Supreme Court of India
COMMISSIONER OF INCOME TAX, UDAIPURversusM/S. CHETAK ENTERPRISES PVT. LTD.
- Citation
- 2020 INSC 279
- Decided
- 5 March 2020
- Disposal
- Dismissed
- Bench
- A M KHANWILKAR
Holding
The company, as the statutory successor of the partnership, satisfies both conditions of Section 80‑IA(4)(i) and is eligible for the deduction.
Summary
The partnership firm Chetak Enterprises entered into an agreement with the Government of Rajasthan to construct a road and collect tolls. The road was completed on 27‑03‑2000 and the firm was converted into a private limited company on 28‑03‑2000 under Part IX of the Companies Act, 1956. The company claimed a deduction under Section 80‑IA(4)(i) of the Income‑Tax Act for AY 2002‑03, which the assessing officer denied but was later allowed by the Commissioner (Appeals), the ITAT and the Rajasthan High Court. The issue before the Supreme Court was whether, after conversion, the company satisfied the two conditions of Section 80‑IA(4)(i): (a) being an enterprise owned by a company carrying on the business of developing, maintaining or operating an infrastructure facility, and (b) having entered into an agreement with the government. Relying on Section 575 of the Companies Act, the Court held that all assets and liabilities of the partnership vested in the company, making the company the successor party to the original agreement. Consequently, the company fulfilled both conditions and was entitled to the deduction. The appeal was dismissed.
Issues considered
- Whether the conversion of a partnership firm into a company under the Companies Act, 1956 results in statutory vesting of assets and liabilities such that the company becomes the successor to the original government agreement.
- Whether the company, as the successor, satisfies clause (a) of Section 80‑IA(4)(i) – being an enterprise owned by a company carrying on the business of developing, maintaining or operating an infrastructure facility.
- Whether the company satisfies clause (b) of Section 80‑IA(4)(i) – having entered into an agreement with the Central/State Government for such infrastructure facility.
Legislation cited
- Companies Act, 1956s. 575
- Income Tax Act, 1961s. 80-IA(4)(i)
Subjects
Section 80‑IAtax deductioninfrastructure facilityconversion of partnership to companystatutory vestingCompanies Act 1956road tollassessment year 2002‑03
Judgment
44 [2020]
SUPREME COURT 4 S.C.R. 44
REPORTS [2020] 4 S.C.R.
A COMMISSIONER OF INCOME TAX, UDAIPUR
v.
M/S. CHETAK ENTERPRISES PVT. LTD.
(Civil Appeal No. 1764 of 2010)
B MARCH 05, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961 – 80-IA – Matter relates to Assessment
Year 2002-2003 (Financial year being 2001-2002 i.e. 01.04.2001
C to 31.3.2002) – An erstwhile partnership firm- M/s. Chetak
Enterprises entered into agreement with Govt. of Rajasthan for
construction of road and collection of road/toll tax– Firm converted
into a private limited company (the respondent/assessee) under 1956
Act – Road was inaugurated and respondent started collecting toll
tax – Claimed deduction u/s.80-IA – Declined by assessing officer
D – Reversed by Commissioner of Income-Tax (Appeals) – Confirmed
by Income Tax Appellate Tribunal (ITAT) – Upheld by High Court –
Held: All properties, movable and immovable (including actionable
claims) belonging to or vested in a company at the date of its
registration would vest in the company as incorporated under the
E Act – Property acquired by a promoter can be claimed by the
company after its incorporation without any need for conveyance
on account of statutory vesting – On such statutory vesting, all the
properties of the firm, in law, vest in the company and the firm is
succeeded by the company – Firm ceases to exist and assumes the
status of a company after its registration as a company – For the
F purpose of considering compliance of clause (a) of s.80-IA(4)(i),
the assessee must be an enterprise carrying on business of (i)
developing (ii) maintaining and operating or (iii) developing,
maintaining and operating any infrastructure facility, which
enterprise is owned by a company registered in India – This is
fulfilled in the present case, as the registered firm was converted
G
into a company u/Part IX of the 1956 Act on 28.3.2000, which is
before the commencement of Assessment Year 2002-2003 – For the
assessment year, the activity undertaken by the assessee is only
maintaining and operating or developing, maintaining and
operating the infrastructure facility, inasmuch as, the construction
H
44
COMMISSIONER OF INCOME TAX, UDAIPUR v. 45
M/S. CHETAK ENTERPRISES PVT. LTD.
