A company succeeding partnership firm can claim deduction under 80-IA even though original agreement was entered by firm – Supreme court

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Company qualified for the deduction under section 80-IA being an enterprise carrying on the stated business pertaining to infrastructure facility and owned by a Company registered in India on the basis of the agreement executed with the State Government to which the respondent/assessee-Company has succeeded in law after conversion of the partnership firm into a company.

The above judgement was passed by Hon’ble Supreme court in case of Commissioner of Income-tax v. Chetak Enterprises (P.) Ltd. on 05.03.20.

Facts of the case:

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 said 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.

On conversion of the firm into company, an intimation 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 to the Company. As aforesaid, the road was inaugurated on 1-4-2000 and the Company started collecting toll tax. For the relevant assessment year, the Company claimed deduction under section 80 IA of the Income-tax Act.

The claim of assessee was rejected by AO, however the same was reversed by CIT(A) and order was announced in favor of assessee which was upheld by Tribunal and High court.

Assessing officer was of the view that since company had not entered into an agreement with the government hence it is not eligible for the deduction under section 80-IA.

However on going through the information of record it came to the notice that it was mentioned at the time of tender that the partnership firm would be later on converted into a private limited company and hence in the agreement it was mentioned that the agreement is entered with partnership firm it successors and assigns.

The road was constructed on 27.03.2000 and company was formed on 28.03.2000 taking over all assets and liabilities of the partnership firm which also includes this contract and later on as per the agreement between the government and the partnership firm and as mentioned in the letter of Chief engineer name of partnership firm was exchanged with the new company in the agreement and hence agreement between government was entered into between government and company.

The Road was inaugurated on 01.04.2000 and before this everything was done and hence the conditions mentioned in Section 80-IA was fulfilled and hence the contention of AO was rejected and based on the information available on record Supreme court upheld that company was eligible for such deduction.

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