Brief : Where an undertaking existed in the same place, form and substance and did carry on the same business before and after the change in legal character of the form of organization, the taxpayer is eligible for deduction.
Citation : Income Tax Officer, Bangalore Vs. GXS Technology Center (Pvt) Ltd. (ITA No. 616(Bang)/ 2009)
Court : ITAT Bangalore
· The taxpayer was engaged in the business of design, development and testing of software.
· It acquired an undertaking from GE India Technology Center consisting of fixed assets, employees, customers, liabilities, obligations and others and continued the business of software development through that undertaking registered in a software technology park (STP).
· The taxpayer claimed the profits earned from the above undertaking as deduction under the provisions (See note 1 below) of the Income Tax Act, 1961 (the ITA). However, the Assessing Officer rejected the claim of the taxpayer on the ground that the undertaking did not satisfy the requisite condition for claiming the deduction.
· The Commissioner of Income-tax (Appeals) allowed the claim holding that the undertaking has existed in the same shape and form and carried on the same business before and after change in ownership.
· Aggrieved by the order, the Revenue preferred an appeal before the Tribunal.
Issue before the Tribunal:- The core issue before the Tribunal was whether the taxpayer was entitled to deduction of the profits given that there was change in ownership of the undertaking.
Ruling of the Tribunal
· Where an undertaking existed in the same place, form and substance and did carry on the same business before and after the change in legal character of the form of organization, the taxpayer is eligible for deduction. (See note 2 below).
· The exemption cannot be denied merely because of change in ownership (see Note 3 below).
· Where a firm is converted into a company and there was a change only in the composition of ownership and not the undertaking and business, the exemption could not be denied to the company merely because separate recognition had been granted to it (See Note 4 below).
· Accordingly, the taxpayer was entitled to deduction for the profits earned from the undertaking.
1. Section 10A of the ITA
2. Dy. CIT Vs. L. G. Soft India Pvt. Ltd. (ITA No. 623 & 847/Bang/2010, dated 19 May 2010)
3. Tech Books Electronics Services (P) Ltd Vs. Addl. CIT  100 ITD 125 (Del)
4. CIT Vs. P. K. Engg. & Forging (P) Ltd.  87 Taxman 101 (CAL); Kumaran Systems (P) Ltd. Vs. ACIT  106 TTJ 484 (MAD)