of the road was completed on 27.3.2000 and the same was A
inaugurated on 01.04.2000, whereafter toll tax was being collected
by the assessee – Also, the stipulation in clause (b) of s. 80-IA(4)(i)
is fulfilled by the assessee in the present case – ITAT and the High
Court justly affirmed the view taken by the first appellate authority
– Companies Act, 1956 – Part IX – s.575.
B
Dismissing the appeal, the Court
HELD: 1.1 All properties, movable and immovable
(including actionable claims) belonging to or vested in a company
at the date of its registration would vest in the company as
incorporated under the Act. The property acquired by a promoter C
can be claimed by the company after its incorporation without
any need for conveyance on account of statutory vesting. On such
statutory vesting, all the properties of the firm, in law, vest in the
company and the firm is succeeded by the company. The firm
ceases to exist and assumes the status of a company after its
registration as a company. For the purpose of considering D
compliance of clause (a) of Section 80-IA(4)(i), the assessee must
be an enterprise carrying on business of (i) developing, (ii)
maintaining and operating or (iii) developing, maintaining and
operating any infrastructure facility, which enterprise is owned
by a company registered in India. That stipulation is fulfilled in E
the present case, as the registered firm was converted into a
company under Part IX of the Companies Act on 28.3.2000, which
is before the commencement of Assessment Year 2002-2003. For
the assessment year under consideration, the activity undertaken
by the assessee is only maintaining and operating or developing,
maintaining and operating the infrastructure facility, inasmuch as, F
the construction of the road was completed on 27.3.2000 and the
same was inaugurated on 1.4.2000, whereafter toll tax was being
collected by the assessee-Company. [Paras 7, 8][57-H; 58-A-E]
1.2 In the present case, the agreement was initially executed
between the erstwhile partnership firm and the State Government, G
but with clear understanding that as and when the partnership
firm is converted into a company, the name of the company in the
agreement so executed be recorded recognising the change. The
agreement itself mentions that M/s. Chetak Enterprises as party
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46 SUPREME COURT REPORTS [2020] 4 S.C.R.
A to the agreement was meant to include its successors and
assignee. 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 on 28.3.2000 being the
successor of the erstwhile partnership firm. Thus, even the
B
stipulation in clause (b) of Section 80-IA(4)(i) is fulfilled by the
assessee-Company. The ITAT, as well as, the High Court 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
C 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 has succeeded in law after conversion of the
partnership firm into a company. [Para 9][58-F-H; 59-A-C]
D Giridhar G. Yadalam v. Commissioner of Wealth Tax &
Anr. (2015) 17 SCC 664 : [2015] 15 SCR 543 – held
inapplicable.
Chetak Enterprises P. Ltd. v. ACIT (2005) 95 ITD 1
(Jodh.) – referred to.
E Case Law Reference
(2005) 95 ITD 1 (Jodh.) referred to Para 3
[2015] 15 SCR 543 held inapplicable Para 10
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1764
F of 2010.
From the Judgment and Order dated 05.05.2008 of the High Court
of Judicature for Rajasthan, Jodhpur Bench in Income Tax Appeal No.
71 of 2008.
Rupesh Kumar, H. R. Rao and Mrs. Anil Katiyar, Advs. for the
G Appellant.
Mrs. Rani Chhabra and S. Krishnan, Advs. for the Respondent.
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COMMISSIONER OF INCOME TAX, UDAIPUR v. 47
M/S. CHETAK ENTERPRISES PVT. LTD.
