Section 10B – Export oriented undertaking – 10B(9)/(9A)) – Assessee firm was engaged in production and export of iron ore – It claimed deduction u/s. 10B – Assessing officer rejected assessee’s claim on ground that assessee’s sister concern got merged with assessee – assessee’s sister concern was also an EOU – Impugned order rejecting assessee’s claim was to be set aside

35. 
CIT vs. Trident Minerals; [2018] 100 taxmann.com 161 (Karn): Date of order: 10^th October, 2018 A Y. 2009-10

Section 10B – Export oriented undertaking –
10B(9)/(9A)) – Assessee firm was engaged in production and export of iron ore –
It claimed deduction u/s. 10B – Assessing officer rejected assessee’s claim on
ground that assessee’s sister concern got merged with assessee – assessee’s
sister concern was also an EOU – Impugned order rejecting assessee’s claim was
to be set aside

The assessee-firm
was engaged in business of production, manufacture and export of iron ore. On
02/05/2008 the assessee’s sister concern namely KMMI Exports merged with
assessee. On 22/09/2009, return of income was filed u/s. 139(1) of the Act and
deduction u/s. 10B was claimed in respect of export income. The Assessing
Officer held that deduction u/s. 10B was not allowable on the ground that two
partnership firms had been merged and that assets of KMMI Exports had been
taken over by assessee.

The Commissioner
(Appeals) allowed the claim of the assessee.

The Tribunal upheld
the decision of the Commissioner (Appeals).

On appeal by the
Revenue, the Karnataka High Court upheld the decision of the Tribunal and held
as under:

“i)    The Commissioner (Appeals) recorded a
finding that the Circular of the Board issued u/s. 84 was not withdrawn and was
still in force. It is the Rule and also the practice of the Board to withdraw
the Circular once it is not relevant. Therefore, the Circular No. 15/5/63-IT(A1),
dated 13/12/1962 is in force and relevant in the present context, when the
clauses u/s. 80J and 10B are similar. It was also recorded by the appellate
authority that the observation made by the Assessing Officer, as per section
10B(7), only Indian company is eligible for amalgamation is not appropriate.

ii)    As mentioned by the assessee in the written
submission that ‘the sub-sections (9) and (9A) which were omitted with effect
from 01/04/2004 clearly suggests that the transfer by any means will not entitle
the deduction under this section only up to 31/03/2003. In other words, the
transfer by any means is allowed with effect from 01/04/2004 by implication,
moreover, the firms merged are family concerns with same partners, with the
same sharing ratio and doing the same business and two firms are having 100 per
cent EOU recognised by the SEZ Authorities. Hence, the Commissioner held that
the claim of the assessee was justifiable and the same was allowed.

iii)    On appeal filed by the revenue, Tribunal
recorded a finding that the unit of the assessee firm is a 100 per cent EOU
unit entitled for deduction u/s. 10B of the Act. It is also seen that Assessing
Officer has not disputed the EOU status of the unit KMMI Exports also. The
issue for consideration is after the merger of the firm KMMI exports with the
assessee-firm, whether the assessee-firm is entitled for deduction u/s. 10B of
the Act. Earlier, there was sub-section (9) to section 10B, which specifically
provided that the deduction cannot be allowed, if there was a transfer of
ownership or beneficial interest in the undertaking. The sub-section (9A) of
section 10B was omitted with effect from 01/04/2004. In this view of the
matter, the inevitable and appropriate conclusion is that the limitations
specified in sub-sections (9) and (9A) of section 10B Act do not exist from
01/04/2004 and, therefore, the conclusion of the Assessing Officer that
deduction u/s. 10B cannot be granted on the merger of firms is not correct.

iv)   The Tribunal after considering a finding that
in view of the CBDT Circular No. 1 of 2013, dated 17/01/2013, it is clear that
deduction is granted to the undertaking. Therefore, it follows as long as the
undertakings remain eligible for deduction u/s. 10B, the deduction cannot be
denied merely on the ground that there has been a merger of the firms which own
the undertakings. The Assessing Officer has not rendered any finding that
either on the units, belonging to the assessee and the other belonging to the
firm that got merged, i.e., KMMI Exports, is not eligible for deduction u/s.
10B of the Act. The only reason adduced is that due to the merger of the two
units, the assessee is deploying assets already put to use by the merged firm
and hence the assessee cannot claim deduction u/s. 10B of the Act.

v)    The Tribunal further recorded a finding that
both the units/undertakings of the assessee-firm and KMMI Exports are otherwise
eligible for deduction u/s. 10B and the deduction is towards undertaking as
long as undertakings are agreeable that section 10B which is not been disputed
by the Assessing Officer merger of the firm and KMMI Exports which is not
undertaking. In view of the above, the Tribunal upheld the order passed by the
Appellate Court allowing the deduction u/s. 10B.

vii)   It is undisputed fact that the claim made by
the assessee for deduction u/s. 10B for the assessment year 2009-10 after the
merger of two firms with effect from 26/12/2011. It is also undisputed that in
view of the deletion of the provision of sub-section (9) of section 10B from
the statute with effect from 01/04/2004 the impugned order passed by the
Tribunal allowing the assessee’s claim for deduction u/s. 10B was to be
upheld.”