Income-tax Act, 1961 — S. 10A. Hiving off of a unit which was in the form of a branch office into a subsidiary company does not cause conversion of an existing unit into a new unit so as to disentitle the claim of deduction u/s.10A.

The assessee-company had claimed deduction u/s. 10A for both
the assessment years under appeal. The eligible undertaking which was earlier a
branch of a non-resident company/foreign company was hived off as a subsidiary
company. The Assessing Officer held that the new unit stated to be set up by the
assessee was made on reconstructing/splitting up of the existing unit and
pursuant to the provisions of S. 10A(2)(ii), the assessee is not entitled to
deduction u/s.10A. He also held that the plant and machinery in the new unit
have been installed by way of transfer. He denied the claim made by the assessee.

Aggrieved the assessee preferred an appeal to the CIT(A) who
allowed the appeal.

Aggrieved the Revenue preferred an appeal to the Tribunal.

As rightly pointed out by the CIT(A), the asses-see’s
undertaking existed in the same place, form and substance and did carry on the
same business before and after the change in the legal character of the form of
organisation. Formerly, it was a branch establishment of a non-resident
company/foreign company, but later on it was converted into a subsidiary
company. But for the above change of the organisational status, the same unit
continued to function throughout the time. Therefore, it is quite fruitless to
argue that the organisational change has caused conversion of the existing unit
to a new unit. There is no such splitting up or reconstruction of an existing
business in the case of a branch establishment becoming a subsidiary
establishment. The assessee’s unit satisfied all the conditions stipulated in
the Act and was entitled for the benefit. Therefore, as rightly held by the
CIT(A), a mere organisational change is not a ground to hold that the assessee
has violated the conditions stated in S. 10A(2)(ii). It is a case of only change
in the name and style. It is clearly possible to state that there was no
violation of the conditions laid down in S. 10A(2)(iii) as well.

The Tribunal dismissed the appeal filed by the Revenue.