The Judgment of the Court was delivered by A
A. M. KHANWILKAR, J.
1. This appeal takes exception to the judgment and order dated
5.5.2008 passed by the High Court of Judicature for Rajasthan at Jodhpur
(for short, “the High Court”) in Income Tax Appeal No. 71 of 2008.
B
2. The matter relates to Assessment Year 2002-2003, the relevant
Previous/Financial year for which is 2001-2002 i.e. 1.4.2001 to 31.3.2002.
3. Briefly stated, the erstwhile partnership firm - M/s. Chetak
Enterprises entered into an agreement with the Government of Rajasthan
for construction of road and collection of road/toll tax. The construction C
of road was completed by the said firm on 27.3.2000 and the same was
inaugurated on 1.4.2000. The firm was converted into a private limited
company on 28.3.2000 named as M/s. Chetak Enterprises (P) Ltd. (for
short, “the assessee-Company”) under Part IX of the Companies Act,
1956 (for short, “the Companies Act”). On conversion of the firm into
company, an intimation was given to the Chief Engineer (Roads), P.W.D., D
Rajasthan, Jaipur. The said authority noted the change and cancelled the
registration of the firm and granted a fresh registration code to the
assessee-Company. As aforesaid, the road was inaugurated on 1.4.2000
and the assessee-Company started collecting toll tax. For the relevant
assessment year, the assessee-Company claimed deduction under Section E
80-IA of the Income Tax Act, 1961 (for short, “the Income Tax Act”).
The assessing officer declined that claim of the assessee-Company, which
decision was reversed by the Commissioner of Income-Tax (Appeals),
Udaipur. The Income Tax Appellate Tribunal (for short, “the ITAT”)
confirmed the decision of the first appellate authority, following its
decision1 in the case of the assessee-Company for the Assessment Year F
2001-2002. As a result, the Department preferred an appeal before the
High Court. The High Court formulated the following question of law: -
“Whether in the facts and in the 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 80-IA?” G
Section 80-IA, as applicable to Assessment Year 2002-03 reads
thus: -
1
Chetak Enterprises P. Ltd. vs. ACIT, (2005) 95 ITD 1 (Jodh.) H
48 SUPREME COURT REPORTS [2020] 4 S.C.R.
A “80-IA (1) Where the gross total income of an assessee includes
any profits and gains derived from any business of an industrial
undertaking or an enterprise referred to in sub-section (4) (such
business being hereinafter referred to as the eligible business),
there shall, in accordance with and subject to the provisions of
this section, be allowed, in computing the total income of the
B
assessee, a deduction from such profits and gains of an amount
equal to hundred per cent of profits and gains derived from such
business for the first five assessment years commencing at any
time during the periods as specified in sub-section (2) and
thereafter, twenty-five per cent of the profits and gains for further
C five assessment years:
Provided that where the assessee is a company, the provisions
of this sub-section shall have effect as if for the words “twenty-
five per cent”, the words “thirty per cent” had been substituted.
(2) The deduction specified in sub-section (1) may, at the option
D of the assessee, be claimed by him for any ten consecutive
assessment years out of fifteen years beginning from the year in
which the undertaking or the enterprise develops and begins to
operate any infrastructure facility or starts providing
telecommunication service or develops an industrial park or
E generates power or commences transmission or distribution of
power:
Provided that where the assessee begins operating and
maintaining any infrastructure facility referred to in clause (b) of
Explanation to clause (i) of sub-section (4), the provisions of this
F sub-section shall have effect as if for the words “fifteen years”,
the words “twenty years” had been substituted.
(2A) Notwithstanding anything contained in sub-section (1) or
sub-section (2), the deduction in computing the total income of an
undertaking providing telecommunication services, specified in
G clause (ii) of sub-section (4), shall be hundred per cent of the
profits and gains of the eligible business for the first five
assessment years commencing at any time during the periods as
specified in sub-section (2) and thereafter, thirty per cent of such
profits and gains for further five assessment years.
