CIT V CHETAK ENTERPRISES [2020] 115 TAXMANN.COM 108 (SC), (2020) 423 ITR 267 (SC)

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 of road was completed by the 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 under Part IX of the Companies Act, 1956.  An intimation of conversion was given to the Chief Engineer (Roads), P.W.D., Rajasthan, Jaipur. The said authority noted the change and cancelled the registration of the firm and granted a fresh registration code in the name of ­Company.  The assessee­ Company started collecting toll tax and claimed deduction under Section 80­IA of the Act. The AO declined the claim of the deduction.  The CIT(A), ITAT and HC held in favour of Assessee.  On appeal by Revenue, the SC held as follows:

Referring to section 575 of Companies Act, the SC observed 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. The SC held that 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”.

With respect to compliance under Section 80­IA(4)(i)(a), the SC observed that 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. The SC held that such 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.

With respect to compliance under Section 80­IA(4)(i)(b), the SC observed that the requirement predicated is that the assessee must have 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) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility.  The SC further observed that in the present case, the agreement was initially executed between the erstwhile partnership firm and the 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.  The SC held that “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 the original agreement entered into with the firm automatically stood converted in favour of the ­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 80­IA(4)(i) is fulfilled by the Company”.

Thus the Appeal of Revenue was dismissed and claim of deduction under section 80IA(4) was allowed to the successor company.

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