tax Appellate Tribunal, 'C' Bench,Chennai made in I.T.A.No.2091(Mds)/95 for the assessment year 1992-93,against the order of the Commissioner of Income Tax (Appeals) Coimbatoredate of Order 25.9.1995 IT. Appeal No. 203-C/95-96 PA.No. CQ-1002.Against the order of the Deputy Commissioner of Income Tax SpecialRange II, Coimbatore PAN/GIR.No. 49-512-CQ-1002 date of order 2.2.1995 forthe Assessment year 1992-93.For Appellant : Mr.T.Ravikumar Standing Counsel for Income-tax.For Respondent : Mr.Venkata Narayanan for Mr.Subbaraya AiyarJUDGMENT(Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.)The revenue has filed appeal against the order of the Income-taxAppellate Tribunal in I.T.A.No.2091(Mds)/95 for the assessment year 1992-93 dated 10.09.2003.2. The relevant assessment year is 1992-93. The facts culminated infiling of the appeal are as follows:The assessment of the assessee company for the relevant assessmentyear was completed under Section 143(3) of the Income-tax Act on https://hcservices.ecourts.gov.in/hcservices/

22.02.1995 on a total income of Rs.19,59,020/-. In the course of theassessment proceedings the Assessing Officer found that the assessee hadclaimed deductions under Sections 80HH and 80I amounting to Rs.7,72,709/-on the ground that the three units at Pondicherry, Avanashi and Hosur werebeing new industrial undertakings eligible for deduction under Section80I. Besides, the Pondicherry unit, being situated in a backward area, waseligible for deduction under Section 80HH. The four units earlier belongedto different companies and were assessed separately. They were amalgamatedwith effect from 01.04.1990 and the business was carried on and continuedby the assessee company, being the amalgamated company. 3. The Assessing Officer was of the view that the assessee companywhich is the amalgamated company did not set up the aforesaid units andthere was no provision in the Income Tax Act for granting the benefit ofdeductions under Sections 80 HH and 80I to the amalgamated company andthus rejected the claim of the assessee. 4. In respect of claim of depreciation, the assessee had added theunabsorbed depreciation of the amalgamating company to the written downvalue and claimed depreciation on the resultant amount. The AssessingOfficer allowed depreciation only on the written down value and not on thevalue enhanced by the amount of unabsorbed depreciation of theamalgamating company. 5. Aggrieved by the order of the Assessing Officer, the assesseefiled an appeal before the Commissioner of Income Tax (Appeals). Inrespect of depreciation, the Commissioner of Income Tax (Appeals) heldthat depreciation could be allowed only on the written down value asappearing in the balance sheet and there was no provision for enhancingthe same by adding unabsorbed depreciation carried forward in the case ofthe amalgamating company. Regarding deductions under Section 80HH and 80I,the Commissioner of Income Tax (Appeals) by referring to the circularissued by the Central Board of Direct Taxes No.F.15/5/63-IT(A-I) dated13.12.1963 wherein it was clarified that the successor would be entitledto the benefit of deduction under the old section 84, in respect of theunexpired period, and observing that though the circular was issued withreference to section 84, the same principle would apply to sections 80HHand 80I and that too with greater force in a case of amalgamation heldthat the amalgamated company would be eligible for the relief claimed inrespect of the amalgamating companies prior to their amalgamation.Holding so, he directed the Assessing Officer to examine whether thoseunits were eligible for deduction in the initial year and if so, to allowthe admissible claim to the assessee for the assessment year under appeal.6. Aggrieved by that portions of the order decided against them bythe Commissioner of Income-tax (Appeals), the assessee as well as therevenue filed appeals before the Income-tax Appellate Tribunal. Regardingdepreciation, the Tribunal held that the unabsorbed depreciation of theamalgamating company should not be deducted in computing the written downvalue of the assets in the hands of the amalgamated company and thusallowed the appeal filed at the instance of the assessee and directed the https://hcservices.ecourts.gov.in/hcservices/ assessing officer to adopt the written down value. In respect of theappeal filed by the revenue questioning the correctness of the deductionsunder Sections 80-HH and 80-I, the Tribunal rejected the appeal filed bythe revenue following the decision of the Bombay High Court in the case ofCOMMISSIONER OF INCOME TAX VS. DANDELI FERRO ALLOYS PRIVATE LIMITED (212ITR 1). The correctness of the said order is now canvassed before thisCourt.7. The appeal was admitted on the following questions of law:1. Whether on the facts and in the circumstances of the case, theIncome Tax Appellate Tribunal was right in holding that theamalgamated Company was entitled to depreciation on the writtendown value of assets as increased by the unabsorbed depreciationcarried forward in the hands of the amalgamating company?2.Whether on the facts and in the circumstances of the case, theIncome Tax Appellate Tribunal was right in holding that theassessee company being the amalgamated company was entitled todeductions under Section 80HH and 80I in respect of the unitsset up by the amalgamating company?8. We heard the argument of the learned counsel on either side withreference to the questions of law framed and taken up for decision on thematerials on record.9. In order to answer the first question of law, it would be properto extract the relevant portion of section 43(6) of the Income Tax Act,1961."43. In sections 28 to 41 and in this section, unless the contextotherwise requires --.....(6) "written down value" means --(a) in the case of assets acquired in the previous year, theactual cost to the assessee;(b) in the case of assets acquired before the previous year,the actual cost to the assessee less all depreciation actuallyallowed to him under this Act, or under the Indian Income Tax Act,1922 (11 of 1922) or any Act repealed by that Act, or under anyexecutive orders issued when the Indian Income Tax Act, 1886 (2 of1986), was in force:..........................Explanation – 2A – Where, in a scheme of amalgamation, any capitalasset is transferred by the amalgamating company to the amalgamatedcompany, and the amalgamated company is an Indian company, thewritten down value of the transferred capital asset to theamalgamated company shall be taken to be the same as it would havebeen if the amalgamating company had continued to hold the capitalasset for the purposes of its business. Explanation 3 – Any allowance in respect of any depreciationcarried forward under sub-section (2) of section 32 shall be deemedto be depreciation 'actually allowed'. " https://hcservices.ecourts.gov.in/hcservices/