H
COMMISSIONER OF INCOME TAX, UDAIPUR v. 49
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
(3) This section applies to an industrial undertaking referred to in A
clause (iv) of sub-section (4) which fulfils all the following
conditions, namely: -
(i) it is not formed by splitting up, or the reconstruction, of a
business already in existence:
Provided that this condition shall not apply in respect of an B
industrial undertaking which is formed as a result of the
re-establishment, re-construction or revival by the assessee
of the business of any such industrial undertaking as is referred
to in section 33B, in the circumstances and within the period
specified in that section; C
(ii) it is not formed by the transfer to a new business of machinery
or plant previously used for any purpose.
Explanation 1.-For the purposes of clause (ii), any machinery
or plant which was used outside India by any person other
than the assessee shall not be regarded as machinery or plant D
previously used for any purpose, if the following conditions
are fulfilled, namely: -
(a) Such machinery or plant was not, at any time previous to
the date of the installation by the assessee, used in India;
E
(b) such machinery or plant is imported into India from any
country outside India; and
(c) no deduction on account of depreciation in respect of
such machinery or plant has been allowed or is allowable
under the provisions of this Act in computing the total
F
income of any person for any period prior to the date of
the installation of machinery or plant by the assessee.
Explanation 2.-Where in the case of an industrial undertaking,
any machinery or plant or any part thereof previously used
for any purpose is transferred to a new business and the total
value of the machinery or plant or part so transferred does G
not exceed twenty per cent of the total value of the machinery
or plant used in the business, then, for the purposes of clause
(ii) of this sub-section, the condition specified therein shall be
deemed to have been complied with.
H
50 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (4) This section applies to-
(i) Any enterprise carrying on the business of (i) developing,
(ii) maintaining and operating or (iii) developing, maintaining
and operating any infrastructure facility which fulfils all
the following conditions, namely: -
B (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, (ii)
C maintaining and operating or (iii) developing, maintaining
and operating a new infrastructure facility subject to
the condition that such infrastructure facility shall be
transferred to the Central Government, State
Government, local authority or such other statutory
D body, as the case may be, within the period stipulated
in the agreement;
(c) it has started or starts operating and maintaining the
infrastructure facility on or after the 1st day of April,
1995:
E 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
F 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
G 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.
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COMMISSIONER OF INCOME TAX, UDAIPUR v. 51
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
Explanation.- For the purposes of this clause, “infrastructure A
facility” means,-
(a) a road, bridge, airport, port, inland waterways and inland ports,
rail system or any other public facility of a similar nature as may
be notified by the Board in this behalf in the Official Gazette;
(b) a highway project including housing or other activities being B
an integral part of the highway project; and
(c) a water supply project, water treatment system, irrigation project
sanitation and sewerage system or solid waste management
system;
C
(ii) any undertaking which has started or starts providing
telecommunication services whether basic or cellular, including
radio paging, domestic satellite service, network of turnking,
broadband network and internet services on or after the 1st day of
April, 1995, but on or before the 31st day of March, 2003;
D
(iii) any undertaking which develops, develops and operates or
maintains and operates an industrial park notified by the Central
Government in accordance with the scheme framed and notified
by the Government for the period beginning on the 1st day of April,
1997 and ending on the 31st day of March, 2006:
E
Provided that in a case where an undertaking develops an
industrial park on or after the 1st day of April, 1999 and transfers
the operation and maintenance of such industrial park 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 F
consecutive assessment years in a manner as if the operation and
maintenance were not so transferred to the transferee undertaking;
(iv) an industrial 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 G
time during the period beginning on the 1st day of April, 1993 and
ending on the 31st day of March, 2003;
(b) starts transmission or distribution by laying a network of new
transmission or distribution lines at any time during the period
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52 SUPREME COURT REPORTS [2020] 4 S.C.R.
A beginning on the 1st day of April, 1999 and ending on the 31st day
of March, 2003:
Provided that the deduction under this section to an industrial
undertaking under sub-clause (b) shall be allowed only in relation
to the profits derived from laying of such network of new lines for
B transmission or distribution.
