Synergies Casting Ltd. v. DCIT (ITA No. 864 & 1364/Hyd/2010)
The Hyderabad Tribunal has held in the above ruling that Exemption under Section 1 0B of the Act is not available to undertaking taken over on lease but the manufacturing activity has to be carried on by the taxpayer itself by using its own plant and machinery. Further, the Tribunal has also relied on the CBDT circular and held that since the taxpayer was not the owner of the undertaking it could not be established as a successor.
Brief about Sec 10B:-
Sub-section 2 to section 10B states that benefits of Section 10B applies to any undertaking which manufactures or produces any articles or things or computer software, is not formed by the splitting up, or the reconstruction, of a business already in existence and is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Facts of the case
- Synergy Dooray Automatic Limited (SDAL) owned an industrial undertaking which was allowed deduction under Section 10B of the Act.
- The taxpayer had taken the eligible unit on lease or license from SDAL for operating and maintaining with facilities of manufacturing. The taxpayer continued to claim relief under section 10Bof the Act for the balance unexpired period.
- The Assessing Officer (AO) contended that the unit was operated by the taxpayer on lease basis and therefore was effectively formed by the transfer of plant and machinery previously used by SDAL. Accordingly, the AO denied the claim of the exemption under Section 10Bof the Act.
Taxpayer™s contentions
- The taxpayer had taken the unit on licence from SDAL only for operating and maintaining the unit with facilities of manufacturing. Therefore, it could not be said that the unit was formed by the transfer to a new business of machinery and plant previously used. It is the same undertaking that continued manufacturing activity.
- Reliance was placed on Central Board of Direct Taxes (CBDT) Circular No.F No. 15/5/63-IT(A1) wherein it was agreed that the benefit of Section 10Bof the Act attaches importance to the undertaking and not to the owner. The successor will be entitled to the benefit if the undertaking is taken over as a running concern.
- The taxpayer is a successor undertaking which has been confirmed by the Ministry of Commerce & Industry, Govt. of India vide its letter dated 30 June 2005. From the letter, it is clearly evident that the taxpayer is entitled to all the benefits which SDAL was entitled to.
- Reliance was place on the Delhi Tribunal decision in the case of ITO v. Techdrive (India) P. Ltd. [2008] 25 SOT 153 (Del) wherein it was held that in order to claim deduction under Section 10Bof the Act the taxpayer need not own any plant and machinery.
- Under Section 10Bof the Act, no express provision is included to the effect that the taxpayer claiming deduction should own the plant and machinery and should itself manufacture or produce the articles or thing.
- The restrictive condition relating to ˜formation™ is not triggered in the instant case since there is no new undertaking that has come into existence and the word ˜formed™ is relevant only in the context where a new undertaking comes into existence.
- The restrictive conditions of Section 10B(2) of the Act in terms split up and reconstruction would apply only in a case where there exists one unit which is old and another unit which is new. In the present case, there is neither split up nor reconstruction as the same old undertaking continued manufacturing activity without any change.
- The repealed Section 1 0B (9A) of the Act clearly provided that the undertaking need not be owned/managed or controlled by the same taxpayer throughout the tax holiday period.
Tribunal™s ruling
- Relying on CBDT circular, the Tribunal held that in order to get the benefit of Section 1 0B of the Act, for the unexpired period, the taxpayer must prove that it is a successor to the predecessor who was enjoying the benefit of Section 10B of the Act.
- In the case under consideration, the taxpayer is only a lessee having a right to enjoy the plant and machinery. Owning the plant and machinery and taking plant and machinery on lease is different. Accordingly, the taxpayer is not a successor to the lessor.
- Approvals and permissions given by Devlopment Commissioner on restructuring package are all in the context of Bonding, De-bonding of the unit, Central Excise, Custom duty formalities, etc and has nothing to do with the exemption under Section 1 0B of the Act.
- In the case of Techdrive India Pvt. Limited which was relied upon by the taxpayer, the company was in the business of export of software and had its own computers and laptops.
- The arrangements entered by the taxpayer was in the nature of a device adopted by it to avoid the application of the provisions of Section 1 0B (2) of the Act and relevant applicable explanations.
- Under Section 1 0B of the Act, it is necessary that the manufacturing activity has to be carried on by the taxpayer itself by using his own plant and machinery. Accordingly, since the taxpayer had taken the undertaking on lease, it could not claim exemption under Section 10B of the Act.
