In a recent case before High Court of Punjab and Haryana the deductions claimed under section 80-I of the Income Tax Act were allowed upon the conversion of Proprietorship Concern to Private Limited Company.
The appellant Micromation Pvt. Ltd. filed appeal against Commissioner of Income Tax, Chandigarh and another challenging an order passed by the ITAT in Appeal No. ITA No.2131/Chandigarh/91 for Assessment Year 1990-91 and the orders passed by the ITAT.
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Micromation Pvt. Ltd was formed by conversion of a partnership into a Private Limited Company. All the assets and liabilities of the firm as on March, 1989 were taken over by the appellant company including balance of machinery, which was clear from audited accounts of the Assessment Year 1990-90, which clearly stated there was no revaluation of assets.
As per the Memorandum of Association ( MoA ) of appellant the company was to take over existing business of the Micromation of the partnership concern.
The partnership firm was converted into a Private Limited Company to avail deductions in profit and gains allowed under Article 80-I. The appellant company filed income returns of Rs. 1,88,100 on 31.12.1990, the respondents disallowed the deductions claimed under Section 80 (I) of Income Tax Act.
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Deduction was disallowed on the ground that out of total plant and machinery worth Rs. 2,41,922/- the machinery taken over by Micromation Pvt. Ltd company was of the value Rs. 1,03,163/- and the provisions of Income Tax Act provided that total value of plant and machinery transferred should not exceed 20% of its value for machinery or plant for business.
The appeal filed by the assessee against the order by Assessing Officer was rejected stating that deductions under section 80 (I) cannot be availed by splitting up of already existing business by transfer to new business machinery or previously used plant.
Further the appeals before ITAT and CIT( A) Chandigarh also failed. The issue before the court was that whether the appellant company could be legally denied deduction under Section 80-I for the unexpired period or not.
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The division bench of Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth observed that the assessee is entitled to the benefit of Section 80-I and the consequent benefit of deduction for the unexpired period.
The Appeals were Allowed.
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