(5) Notwithstanding anything contained in any other provision of
this Act, the profits and gains of an eligible business to which the
provisions of sub-section (1) apply shall, for the purposes of
determining the quantum of deduction under that sub-section for
C the assessment year immediately succeeding the initial assessment
year or any subsequent assessment year, be computed as if such
eligible business were the only source of income of the assessee
during the previous year relevant to the initial assessment year
and to every subsequent assessment year up to and including the
assessment year for which the determination is to be made.
D
(6) Notwithstanding anything contained in sub-section (4), where
housing or other activities are an integral part of the highway
project and the profits of which are computed on such basis and
manner as may be prescribed, such profit shall not be liable to tax
where the profit has been transferred to a special reserve account
E and the same is actually utilised for the highway project excluding
housing and other activities before the expiry of three years
following the year in which such amount was transferred to the
reserve account; and the amount remaining unutilised shall be
chargeable to tax as income of the year in which such transfer to
F reserve account took place.
(7) Where the assessee is a person other than a company or a
co-operative society, the deduction under the sub-section (1) from
profits and gains derived from an industrial undertaking shall not
be admissible unless the accounts of the industrial undertaking for
G the previous year relevant to the assessment year for which the
deduction is claimed have been audited by an accountant, as
defined in the Explanation below sub-section (2) of section 288,
and the assessee furnishes, along with his return of income, the
report of such audit in the prescribed form duly signed and verified
by such accountant.
H
COMMISSIONER OF INCOME TAX, UDAIPUR v. 53
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
(8) Where any goods held for the purposes of the eligible business A
are transferred to any other business carried on by the assessee,
or where any goods held for the purposes of any other business
carried on by the assessee are transferred to the eligible business
and, in either case, the consideration, if any, for such transfer as
recorded in the accounts of the eligible business does not
B
correspond to the market value of such goods as on the date of
the transfer, then, for the purposes of the deduction under this
section, the profits and gains of such eligible business shall be
computed as if the transfer, in either case, had been made at the
market value of such goods as on that date:
Provided that where, in the opinion of the Assessing Officer, the C
computation of the profits and gains of the eligible business in the
manner hereinbefore specified presents exceptional difficulties,
the Assessing Officer may compute such profits and gains on
such reasonable basis as he may deem fit.
Explanation. -For the purposes of this sub-section, “market value”, D
in relation to any goods, means the price that such goods would
ordinarily fetch on sale in the open market.
(9) Where any amount of profits and gains of an industrial
undertaking or of an enterprise in the case of an assessee is claimed
and allowed under this section for any assessment year, deduction E
to the extent of such profits and gains shall not be allowed
under any other provisions of this Chapter under the heading
“C.-Deductions in respect of certain incomes”, and shall in no
case exceed the profits and gains of such eligible business of
industrial undertaking or enterprise, as the case may be. F
(10) Where it appears to the Assessing Officer that, owing to the
close connection between the assessee carrying on the eligible
business to which this section applies an any other person, or for
any other reason, the course of business between them is so
arranged that the business transacted between them produces to G
the assessee more than the ordinary profits which might be
expected to arise in such eligible business, the Assessing Officer
shall, in computing the profits and gains of such eligible business
for the purposes of the deduction under this section, take the amount
of profits as may be reasonably deemed to have been derived
therefrom. H
54 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (11) The Central Government may, after making such inquiry as it
may think fit, direct, by notification in the Official Gazette, that
the exemption conferred by this section shall not apply to any
class of industrial undertaking or enterprise with effect from such
date as it may specify in the notification.
B (12) Where any undertaking of an Indian company which is entitled
to the deduction under this section is transferred, before the expiry
of the period specified in this section, to another Indian company
in a scheme of amalgamation or demerger-
(a) no deduction shall be admissible under this section to the
C amalgamating or the demerged company for the previous
year in which the amalgamation or the demerger takes
place; and
(b) the provisions of this section shall, as far as may be, apply
to the amalgamated or the resulting company as they would
D have applied to the amalgamating or the demerged company
if the amalgamation or demerger had not taken place.”
