80IC allowable even if undertaking formed with same partners of erstwhile firm & having common employees – HP HC

CIT v Yash International Inc. (ITA No. 4002 of 2013) dated 28.10.13 – HIGH COURT OF HIMACHAL PRADESH


The assessee firm formed a unit under the name and style of M/s Yash International having same partners as in the case of its erstwhile firm M/s Yash Electricals, Baddi. The assessee claimed deduction under section 80IC in respect of undertaking established in HP. The AO denied the deduction to the assessee on the ground that the assessee firm was formed splitting up / reconstruction of erstwhile firm. CIT(A) and ITAT allowed the benefit u/s 80IC to the assessee.

Tax Authority’s arguments:

  • The assessee and the erstwhile firm have same partners. Only the wife was introduced as new partner of erstwhile firm who did not contribute any capital except sharing of profit at the end of the year. 
  • The workers of M/s Yash Electricals were also shifted to the new unit
  • Control and management of the existing and new unit remained the same.
  • The AO has himself observed that the assessee has set up a new unit in a new building and installed a new machinery.
  • Plant and machinery to the tune of Rs. 2,15,631/- was purchased from the erstwhile M/s Yash Electricals, which constitutes merely 1.31% of the total value of the plant and machinery. 
  • The new undertaking made an investment of Rs. 10,20,000/- for the purchase of land and Rs. 1,41,73,219/- for construction of the new building. 
  • The installed capacity of the new undertaking was 13 lac fans. However, the installed capacity of the erstwhile firm was 6 lacs. 
  • The assessee firm had different PAN number, separate registration under the H.P. State Industrial Development Corporation and Department of Industries, Solan, as Small Scale Industry, at different location on a different plot No. 3.
  • The new undertaking has different customers.
  • The new unit cannot be even presumed as reconstruction of the old existing business, much less the formation of the undertaking by splitting up the existing undertaking. The shifting of the employees would not affect the constitution of the new firm to avail the benefit under Section 80IC.
  • Reliance is placed on: 
    • SC ruling in Textile Machinery Corp. Ltd. Vrs. CIT (1977) 107 ITR 195 (SC), 
    • Delhi HC ruling in Gedore Tools India Pvt. Ltd. (1980) 126 ITR 673 (Delhi) and 
    • Patna HC ruling in CIT vs. Ridhkeren Someni (1980) 121 ITR 668 (Pat.)
  • It is thus clear that, in view of the facts stated, it cannot be said that the same persons were carrying on substantially the same business in this case. It is also clear that the business of the assessee could not be said to be reconstruction of a business already in existence.
  • Accordingly, the assessee was entitled to the benefit of Section 80IC of the Income Tax Act. 

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