10. From the reading of the Explanation 2A extracted above, it ispatently clear that the written down value with the transferred capitalasset to the amalgamated company would be the same as it would have beenif the amalgamating company continues to hold the capital as asset for thepurpose of its business. The statutory provision makes it clear thatthe written down value of the asset would be the actual cost of the assetsof the assessee less depreciation allowed to the company. Any unabsorbeddepreciation which was not set off for carry forward could not be takeninto account. A similar view was taken by the Bombay High Court in thecase of CIT v. Hindustan Petroleum Corporation Ltd. (1991) 187 ITR 1which has been applied by this Court in the CIT v. Kothari IndustrialCorporation Ltd., (2005) 274 ITR 600.11. In the light of the reasoning stated in the above referred todecisions, the question of law has to decided against the revenue and thesame is thus decided against the revenue. 12. A reading of the provision of sections 80HH and 80I of the Act,it is clear that the same has been incorporated to encourage the newindustrial undertaking on fulfilment of certain conditions mentionedtherein. If the conditions mentioned in the sections are complied with bythe assessee, the benefit extended by the provisions has to be granted tothe assessee. The amalgamation of one company with the other companycannot be regarded as a splitting up or reconstruction or by a transfer ofa new business of the plant and machinery of the old business. Withreference to the Companies Act, the amalgamation was also for the benefitof the two companies, i.e., amalgamating and amalgamated company and inthe public interest and also in the interest of the shareholders. Viewedfrom any angle amalgamation cannot be regarded as a splitting up of thecompany for the purpose of negativing the claim under the Income Tax Act,which has been statutorily conferred on the company, if such companiesfulfil the conditions stipulated therein. 13. Hence, we are of the view that the order of the Tribunal grantingthe benefit of Sections 80HH and 80I to the assessee company cannot bestated to be illegal or against the statutory provisions. A similar viewhas been taken by the Bombay High Court in the case of COMMISSIONER OFINCOME TAX VS. DANDELI FERRO ALLOYS PRIVATE LIMITED (212 ITR 1), in whichthe Bombay High Court held that the facts on record clearly establishedthat the amalgamated company was already incorporated and formed and hadcome into existence on March 30, 1973 and had become an industrialundertaking carrying on industrial and commercial activities on and fromJune 20, 1973, i.e., prior to the amalgamation of the amalgamating companywith the amalgamated company, which had become effective from October 31,1973. The amalgamated company was not formed by the splitting up, or thereconstruction, of a business already in existence. Therefore, theTribunal was right in holding that the assessee company was entitled torelief under sections 80J and 80HH of the Act. https://hcservices.ecourts.gov.in/hcservices/

14. We are in agreement with the view taken by the Bombay High Courtin the above stated judgment which has been followed by the Tribunal fornegativing the stand taken by the revenue.15. For the reasons stated above, the second question of law isanswered against the revenue and in favour of the assessee. Therefore,the appeal is dismissed. uskSd/Asst. Registrar/true copy/Sub Asst.RegistrarTo1. The Asst.Registrar, Income-tax Appellate Tribunal iIII Floor, Rajaji Bhavan, Besant Nagar, Chennai-90.2. The Commissioner of Income-tax (Appeals), Coimbatore.3. The Deputy Commissioner of Income tax,Special Range II,Coimbatore.4. The Secretary, Board of Revenue, New Delhi.+ One cc to Mr. N. Murali Kumaran, Senior Standing Counsel for income tax,SR 61778AKR (co)sg 31/10/07T C (A) No.340 of 2004 04.10.2007