The High Court while upholding the view taken by the first appellate
authority and the ITAT, dismissed the appeal and observed thus: -
‘‘…..In the present case, so far as the facts are concerned, it
E is not in dispute, that the work of construction of roads was
completed on 27.3.2000, and on and with effect from 28.3.2000,
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
F previous year is 1.4.2000 to 31.3.2001. 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 Assessing Officer, and the Excise
Commissioner that the assessee Company has not entered into
G 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
H limited by shares under these presents to acquire by
COMMISSIONER OF INCOME TAX, UDAIPUR v. 55
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
operation of Law under Part IX of the Companies Act, A
1956 as going concern and continue the partnership business
now being carried on under the name & style of M/s Chetak
Enterprises including all its assets, movables and
immovables, rights, debts and liabilities in connection
therewith.’’
B
Then, it has also been found by the learned Tribunal, at
page 13 of the judgment, that the erstwhile partnership firm, in its
first communication to the Chief Engineer on 23.10.1998, 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 C
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. 27.8.1999, took note of this letter, and informed, that their offer
was accepted, subject to terms and conditions specified therein. D
It is thereafter, that agreement was entered into between the
Government and the Firm, wherein the said letter of the Chief
Engineer dt. 27.8.1999, 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 E
statutorily vesting of liabilities and assets in the Firm, and the
agreement comprehends successors and assigns, it is clear, that
the assessee fulfils all the conditions. Then the proviso, appended
in this sub-section, has also been considered, which clearly
provides for entitlement of the deduction to the transferee, with F
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 converting into a limited Company under G
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
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56 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 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.
B 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 and the Company is deemed to be a party,
and, therefore also, is very much entitled to the benefit of deduction
on this ground. Over & above all this, the proviso is a complete
answer to the contention of the Revenue, and in favour of the
C 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 28.3.2000, i.e. much before the commencement
D of the relevant financial year, and as such, considering from any
standpoint, the assessee could not be denied benefit of deduction
available to it.”
4. Being aggrieved, the Department filed two separate special
leave petitions before this Court. The present civil appeal emanates from
E SLP(C) No. 6772/2009 and pertains to Assessment Year 2002-2003.
As regards Civil Appeal No. 1748/2010 (arising out of SLP(C) No. 3430/
2009) pertaining to Assessment Year 2001-2002, the same has been
disposed of in terms of order dated 17.10.2019 due to low tax effect
leaving question of law open.
F 5. We have heard Mr. Rupesh Kumar, learned counsel for the
appellant and Mr. S. Krishnan, learned counsel for the respondent.
6. It is not in dispute that an agreement was executed between
the erstwhile partnership firm and the State Government for construction
of road and collection of toll tax. Before the commencement of the
G assessment year in question i.e. 2002-2003, the construction of road
was completed (on 27.3.2000) and it was inaugurated on 1.4.2000. Before
the date of inauguration, the partnership firm was converted into a
company on 28.3.2000 under Part IX of the Companies Act. The
Memorandum of Association of the assessee-Company reveals the main
object as follows: -
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COMMISSIONER OF INCOME TAX, UDAIPUR v. 57
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
“On conversion of the partnership firm into a company limited by A
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
B
therewith.”
As a matter of fact, before the agreement was executed with the
erstwhile partnership firm, it was clearly understood that the partnership
firm would in due course be converted into a registered limited company.
That is evident from the communication addressed to the Chief Engineer
on 23.10.1998, at the time of replying to the notice inviting bids. An C
explicit request was made to allow the partnership firm to change its
constitution and consequently change of name in the agreement after
converting the firm into a company with the existing partners as its
Directors. The Chief Engineer being the appropriate authority of the
State, vide letter dated 27.8.1999, took note of the request made by the D
erstwhile partnership firm and informed the said firm that its offer was
accepted subject to terms and conditions specified in that regard. It is
only after this interaction, an agreement was entered into between the
Government of Rajasthan and the erstwhile partnership firm, in which
the communication sent by the Chief Engineer, dated 27.8.1999, was
made part of the agreement. Notably, after the conversion of the E
partnership firm into a company under Part IX of the Companies Act,
the State authorities noted the change and provided fresh registration
code to the assessee-Company.
7. The question is: what is the effect of conversion of partnership
firm into a company under Part IX of the Companies Act? That can be F
discerned from Section 575 of the Companies Act, which reads thus: -
“575. Vesting of property on registration.- All property,
movable and immovable (including actionable claims), belonging
to or vested in a company at the date of its registration in
pursuance of this Part, shall, on such registration, pass to and vest G
in the company as incorporated under this Act for all the estate
and interest of the company therein.”
It is manifest that all properties, movable and immovable (including
actionable claims) belonging to or vested in a company at the date of its
registration would vest in the company as incorporated under the Act. H
58 SUPREME COURT REPORTS [2020] 4 S.C.R.
A In other words, the property acquired by a promoter can be claimed by
the company after its incorporation without any need for conveyance on
account of statutory vesting. On such statutory vesting, all the properties
of the firm, in law, vest in the company and the firm is succeeded by the
company. The firm ceases to exist and assumes the status of a company
after its registration as a company. A priori, it must follow that the business
B
is carried on by the enterprise owned by a company registered in India
and the agreement entered into between the erstwhile partnership firm
and the State Government, by legal implication, assumes the character
of an agreement between the company registered in India and the State
Government for (i) developing, (ii) maintaining and operating or (iii)
C developing, maintaining and operating a new infrastructure facility.
8. 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 (i) developing, (ii) maintaining and operating or (iii) developing,
maintaining and operating any infrastructure facility, which enterprise is
D owned by a company registered in India. That stipulation is fulfilled in
the present case, as the registered firm was converted into a company
under Part IX of the Companies Act on 28.3.2000, which is before the
commencement of Assessment Year 2002-2003. For the assessment
year under consideration, the activity undertaken by the assessee is only
maintaining and operating or developing, maintaining and operating the
E infrastructure facility, inasmuch as, the construction of the road was
completed on 27.3.2000 and the same was inaugurated on 1.4.2000,
whereafter toll tax was being collected by the assessee-Company.
9. As regards clause (b) of Section 80-IA(4)(i), the requirement
predicated is that the assessee must have entered into an agreement
F with the Central Government or a State Government or a local authority
or any other statutory body for (i) developing, (ii) maintaining and
operating or (iii) developing, maintaining and operating a new
infrastructure facility. As aforesaid, in the present case, the agreement
was initially executed between the erstwhile partnership firm and the
G State Government, but with clear understanding that as and when the
partnership firm is 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 M/s. Chetak Enterprises as
party to the agreement was meant to include its successors and assignee.
Further, the State Government had granted sanction to the company and
H
COMMISSIONER OF INCOME TAX, UDAIPUR v. 59
M/S. CHETAK ENTERPRISES PVT. LTD. [A. M. KHANWILKAR, J.]
the original agreement entered into with the firm automatically stood A
converted in favour of the assessee-Company, which came into existence
on 28.3.2000 being the successor of the erstwhile partnership firm. Thus
understood, even the stipulation in clause (b) of Section 80-IA(4)(i) is
fulfilled by the assessee-Company. Since these are the only two issues
which weighed with the assessing officer to deny deduction to the
B
assessee-Company as claimed under Section 80-IA of the Income Tax
Act, the first appellate authority was justified in reversing the view taken
by the assessing officer. For the same reason, the ITAT, as well as, the
High Court have 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 C
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
has succeeded in law after conversion of the partnership firm into a
company.
D
10. Learned counsel for the appellant has relied on the decision of
this Court in Giridhar G. Yadalam vs. Commissioner of Wealth Tax
& Anr.2. In the said decision, the Court had delineated the contours
regarding permissibility of purposive interpretation of taxing/fiscal
statutes, particularly in the context of an exemption. This decision is of
no avail to doubt the correctness of the view taken by the High Court E
vide the impugned judgment, in the facts of the present case.
11. In view of the above, the appeal stands dismissed with no
order as to costs.
F
Divya Pandey Appeal dismissed.
G
2
(2015) 17 SCC 664 H
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